Facebook plans to test a new payments product that would allow online shoppers to make purchases on mobile apps using their Facebook login information, according to sources familiar with the company’s plans.
The product, sources said, would allow any shopper who has previously provided Facebook with their credit card details to make purchases on partnering e-commerce mobile apps without entering billing information.
Facebook confirmed the test, which is expected to launch in the next month or so, to AllThingsD.
Thrillist-owned JackThreads, a flash-sale shopping site for young men, is the pilot partner. The company has a strong relationship with Facebook, sees a good chunk of revenue come through mobile phone purchases and may also have a decent demographic overlap with one particular segment of Facebook users — gamers — who would have provided the social network with credit card information. It will be interesting to see if Fab, another close partner of Facebook’s that does well on mobile devices, will follow suit.
The new product, if launched widely beyond its current small testing phase, would undoubtedly pit Facebook against digital payments giant PayPal on mobile devices. It would also compete with offerings from Google, Amazon and a host of startups such as Braintree, Stripe and Klarna, all up-and-coming outfits that are working, in one way or another, to make it easier to make purchases on mobile phones. All of these companies, including Facebook, recognize that it can be challenging to easily enter your payment details on small devices.
If eventually expanded to more partners, the product would also potentially give Facebook keen insight into the shopping habits and preferences of the company’s users, a lucrative set of data for the world’s largest social network to gather.
At the same time, Facebook’s test is, for now, focused solely on creating a better mobile checkout experience, rather than getting involved in payment processing. That setup allows partnering commerce companies to still work with payment processors of their choice. Yet, part of the pitch to merchants from companies like PayPal is the simplification of the checkout experience, which Facebook is now going after.
Sucharita Mulpuru, a retail analyst at Forrester Research, after AllThingsD apprised her of Facebook’s plans.
“It sounds like a dead-on competitor of PayPal.”
A PayPal spokesperson said in a statement.
“We have a great relationship with Facebook and expect that to continue. Our customers love using PayPal on Facebook. We’ve been investing in mobile payments since 2006, and last year 10 percent of our total payment volume — $14 billion — was from mobile devices. However, we always welcome competition and are looking forward to seeing what Facebook will announce.”
Update 12:15 pm ET: Facebook sent the following statement to AllThingsD after publication on Thursday:
“We continue to have a great relationship with PayPal, and this product is simply to test how we can help our app partners provide a simpler commerce experience. This test does not involve moving the payment processing away from an app’s current provider.”
The checkout product could also potentially provide Facebook and its advertisers with valuable insight into what type of products its users are buying off of Facebook.
What is unclear, however, is just how many credit cards Facebook actually has on file.
The social giant has also used its Gifts product to bolster the company’s cache of credit card numbers. Launched nearly a year ago, Facebook Gifts allows users to send one another real physical goods via the Facebook platform. In order to purchase items, users need to enter their credit card or PayPal info, which Facebook then stores in perpetuity.
The same goes for the millions of gamers who spend money buying in-game virtual goods while playing on top of the Facebook platform.
While Facebook users can use PayPal to make purchases on the social network, they will need to give Facebook actual credit card information to make purchases using their Facebook login off of Facebook.
Forrester’s Mulpuru said she’d be surprised if the social network has more than 10 million credit card numbers on file in the U.S.
“Nobody trusts social networks with their financial information, and they are certainly not going to trust Facebook. Maybe they have a few million people that have bought something on things like FarmVille, but that does not a network make.”
It would make more sense, Mulpuru said, for Facebook to allocate resources toward creating a platform for Facebook-centric small businesses that now mainly conduct business through inefficient mediums such as email.
“PayPal is well-suited because they have more than 100 million accounts with real people who have trusted them with their information. To be a latecomer to the game in something as complex as payments, they would be better off buying Square.”
As it stands, Facebook’s revenue from payments and other fees totaled $214 million in the second quarter, a mere fraction of the company’s billion-dollar ad business.
This isn’t the first time Facebook has tried to position itself inside the e-commerce arena. The company launched its Credits initiative in mid-2009, essentially an attempt to create another form of virtual currency for users to purchase items via the Facebook platform. But the experiment was scrapped in the summer of last year, chalked up to overcomplicating what should be a friction-free, painless process.
COMMENTARY: It does not surprise me that Facebook intends to enter the digital payments space in a big way. But, this is not going to be an easy because it will be competing against the likes of eBay (owner or PayPal) and Google. Facebook is one of the least trusted websites when it comes to shoppers' credit card data, according to a new survey by CreditDonkey.com.
When asked if they trusted Facebook ads enough to use their credit card for an online transaction, over 61% said they were "very unlikely" and a further 20.8% said they were "somewhat unlikely".
Only 6.9% of respondents said they were likely to trust ads on Facebook enough to use their credit card with advertisers on the social media site. In comparison, 21.5% trusted ads on Google enough to use their credit card.
Security Breaches Hinder Confidence in Facebook
Several high-profile breaches of Facebook's platform have lingered in shoppers' minds, according to Charles Tran of CreditDonkey.com. "Facebook still needs to prove itself with customer data. With all of the worries about user privacy around Facebook, it's no surprise users hesitate to share credit card data with the site or its advertisers," Tran said.
These security breaches have not always involved sophisticated hacking attacks of Facebook's servers. In March, spies were able to friend a number of colleagues of NATO Supreme Allied Commander James Stavridis. While the spies' origin was never uncovered, the UK's Telegraph reported that evidence pointed to "state-sponsored individuals in China."
Since that and other high-profile scamming incidents, Facebook has initiated a phone number verification system, which the site hopes will boost users' confidence in the site's safety.
Social Media Openness a Challenge to Shopping?
CreditDonkey.com survey of online shoppers suggests that such efforts have yet to make an impact. When asked which company do they trust more with their credit card information, Facebook scored dead last--less than 1% of respondents chose the social media site over more established sites like Google, PayPal, and Amazon.
The open nature of platforms like Facebook, which encourage users to make friends and share information in an open network that can be seen by anyone might be incompatible with the thought of using a credit card online, according to CreditDonkey's Tran. "Facebook is a site where you share information with your friends and family. It's not easy to go from that to a site where you share your credit card with retailers," Tran said.
The Digital Wallet Behemoth a.k.a. PayPal
It's been a while since I profiled PayPal in my blog. It's the sort of company that you can take for granted because they are so big and have been so successful. When I reviewed their financial results for Q1 and Q2 2013 and full year ending December 31, 2013, I was more than just impressed. I was blown away. Judge for yourself.
If Facebook is planning on taking on PayPal, my answer to this is, "Be careful what you wish for, you might get it -- in the butt." In short, nobody has been able to challenge PayPal in the online payment service space, and this includes Google. Here are a few scary facts.
According to new data from comScore, only 51% of US consumers are aware of digital wallet providers other than PayPal, even as electronic payment providers, mobile phone carriers, banks, and retailers themselves line up for a piece of the emerging digital wallet market,
Moreover, only 12% of consumers surveyed say they've used a digital wallet service other than PayPal.
In short, PayPal is a lovemark -- a term used to describe a brand that is so well known, and so fully entrenched in the consumer's mind, that PayPal is the very first company that they think about when they are in need of an online payments (digital wallet) service. Having said this, Facebook, even with its 1.15 billion users, will have its work cutout for itself competing against PayPal.
Digital wallets store a virtual copy of the contents of a consumer's physical wallet to facilitate online or offline retail transactions. By automatically entering an enrolled customer's credit card number and billing/shipping addresses, digital wallets tend to simply the online shopping experience and decrease shopping cart abandonment.
When consumers use a digital wallet via mobile device, the transaction can be as simple as holding up a smartphone to a digital reader at a merchant's cash register.
Below, additional findings from comScore's new report titled "Digital Wallet Road Map 2013," which offers data, insights, and strategies for overcoming barriers on awareness, understanding of benefits, availability, and security concerns.
Among digital wallet services, PayPal boasts the highest awareness and adoption among US consumers: 72% say they're aware of the service, and 48% have used PayPal.
Even so, the digital wallet market opportunity could eventually reach one out of two consumers as audiences become more aware of the offerings and educated on their benefits, the study found.
Security a Concern
Security is a top consumer concern; however a large portion of consumers are not aware of security features inherent in digital wallet use.
For example, though 93% of consumers would prefer to use a digital wallet that has to be unlocked before use, an average of just 57% across the brands studied realized—after having reviewed the digital wallet website—that a locking feature was available.
Even so, various digital wallet providers are more successful than others in communicating the availability of this feature, with 71% awareness among Lemon website visitors, compared with 42% among LevelUp website visitors.
The ability to improve communications of features addressing consumer concerns, such as security, could remove an important hurdle to adoption, comScore notes.