Can Facebook Credits replace PayPal one day, why or why not?

David O Sacks

David O Sacks, a travaillé chez PayPal

Répondu il y a 436w

I don't think so. Here's why:

PayPal is the low-cost provider in the industry. The main reason is that roughly half of its payments are funded from a PayPal balance or bank account instead of a credit card, virtually eliminating funding costs for those transactions. Funding costs (because of credit card interchange fees) are by far the biggest portion of the expense of processing a payment.

This funding mix was extremely difficult to achieve. It required us to drive a huge percentage of users to (1) add and verify their bank account so it could be used as a funding source, and (2) keep money in their PayPal account so it could be recycled within the system. A bank account was only verified by transferring to it two small payments (less than $1) that together constituted a 4-digit PIN. Waiting for the PIN took several days so this was a multi-step/multi-day process. It still amazes me that so many users completed it; however, we systematically created benefits for becoming "PayPal Verified".

PayPal also incentivized balances through money-market interest rates and a PayPal debit card that made the PayPal account liquid at any ATM. Finally, anyone could receive payments through PayPal, which meant that ordinary buyers could accumulate a balance; although P2P payments seem easy, they are actually extremely risky and require special fraud detection systems. All of these features would be extremely difficult for Facebook to replicate; even if they did, it's not clear users would have the same incentive to verify their accounts.

As a result, Facebook will have higher funding costs than PayPal, which will prevent it from challenging PayPal on the basis of price. For many companies, like social gaming sites and apps on Facebook's platform, this won't matter. They will gladly pay more for the additional conversion that Facebook payments will generate. This is because their margin on each incremental transaction is 100%. On the other hand, price-sensitive e-commerce sites with thin margins will want to use the cheapest payment provider. If your margin is only 10%, for example, then saving a couple of points on payment processing increases your profits by 20%.

Here's how I see the market breaking down: Facebook will charge a premium fee for delivering additional convenience, distribution, and conversion to merchants. This will win over the virtual goods market. But merchants with thin margins (e.g. sellers of physical goods) will prefer to stick with the low-cost leader for the majority of their payments.

Eric M Jackson

Eric M Jackson, a travaillé chez PayPal

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Répondu il y a 436w · Voté par

Lee Hower, J’étais un ancien employé de PayPal, d’abord un chef de produit et plus tard, travaillant avec des banques et des réseaux de paiement…

It seems unlikely that Facebook Credits will replace PayPal. Even if you have a massive existing network of users, creating a payment network is not as simple as just stacking payment functionality on top of your current product. I perceive multiple high-level obstacles:

1) The back-end of a payment network is very difficult to build. At PayPal we encountered massive complexity and costs in trying to address the fraud risk, funding source mix, and customer support challenges that came along with scaling the service. Peter Thiel often used the analogy of PayPal as a machine with many pulleys, dials, and levers that had to be optimized simultaneously while the machine was running.

2) Web companies that don't focus exclusively on payments have a poor track record "dabbling" in this area. Many good companies have tried to build payment networks and failed, including Google (Checkout), eBay (Billpoint), and Yahoo (PayDirect). And despite the elegance of One Click, Amazon has never been able to get traction with payments off its own site.

3) Non-fiat currencies aren’t an easy sell to consumers. Flooz and Beenz, a pair of early PayPal competitors, failed miserably. The few examples of non-fiat currencies that surface from time to time (usually in online games) have no evidence of being scalable.

4) It's hard to see how a payments network can scale without being compatible with physical transactions. The utility of a payments platform is immensely greater if the network encompasses not just social/virtual transactions, but also some chunk of the $30 trillion in annual consumer payments worldwide. As of late-2009, PayPal already moved approx. $2200 USD per second through its servers. What value proposition is Facebook going to have that will enable it to catch up?

Given these obstacles, I'd say it's more likely that Facebook Credits become a sort of iTunes for virtual good than a replacement for PayPal.

Brian Gupton

Brian Gupton, Product guy at

Répondu il y a 432w · L'auteur dispose de réponses 119 et de vues de réponses 113.8k

All of these answers are focused on the technical challenges of implementing the system. This is to be expected since the people answering were dealing with those challenges. But users really don't care about any of that. The vast majority of consumers care about convenience. If it is more convenient for users to use Credits than PayPal, users will use Credits. If it isn't, they won't.

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So what Facebook really needs to concentrate on is getting users used to purchasing Credits. Games are a logical place to start since users are already pulling out their cards to make purchases. Facebook needs to capitalize on this by making Credits the easiest way to make those purchases. They also need to concentrate on creating more reasons for users to need/want credits.

Part of making Credits the most convenient payment method undoubtedly involves solving some of these technical challenges, but users will unconsciously trade security for convenience. Facebook can certainly displace PayPal if it is willing to devote the resources to giving users a reason to want to use Credits.

Lee Hower

Lee Hower, J’étais un ancien employé de PayPal, d’abord un chef de produit et plus tard, j'ai travaillé avec des banques et des réseaux de ...

Répondu il y a 436w · L'auteur dispose de réponses 52 et de vues de réponses 179.3k

Yes. Facebook has the majority of the things it needs to build an online payment system, which could one day compete with or supplant PayPal. The things it doesn't have, FB has the resources and a decent chance of developing.

1) Access to Legacy Payments Infrastructure (credit card, ACH, various others in different countries, etc) - this is not hard to do and any large company like FB can get this

2) Access to Merchants - FB already has several 8-9 figure payment volume merchants in the social games companies, and prob has plenty of smaller merchants that would aggregate to large volume

3) Access to Consumers - 500M+ consumers or whatever FB is up to now

4) Ability to Control Fraud - FB has undoubtedly be working on this internally, but prob will have to continue to develop over time. Fraud control ultimately comes down to a group of really smart algorithm guys (FB has or can hire), access to large volumes of transaction data (FB will have over time because of #2 + #3), and a willingness to experiment with business rules and policy (FB has demonstrated this willingness in privacy obviously).

5) API for Easy Integration On and Off Facebook - I haven't studied Credits API personally, but assuming it's as straightforward as FB Connect or the original Platform I'd guess that this won't be an issue. Plus Connect already touches a huge number of users on small and large sites off Facebook.

Of these five things, #2, 3, and 4 are by far the hardest. PayPal succeeded at #2 & 3 by spending tens of millions on referral marketing and by drafting on the growth of eBay marketplace. We solved #4 with the three mechanisms I described above.

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If Facebook is willing to devote significant human and financial resources to Credits, there's no reason to believe they can't be successful and someday compete with or supplant PayPal at least off eBay. I'm not necessarily making that prediction or saying it could happen soon, but Facebook can likely overcome all the barriers to accomplishing it.

Chris McCoy

Chris McCoy, started the topic on Quora, believer graphs are the online sales and marketing engine (via notifications) o...

Répondu il y a 416w · L'auteur dispose de réponses 118 et de vues de réponses 168.3k

I don't think so either.

Facebook clearly owns the "social graph" with 500MM+ registered users. How many of them will adopt Facebook Credits is yet to be seen. There isn't even an API yet.

On the other hand PayPal is the clear owner of the "commerce graph". With over 80 Million registered accounts and a new set of APIs designed for one-click in-app and website micropayments, they have a huge start.

Source 1:

Source 2:

Simit Patel

Simit Patel, Data Scientist

Répondu il y a 403w

facebook credits can, but they won't. some other virtual currency probably will. here's why:

1. fb credits is not focused specifically on currency/payment issues. a specialist is needed.
2. the virtual currency that offers greater purchasing power AND convenience wins.
3. having the right legal strategy is essential.

someone is going to come along and do this properly, because there is a real need and the market is huge. but i doubt it will be facebook credits. fb credits may play an important role in warming people up to this idea.

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