
Seriously? Ads? - Ryan_Shmotkin
http://blog.dinkevich.com/seriously-ads/
======
JumpCrisscross
> _Fraud. Paypal and others use complex algorithms, special teams and God
> knows what. But Facebook has an unique and unparalleled data base of a
> user’s history, friends, activities and what not._

The author seems to confuse credit risk and fraud risk. Credit risk pertains
to the probability of you being unable or unwilling to honour your
commitments. Fraud, within this context, pertains to the unauthorised use of
funds. Facebook's data may be a uniquely valuable to evaluating the former,
but to fighting the latter it is less important than existing transaction
history databases.

Financial fraud is an _immensely_ complicated problem. An estimate quoted in
_The Economist_ recently put the fraud loss rate at approximately 0.35% of
transactions and up to 1.8% for online payments [1]. Cross-border payments are
a niche unto themselves - even with margins as high as 10%, the fraud risk
still poses a high enough barrier to entry that even the banks handle just
5-10% of remittances [2].

It's 11AM and so far Visa and American Express already have 1-3 data points of
swipe activity on me. Over the day they'll get 5-10 swipes apiece (+1 NYC).
Facebook has a tremendous amount of value in its dataset, but think for a
moment about how much Visa, Mastercard, American Express, _or_ your primary
bank know about where you live, what you spend on (and by virtue when and
where you spend it), and, by aggregating that data, who you tend to spend
with. That is what's valuable for anti-fraud and by proxy payments processing.

[1] <http://www.economist.com/node/21554743>

[2] <http://www.economist.com/node/21554740>

~~~
startupfounder
"The Economist recently put the fraud loss rate at approximately 0.35% of
transactions and up to 1.8% for online payments"

For the ~$2 trillion[1] going through online payments, bringing down the
online fraud loss by every 0.1% is equal to $2B, if over time Facebook can
reduce that online fraud rate by 0.5% or more there is your $10B.

Using your real identity to make online payments could reduce that to real
world levels.

If this is the case then reducing the fraud rate from 1.8% to 0.35% in online
payments (a reduction of 1.45%) would calculate to a savings of $29B for this
industry.

Thus, if Facebook is able to be a major part of that reduction by using real
identities then they will get much of this transaction business. If they are
able to pull this off there is no stopping them...

Feel free to rip me apart, but there is some validity to may arguments :)

[1] <http://www.edgardunn.com/uploads/100012_english/100385.pdf>

~~~
planetguy
_Using your real identity to make online payments could reduce that to real
world levels_

How many of your friends have had their facebook accounts stolen? For me, it's
a few percent. _"Oh look, another random acquaintance is stuck in Abu Dhabi
and needs me to wire them some money"_

Facebook security isn't nearly good enough to be handed my wallet. Actually
it's not _my_ wallet that's the problem, it's the wallet of everybody who uses
"password" as a password.

~~~
jamesaguilar
> Facebook security isn't nearly good enough . . .

Pretty sure most cases where people's accounts get hacked have nothing to do
with the security of the website, except inasmuch as the site fails to provide
an authenticator. Most "hacking" involves getting a computer virus or entering
your password into a site that is not actually Facebook.

~~~
JoachimSchipper
This is true. On the other hand, online banking security _starts_ from "the
client computer is compromised", and a new service that says "you're fully
liable if your machine is hacked" will have... problems getting traction.

~~~
startupfounder
"online banking security starts from 'the client computer is compromised'"

Facebook currently (or did) reset the password by having you identify the
names of your friends using their pictures. I could see this as a way to
authenticate a transaction.

~~~
danudey
Really? None of your friends have pictures of cats or their babies or grainy
shots of them and four other friends as their profile pictures? Because
sometimes it feels like half of mine do.

------
crag
I've been on FB since the beginning. And I've never clicked on an ad. What
makes you think I will to actually buy something?

I barely trust Paypal, you think I'm gonna trust FB with my CC details. You
gotta be kidding.

There are a few steps FB must do before I'll trust them with anything other
than bs about what games I'm playing now:

1\. Convince me they take my security and privacy seriously. 2\. Convince me
they aren't selling my personal data (statistical or not) without my
permission. 3\. Allow me to export (backup) ALL my data to my drive easily.
4\. All me to cancel my account (not that I would). And by cancel I mean
remove all my data. No questions, no sales pitches to stay - just delete
everything in my profile (and off their, FB, drives). FB says they do this,
But there are plenty dead folk with active profiles. Despite families begging
FB to delete them.

Until all this happens, FB gets nothing from me except an occasional post
about my Skyrim adventures. Oh and commenting on the latest high school gossip
(the latter being funny. I mean, there's a reason I left town 25 years ago and
hardly kept in touch. But here we all are, FB friends.)

~~~
batista
> _I've been on FB since the beginning. And I've never clicked on an ad. What
> makes you think I will to actually buy something?_

FB has several billions of revenue from ads.

What makes you think you are not an insignificant outlier and that this move
or any other doesn't concern you?

Just think people, if everybody did what I do on FB, would FB still exist? If
the answer is no, then what you might or might not do, doesn't matter with
regards to FB.

~~~
tatsuke95
Despite the fact that FB makes money off of ads, do you think people would
prefer to have ads on Facebook, or to not have ads?

I think the answer is obvious: people prefer no ads. "Advertisement" is a
dirty word. People want a free, ad-less product, despite the fact that it's
economically unfeasible.

That's a problem. What happens when it becomes more widespread or easier to
install things like adblock? What happens if a browser comes along that blocks
Facebook cookies and ads by default, but still allows the basic functionality
of FB? Don't say it can't happen. We're just getting to the point in society
where having everything about us on someone's server is "normal". Wait until
there's a disaster of some sort, a major security breach, and see how fast
people change their habits. It can happen overnight.

~~~
batista
> _I think the answer is obvious: people prefer no ads. "Advertisement" is a
> dirty word. People want a free, ad-less product, despite the fact that it's
> economically unfeasible._

Well, the answer might be obvious but might not mean much. For example a
similar question would be "people prefer to pay for things, or get them for
free?". I think the answer would be obvious here too.

> _That's a problem. What happens when it becomes more widespread or easier to
> install things like adblock? What happens if a browser comes along that
> blocks Facebook cookies and ads by default, but still allows the basic
> functionality of FB? Don't say it can't happen._

Then the Ad industry will turn RIAA on the users, and will lobby the
government for the disallowance of things like AdBlock ("our content is a
package deal, you cannot see it, and thus benefit from it, without also seeing
our ads").

And it might be successful too, because they will have the support of ALL
other industries -- as ads are a crucial element of over-consumption on which
they thrive. By leaving it to our "needs" and "wants" only, consumption would
drop very low (IIRC, they have studied the effects of a prolonged (a week?)
mass media strike during the seventies, and that was the result. That was
short term though, long-term should be even worse).

------
msy
Why not, it worked out so well for Google with their deep search history,
world-beating teams of big data specialists, deep pockets and massive
Gmail/Gapps userbase... [http://www.bloomberg.com/news/2012-03-21/google-said-
to-reth...](http://www.bloomberg.com/news/2012-03-21/google-said-to-rethink-
wallet-strategy-amid-slow-adoption.html)

~~~
mtts
Google Wallet is actually fairly useless. To load it up you need a credit
card. If you have a credit card, you could just as well, uhm, use a credit
card.

~~~
jurre
I think your parent was being sarcastic. We need a sarcasm tag in HTML.

~~~
mtts
I was aware of that. But parent did raise an interesting point. Google Wallet
isn't doing too great. Why?

~~~
iamgilesbowkett
the sheer number of possible answers is overwhelming, but pretty much
everything Google does fails, except for search and email. (I can't be the
only one who's afraid to find out what their cars are like.) so I'm going to
say the reason Google Wallet failed is because it was neither search nor
email.

I guess you could say Android is only half a failure, because the constant
catch-up game they're playing with Apple isn't going as badly as the constant
catch-up game Google Plus (and Wave, and whatever they called the other one)
plays with Facebook.

but seriously, business failure can happen for so many reasons, it doesn't
really mean anything at all, unless of course you see a string of people
failing at the same thing.

~~~
chrisrhoden
Woah. Google Wallet failed because they didn't already have accounts for
everyone when they launched it. Paypal was the only competitor but they didn't
offer anything paypal didn't already offer, and everyone was already on
paypal.

> pretty much everything Google does fails, except for search and email.

I can see that you're having some difficulty with google recently, but you
can't actually believe this. What about Maps? Saying that maps is search
because it has search built in means we can call GMail search too. What about
Calendar?

> I guess you could say Android is only half a failure, because the constant
> catch-up game they're playing with Apple

This is where the snark starts to bother me. Let's acknowledge that Apple made
a phone with a big glass touchscreen before Google. What, since then, has been
a great innovation that Android has rushed to rip off?

------
jiggy2011
Are online payments such a big unsolved problem? It takes me all of 10 seconds
to type my CC number and associated security codes. Sites that I use a lot
tend to allow subsequent purchases without re-entering them anyway.

If everyone's facebook account has CC details attached and a 1 click "pay now"
button you are only 1 XSS vulnerability from fraud on an unprecedented scale.

~~~
SonicSoul
Credit cards suck for many reasons other than just convenience of use. Credit
card companies are big cartels with hefty fees to retailers, slow and
unpredictable turnaround between when a payment is made, and when it gets to
retailers bank, and infrastructure that's not well suited for micro payments,
or peer to peer payments.

<http://www.wired.com/magazine/2010/02/ff_futureofmoney/all/1>

~~~
run4yourlives
>Credit card companies are big cartels with hefty fees to retailers, slow and
unpredictable turnaround between when a payment is made, and when it gets to
retailers bank, and infrastructure that's not well suited for micro payments,
or peer to peer payments.

The consumer doesn't give two flying fucks about any of this. This is a very
important point.

~~~
mattmanser
I think you're wrong.

Ever had to buy stuff you didn't want to meet a minimum spend on cards? Cause
over here many shops have a minimum of £5. And this is why.

Oh yes, the consumer cares, they just blame the shop owner instead of the
cartels.

~~~
freehunter
At least in the US, every major credit card has rules against minimum
transactions. Reporting a minimum transaction requirement will cause the CC
company to investigate the retailer and possibly punish them.

Many small businesses still do it, of course. What keeps people from reporting
them is a mixture of not knowing the regulations and wanting the small
business to stay afloat. But regardless, minimum payments actually _are_ put
in place by the business.

~~~
smiler
Please see [http://blog.visa.com/2010/09/02/minimizing-confusion-over-
mi...](http://blog.visa.com/2010/09/02/minimizing-confusion-over-minimums/)

Minimums are now allowed on CC

~~~
freehunter
Interesting. I'll admit it's been some time since I checked the regulations.
Thanks for the update.

------
TomGullen
This thread is interesting in that some people are arguing they wouldn't trust
Facebook with their cc. To me this makes no sense as the likelihood of fb
doing anything funky with your cc details once obtained seems highly unlikely.

If something does go wrong cc have very good insurance on them. The problem
does seem to be a general resentment and paranoia of large companies. I dont
think fb are going to cook up a half baked solution for anything like this,
there's every likelihood they will do it as securely as the next especially
with the strict laws and regulations around implementing such systems.

Everyone with a cc has probably used it in far less secure environments than
fb could ever be, for example pubs, bars, resteraunts, independent shops etc.

If fb did a payment system it would annoy me briefly as another payment system
I'd inevitably have to register with at some point but that's realistically as
far as the problems would go.

~~~
prof_hobart
It's not about FB deliberately doing something funky with it - it's about one
of the million and one apps that have requested access to your FB account at
some point doing something funky with it. You may trust them to do it as
securely as the next person, but at least partly based on their past
reputation around privacy, I don't.

~~~
TomGullen
Do you think facebooks payment implementation would be naive enough to allow
anything like this?

~~~
prof_hobart
I don't see a great deal of evidence that they wouldn't.

------
InclinedPlane
Just plain silly. People who see a big user base and jump to the conclusion of
"payments!" as a future business don't have the slightest clue what they're
talking about. Facebook isn't competent at tackling that problem, they don't
have the expertise, experience, or relationships.

It makes about as much sense as looking at facebook with their billion users
and saying "You know what all these people have in common? They eat food!" And
concluding that facebook should become a grocery store.

Payments is a non-trivial business to enter. Paypal has a nearly 15 year
headstart, 100 million active accounts and does a tremendous amount of
business in a great many countries, yet it is still only a $4 billion a year
company.

~~~
stickfigure
Facebook's potential advantage in this space is not that they have a billion
users, it's that they arbitrate the _identity_ of those users. And payment is
inexorably linked with identity, especially WRT avoiding fraud.

Certainly it is a difficult market to enter, but a few billion dollars can buy
you a lot of expertise, relationships, and time to build experience.

The reason Facebook should go into transactions is the same reason Willie
Sutton robbed banks: "because that's where the money is".

~~~
InclinedPlane
The problem is that it isn't where the money is, not much more money than
Facebook is already making anyway. Not unless facebook intends to commit
theft. The money today is in selling digital goods which have a near zero
transactional cost. Music, movies, games, books, etc. Not that it makes sense
for facebook to get into that business either, necessarily.

~~~
stickfigure
I don't have the statistics in my hands, but I'm willing to bet that the
transaction volume of nondigital goods is at least two orders of magnitude
larger than the transaction volume of digital goods. A 1% cut of _tens of
trillions_ of dollars worldwide is worth quite a lot more than 30% of a few
billions.

Granted, a worldwide payment scheme is a Very Hard Problem To Solve for many
nontechnical reasons... but this is exactly the kind of problem that large,
ambitious companies with lots of street cred should try to attack. If it was
easy, everyone would be doing it.

~~~
InclinedPlane
Real world examples don't bear those numbers out. Look at Visa. 2 billion
cardholders, $4 trillion in transactions a year, 80 billion transactions a
year. And their revenue is only about twice Facebook's. Unless facebook
becomes a merchant bank and convinces millions of merchants to use them they
aren't going to see much higher of a per transaction profit margin. The math
just doesn't add up.

~~~
stickfigure
If the business proposition was simply "make another Visa" then sure, the
proposition would be uninteresting.

On the other hand, 2-3% of that $4 trillion is being consumed by the payment
processing chain. Only a portion of it goes to Visa; the rest presumably go to
banks and other layers of the service. Facebook potentially could, by virtue
of being a trusted holder of identity worldwide, subsume all layers of this
chain.

Look at it from this perspective: It currently "costs" 2-3% of a transaction
to make a CC purchase. That's a huge dead weight loss. Is Facebook capable of
using its brand, reach, and identity database to create a more efficient
system?

~~~
InclinedPlane
2-3% isn't a dead weight loss, it's paying for very valuable things,
especially fraud protection. You can't just magic it away.

Also, as I said, if facebook wants to step into the payments middle man role
(which they could) they could maybe make as much as Visa does. If they
completely reinvented themselves and turned into a global merchant bank AND
managed to convince at least a tenth of all merchant account holders on Earth
to switch to them THEN they could make some serious money. But the likelihood
of that is precisely zero plus or minus a teeny, tiny margin of error.

In answer to your last question: no, no they are not.

~~~
stickfigure
Fraud is a massive problem in the existing payment system only because the
architecture is horribly broken. The trust model is completely wrong. Nobody
would design this system; we tolerate it only because of inertia, and because
merchants are contractually required to hide these fees from customers.
There's also an enormous regulatory burden to overcome. I'm not saying there
still isn't a fraud issue, but it could be cut to a tenth just by changing the
trust model.

My point is that Facebook is in a position to try building a new system, and
the payoff is potentially enormous. Having a definition of _identity_ that
extends beyond a name and a cc# goes a long ways towards limiting fraud.

However, I tend to agree with you as far as Facebook's technical competence.
This doesn't mean they shouldn't try.

As far as the chicken-and-egg problem goes, FB might do well to bootstrap a
payments system in lesser-developed nations where Visa & Mastercard don't have
such a lock on the market. A truly global payments system stands a good chance
of eventually winning.

------
JackFr
It's a possible but hardly compelling:

Facebook: ~ 1 billion customers

Visa: ~2 billion cards out there.

Facebook: ? merchants.

Visa: > 10 million merchants.

Facebook: potentially disruptive to the existing market

Visa: 50+ years experience with electronics payments processing, fraud
detection, government relations and consumer credit marketing

Facebooks main competitive advantage is(was?) relatively cheap capital.

<http://corporate.visa.com/_media/visa-fact-sheet.pdf>

Edit: Corrected years, added reference

~~~
waterlesscloud
Who works for Visa that Facebook couldn't hire?

------
digitalsushi
It would be very convenient for someone, somewhere, to establish a widely
accepted micropayment system for the Internet.

I sure can just whip out the CC, type in the 16 things, the special code, the
expiration date, maybe a second screen the CC vendor presents to get my
address or phone number for additional verification...

But I would never bother for a 3 or 5 cent article. And I firmly believe
that's why there is no way to pay 3 or 5 cents for a view of something.

But there is a lot of cool stuff we could make or do with this. It should just
be easy. Why doesn't it exist? There might be a big business answer that my
fellows and myself don't get as we rant over coffee.

~~~
snowwrestler
Micropayments haven't taken off because people don't want to pay 3 to 5 cents
for anything. The perception of value is so low that even a one-button form is
too much friction in the user experience.

If your article is only worth 3 cents, just show it to me for free and put an
ad on the page.

~~~
digitalsushi
If the transaction processing costs were 0, do you suppose this payment system
would still continue to not exist?

~~~
Splines
There are very few things that are worth 5 cents that you'd get me to pay for
that I couldn't just do without.

~~~
drivebyacct2
That wasn't the question; what percentage of the economy is from purchases
that fall into the category of "I could do without"?

The question is, the NYTimes article linked on HN with 120 comments... would
you pay 5cents to read it?

~~~
snowwrestler
The decision to buy can definitely be irrational, but that can cut both ways.
Buyers might decide against purchasing even when the product is clearly
affordable.

Consider the Facebook social reader apps like the Washington Post. If you
click through from your Facebook news feed, you need to authorize the app to
read the article. It's a one-button form, it's totally free, and you could
revoke the app whenever you want. And yet, a huge percentage of people cancel
out of it.

Would I pay 5 cents to read a NYTimes article from Hacker News? Maybe yes,
maybe no, depends on the article. The point is that I would be forced into my
"purchase mindset" every time.

------
viraptor
I really don't want that to happen. Sure, it may be a good idea for them, but
I'm already tired of services that won't let me register without a Facebook
account. When it comes to payment, they better have a good alternative
available.

With credit cards we have a number of "hidden alternatives". We've got
multiple processors, multiple card companies, etc. It's a number of layers
there. With Facebook and Paypal... you're not able to pay when they say you're
not able to pay (or be paid). They're not even controlled banks, so there's
little you can do about some issues.

Think about all the problems when Google cut someone off and didn't provide
any way of contacting them. Do you have a good way to contact Paypal, or
Facebook now? (besides forms that result in canned responses) What are the
incentives for changing it?

~~~
rhnoble
I definitely don't want it to happen either. But from Facebook's standpoint
it's not a bad space to start looking at. The reasons you listed above worry
me as a consumer, but unfortunately the average user isn't as scrupulous. If
FB made paying for things as easy and simple as "liking" something, I'd be
very surprised if it wasn't successful.

------
eli
Right, because the main obstacle to international online payments is having a
strong brand.

------
pg
I'm surprised this got so many upvotes. Does the author really believe that
Facebook hasn't thought about this? Or that the ways they make money now are
the the only ways they ever will?

~~~
dabent
I wonder if votes are an expression of interest in the (payments) product.

That aside, I not only assumed Facebook had thought of the idea of payments,
they might even be working on it. It seems like an extension of the "Like"
button they already have on so many sites.

Certainly Facebook is certainly thinking about new ways to make money, but
they did disclose that ads are a risk factor in their S-1, with special
concern for increased mobile device use, where they don't currently display
ads.

------
TimJRobinson
100% spot on, Facebook could see massive profits if it pulls off any or all of
the following:

\- Upon logging in Facebook lets me know my favourite band is playing in a few
weeks, tickets are $25 and I can purchase with one click.

\- A new episode of Dexter comes out, Facebook knows I love dexter and thus
notifies me and allows me to watch instantly in my browser for just $1.

\- A games company (steam, humblebundle, blizzard, whoever) is running a sale
on games similar to ones I've already liked on Facebook, I can view and
purchase the bundle through Facebook.

All of this is taken care of in one click by my credit card being linked up to
Facebook, just like iTunes. They can basically combine the best bits of iTunes
+ Amazon + All the data they have on everyone on Facebook and build the
ultimate relevant shopping directory completely personalized to me.

Sure there are sites that already cater for this but it's about the
convenience and instant gratification. 50% of their users log into Facebook
daily and won't even bother checking out other sites for these things if
they're already right there in front of them available with one click.

They don't even have to do it themselves initially, just hook into Amazon /
Ticketmaster / iTunes data and this shouldn't take too long to develop.

This is where the future is and if Facebook does this there's no reason they
can't be the most profitable web company in the world.

~~~
tomp
I reckon most people would quickly turn off this feature after it would
produce more than a few bad predictions/recommendations in a row.

~~~
mahyarm
People wont be able to turn it off unless they install adblock.

------
timharding
I think that "be a payment provider" is a much easier thing to think than it
is to do.

While it may be easy to build the customer side of the equation you've got to
build a vast network of merchants willing to accept payment and that's hard
work. Especially if you're trying to convince them to re-price in Facebook
Credits?

Sure, you could charge 1% but people have added credits to their Facebook
account at some point and it probably cost you more than 1% to allow them to
do that. How do people buy credits right now? All those cost Facebook more
than 1%, right? I buy $100 of credits, it costs F8 a couple of bucks, I then
spend $100 of credits and they recoup $1 of it in merchant fees? Doesn't sound
like a good business model.

Beyond the need to create a financial model that makes sense and then go out
to find merchants and convince them there's a massive risk of merchant fraud.

Fraudulent merchant X signs up for a F8 Merchant Account. Fraudulent customers
A, B, C buy something with stolen credit cards for $100 each. Everyone
disappears after merchant X receives settlement. F8 is out of pocket to the
tune of the original $300, another $300 in reversals to their bank and then
$30-$60 of chargeback fees. If that happens enough then F8 might even have its
merchant account revoked... though they're probably big enough to avoid that.

It's an excellent money laundering channel too and there's a lot of financial
regulation to navigate around that.

I know that this stuff can be overcome but it is hard to do and would be a
major piece of work. This type of thing nearly sank PayPal back in the day.

Perhaps I'm missing the point here though?

~~~
kunaalarya
Well there's interesting ways to do that with Facebook though. A la you can't
start selling large amounts of goods unless you have x number of likes on your
page. Same thing, on the user side. You can only buy $10 worth of credits if
you have a new account, accounts can be flagged, etc. I agree it's a pain in
the ass to do, and much easier said than done. But it's definitely doable and
hugely profitable. They can easily take more than $1 in merchant fees, and
credit card companies will beg them for their business and give them great
rates. Shoot, they can do a Visa or Mastercard exclusive and get even better
rates at the beginning.

------
tomeric
The second biggest social network in The Netherlands (Hyves) introduced
something like this in 2010. They mainly intended it to be used to pay back
(small) debts to friends or relatives, but also made partnerships that enabled
you to order food online or order drinks at a bar.

As far as I know, it did not really lift off, but this could be because
Facebook overtook Hyves as the most popular social network shortly afterwards.

------
girlvinyl
Facebook has demonstrated a completely utter disdain for interacting with
their users. If something goes wrong with your "friend wall" or whatever, it's
an inconvenience. If something goes wrong with your money, you want to talk to
a human. Everyone knows you can't reach fb humans. When it's money, that
matters. The work involved in turning that perception around is a huge hurdle
to this idea.

~~~
shmerl
The whole approach of Facebook at its core is a disdain for the users, because
Facebook profits from users' profiles. They can argue that users are willing
to trade off their privacy for the "free" service, but it's just a sneaky way
to get users information to monetize on. Given that, why do you think they
should have more respect in other kind of interactions?

~~~
girlvinyl
There are lots of reasons they /should/ have more respect. But my whole point
was that I don't think they ever /will/. Putting a high touch endeavor like
financial dealings on top of a no touch venture like a social network is dumb.
Basically, looks like you and I agree.

~~~
shmerl
Yes, we agree. Really Facebook is not fitting to be a social network, but at
the same time it has such a huge number of users at the moment. Hopefully real
social networks like Diaspora which are built for social interactions and not
for ripping users off on their privacy, will eventually gain more traction.

~~~
girlvinyl
You inspired me to write a little blog post. <http://www.sherrod.im/81/just-
give-them-their-money/>

~~~
shmerl
Commented there.

------
rmATinnovafy
Aside from the points the author makes, this would also improve Facebook's
advertising model a lot. They would have purchasing information from basically
every segment/product/niche/market out there.

You put an ad on Facebook. People click on it an buy with FB-pay. You then get
a ton of marketing data to better aim your ads. Tine of purchase, day, credit
card type, marital status (confirmed versus Fb status), income information,
billing address, etc.

All in one convenient place. How much would businesses pay for that? A lot.
Evidence? Call your local mailing list broker and ask for a quote.

Of course, this will set off what I call "the privacy wars". Where the
government will step in after some single mother of three is scammed and the
story is picked up by some mommy-blogger who then sells the story to the
huffington post, who then sells the article to CNN, who then puts it on TV.
Then FOX makes a deal out of it, republicans notice, and make some lobbyist-
impregnated bill that includes the "single-mommy law for online privacy".

But, we've had this coming for a while.

------
mseebach
This makes very good sense to me: CC payments are expensive (up to several
percent), merchant accounts are difficult to come by, accepting international
cards is annoying.

This is partly because of the fraud risk, partly because of VISA and
MasterCard's duopoly. Facebook is pretty well situated to deal with both IMO.

And it's not just online payments: The current state-of-the-art in mobile-
phone POS payments ("It's _exactly_ like a credit-card! Except it's in your
phone!") seems like a dead-end to me. Facebook is in a unique position to move
into this area.

------
ew
These articles make me wonder why everyone with a blog thinks they know better
than the massive teams of engineers running these companies...

Do you really think Facebook doesn't have reams of data and analysis on this
exact idea? I bet they've been analyzing the crap out of it for years and for
whatever very good reason they have they haven't done it yet.

Now, I predict the company who will make a trillion on payments is Apple.
They're set up quite nicely to tell the credit card companies to take a hike.

------
TazeTSchnitzel
Dammit, then I'd have to reactivate my Facebook account.

And then Facebook would know everything I buy.

~~~
darkstalker
What if I refuse to use facebook, would be unable to pay?

~~~
jiggy2011
It's in a companies interest to make sure that there is a way to give them
money, they are unlikely to want to throw away good customers just because
they don't have a FB account.

What I would expect to see however is discounts offered if you use FB payments
and allow your purchases to be automatically shared with your friends.

~~~
truncate

        allow your purchases to be automatically shared with your friends.
    

This is one of the creepiest feature one can get. I already hate these social
readers which automatically share what you read (I've stop reading stuff on FB
because of that, even if many of them are of my interest). However I'm hoping
they would provide some reasonable privacy options with that.

~~~
jiggy2011
I don't imagine it would become compulsory. After all people need an avenue to
buy their porno and health related products in privacy.

You would get something like "10% off for you and 5% off for all of your
friends, if you allow us to repost on your wall"

The problem of course becomes spam, if FB ever gets to such a poor
signal/noise ratio then people will simply stop using it.

------
DanLivesHere
Too late, I think.

Facebook has scared off a lot of the "moms" out there by their bad bad bad
privacy history. Do you really want to pay for things using their service?

~~~
roc
While I tend to agree, they could throw in an RSA fob or a smartphone-based
two-factor equivalent.

They probably should already.

~~~
Splines
I like two-factor authentication too, but casual users don't care about this
sort of thing until it's too late.

~~~
roc
There's a large and growing number of casual users who've dealt with or
watched a friend or family member deal with fraudulent charges.

I think a sufficiently streamlined phone app and pitch could net quite a few.
Say, demonstrating the feature by showing someone making an Amazon purchase
and then getting a phone notification to approve the charge and approving with
a simple PIN entry.[1]

[1] Said notification ideally showing merchant, amount, scan location,
warnings if it's a card not present transaction, etc.

------
roguecoder
It's worked well for Walmart (well, okay, aside from the whole "bribing people
in Mexico" thing.) But people seem willing, and even eager, to bank with
companies they know and trust.

The real problem is regulation. It is so, _so_ much easier to sell ads than to
navigate the international financial markets.

------
perlgeek
> People will think twice about losing their ‘Facebook Credit Score’ over a
> few $ for an online presence they spent (literally) years building and
> cultivating.

Which keeps them from using that hypothetical service, because they don't want
to risk losing the account over a transaction that went wrong.

Or maybe not. Who knows?

------
zdw
Seriously? Linking your checking account with Facebook?

It would definitely be the next step in user lock-in, but you'd start
competing with banks and everyone else who offers a way to pay.

Now, I wouldn't complain if they bought some "bypass the credit card
companies" service like Dwolla...

~~~
tatsuke95
> _"bypass the credit card companies"_

I have both an American Express and a Visa (because Amex just isn't accepted
some places). The customer service has been nothing but amazing, even when
dealing fraudulent charges. And the cards are accepted everywhere.

What I'm saying is, I don't feel any need whatsoever to bypass my credit card
company to pass my information off to a start up.

------
Akram
With 1/6th of the world population Facebook can very well release it own
currency.

------
ratbr
I think FB does not have to be a PayPal, and there are many good reasons
outlined in these comments already why that is a bad idea.

However, it can become some kind of market place. It already knows user
locality, it already has people flocking to it. It already has big brand
stores sharing discounts and coupons to consumers.

All it needs to do is finish the last mile and allow those brands to actually
have a "Facebook-only Sale", for example.

Also, it can become a great "local market place", and can help local
businesses to sell to local customers.

TLDR: not just ads, and not necessarily a payment gateway, but a niche market
place could be it.

------
ruswick
I wouldn't trust or use something like this.

1) I don't trust Facebook to transact payments quickly or safely.

2) I don't want Facebook to take my money. I'm guessing Facebook would
capitalize on this by exacting a higher rate than other options. Because they
can. I want the max amount of money to go to the creators of a product, not to
Facebook.

3) As it says, Facebook already knows everything about people. Should they
really have access to our credit cards as well?

------
ecaradec
I fully agree. For a lot of people facebook is their identity, linking their
identity to paiement is a logical step.

They could first allow people to exchange any amount of money with friends for
free, add it to their mobile app so that everyone has it anytime. Other apps
are doing that, and that's very useful.

And they should buy Stripe, bind everything together, displace amex, visa and
mastercard.

Or may be that's the plan, but it's best to be silent ?

~~~
bezaorj
I always thought this would be Apple's next plan as well. "Pay with your
Itunes account" or something like that.

~~~
ecaradec
That doesn't seems very Apple like move, they don't like to mess with ugly
systems and integrate their products with anyone.

They have a good place to do that, but I doubt that they'll go that way.

But Steve isn't there, and Apple moves might be unexpected.

------
pajju
Its not possible to solve for everyone, the whole of web-communities !

Nerds and Geeks never trust facebook, but their moms and sisters do !

------
Yrlec
I heard through some friends that Swedish start-up Klarna is actually using
your Facebook profile to evaluate probability that you are a real person. If
you pay online using an e-mail address that has lots of friends on Facebook
then the overall risk of the transaction is considered lower.

------
pistoriusp
I agree with most of this article, except, if I was Facebook I would bill via
the mobile networks.

Not really viable on the desktop, but certainly on phones.

There's no reason that I can think of why I can't be identified by my own
mobile network and either charged at the end of the month or via my airtime.

------
FiloSottile
Well, it would be GREAT also on mobile! All my friends have Facebook, if I
could pay them with my phone and only their name I would do it all the time.
(Like what PayPal tries to do, but there is not enough adoption)

------
elorant
Why not buying RIM and make a serious move into the smartphone market. Last
time I checked RIM's market capitalization is a bit over $5bn and Facebook has
tons of money in their pockets after the IPO.

------
onlyup
I commented on another submission that was similar to this.
<http://news.ycombinator.com/item?id=4040519>

------
sharmanaetor
You know you don't actually have to click an ad for FB to make money?
Companies pay money just to get that ad in front so many eye balls!

------
bookwormAT
There is no way facebook has a billion active users. Official numbers are
always very optimistic.

For example, a lot of brands and agencies register many,many pages on
facebook, and even post content there. And Britney Spears is not really on
Facebook, she just has someone have post stuff for her.

I'm sure Facebook is huge. But if they say a billion, it is probably closer to
500m.

------
shmerl
> To fight the money game you need extremely deep pockets.

Not really. You just need different kind of priorities. For example Diaspora
challenges Facebook on the grounds where FB is the weakest - privacy. Facebook
can't compete on privacy no matter how hard they try (and they simply won't
even try since the whole FB is built on selling off privacy).

------
dpham
I can't take this article seriously because it's so terribly written.

------
Ryan_Shmotkin
why stop at credit card processing how about a Facebook Credit Card !

~~~
georgespencer
Cannot tell if serious. If so: a credit card would be picked up by a tiny
number of people worldwide in comparison to the numbers who would use a "pay
with Facebook" button, and the latter is already an area of expertise for
Facebook (or at worst a logical extension of their current expertise).

------
devan
Had a similar idea for this - We'll probably play around with this at Kout as
soon as we've sorted out our payments infrastructure - Here's a mockup I made
a little while back using Twitter - <http://bit.ly/Kd0ugW>

= Inital Idea = You're perpetually logged into a social network, why not pair
up a payment method and leverage that connection. Always be connected to a
payment method/global checkout - authorised by a 4 digit pin.

There's an array of pro's as cons for this.

= Issues for Facebook (and Twitter) =

The hurdles to get setup as a Payment Service Provider, and have the
capability to preform cross-border, cross-country transactions, dealing with
multiple currencies, as well as boarding merchants outside of the US, is a
complete bitch.

It would be completely out of Facebook's internal focus to build and maintain
this - outsourcing/partnering is a different story.

= Facebook's Cut =

Facebook takes a 1/3 cut from developers for FB Credits. They can't take a 1/3
cut from credit card processing.

They'll realistically take 2.75 - 3.5% and that would just piss off their
developers who are being charged a 1/3, unless FB reduce their 1/3 cut - which
I doubt they'd do.

Facebook would (probably) make more cash using FB Credits than processing
credit cards - The margins are rediculously low with card processing (varies
on card type) - It's game of volume.

Unless you're PayPal who charge you 2/3% for sending money between PayPal
accounts. When all they're doing is ACH transfers between "dynamic bank
accounts" they've setup, which costs them under 5 cents to preform.

= The trust factor = with Facebook (Guy/Girl's in Social Commerce take notice
here).

Consumer's/Users whatever you want to call them simply would not trust
Facebook with their super sensitive data (Credit Card & Billing Information).
They don't have the best reputation when it comes to users data.

They might experience some success and sign up a few tech savy users - but
ultimately - even if they sort out all of the technical & logistical issues
they will constantly face this one.

This is why social commerce isn't full circle, or shouldnt be. When was the
last time you entered your credit card details into a Facebook app? would you?

Social Commerce is really the discovery of products, but when it comes to
facilitating the transaction, consumers need to be out of the ecosystem where
"public" data is flowing, their friends are talking to them, or irrelevant
social data is distracting them.

Consumers feel incredibily uncomfortable entering sensetive data into a
platform which they use with the mindset of "sharing".

Unless of course it could be masked under a "Pay by Facebook" option which
doesnt require the user to type in and sesntive information - ha.

Those are just my thoughts, and of course you have risk, disputes, charge
backs, being the ultimate target for russian hackers etc.

I could be completly wrong, but I think a third party needs to step in here.

Facebook and a Dwolla/GoCardless partnership - now that would be intresting -
you can fake a credit card but you cant fake a bank account.

------
adventureful
$10 billion? I don't think so.

VISA: $3.36 billion profit | DFS: $2.2 billion profit | AXP: $4.9 billion
profit | MA: $1.9 billion profit

That's Visa, Discover, American Express, and MasterCard.

That's a $12.4 billion profit, if you take every aspect of all their
businesses away from them across the board and basically acquire a complete
monopoly in transactions. Their businesses go far beyond processing of course,
so you'd really need to not only take over all transaction processing but then
double the business.

Facebook processing payments is maybe a billion profit opportunity for them.
Not chump change, but very far away from $10 billion.

~~~
staunch
Revenue is multiples of those numbers though. Because Visa manages to have
insanely bloated overhead doesn't mean Facebook would.

~~~
adventureful
I agree that Facebook could try to be less bloated, however that's not very
likely. The history of tech companies is gradual bloat, whether you're talking
about Microsoft or Google or Apple.

Visa has a $80 billion market cap, $9b in sales, and $3.6b in profit with a
mere 7,500 employees. One of the best ratios of any major company. In fact,
it's better than Facebook's current employee to sales ratio (and it's worth
pointing out that they're nearly at a $10b sales run rate, and $4b in annual
profit).

Visa has around a 40% net margin, that's beyond extraordinary. There's almost
zero chance Facebook can be any less bloated than what Visa is already doing.

Discover also has a stellar ratio, 11k employees to $8.5 billion in sales.

Ditto MasterCard, with 6,700 employees and $6.7b in sales.

~~~
staunch
The _only_ reason these companies have such high margins is because these
businesses are unbelievably profitable. Being the guy who takes money from
someone, puts some of it in his pocket, and hands the rest to another guy is a
very very sweet place to be.

I think Facebook could tack on a payments business with relatively little
additional hiring or resources, and maintain far higher than 40% margins.
Whether they would try to be that efficient or not is another question.

Most tech companies don't bother with being particularly efficient. Google
could have stuck to their search engine and advertising and had > 80% margins
if they wanted to.

~~~
adventureful
You're absolutely right, payment processing is incredibly profitable, but I
don't see what that has to do with Facebook attempting to be even more
efficient than Visa.

Facebook has already shown they're not even as efficient as Visa; despite
being so young they're more bloated than Visa already. And that lends credence
to the notion that they wouldn't be any better at payment processing than a
company that has specialized in that for a very long time and is the best in
the world at it.

Certainly a company like Microsoft could have just published Windows and had
90% margins. But no mega company ever does that, so it's not a realistic
scenario. They don't do that because they're seeking growth, which is
something shareholders always want to see.

Companies that had extremely lucrative margins and dominant positions, that
didn't sit still: Cisco, Microsoft, Apple, IBM, Intel, Oracle, Samsung,
Nintendo, Sony, Google, and on and on.

I've not aware of any major tech company that has ever just created one
extraordinarily profitable product, and then did nothing else but collect
their 85% net margin. Facebook isn't likely going to be the first.

