PayPal relaunched a peer-to-peer payment Facebook app today that some news outlets are misinterpreting as a partnership between the two companies. I’ve confirmed with Facebook that it’s not. It’s just a standard application on the platform, and Facebook couldn’t really do anything to stop PayPal. But why hasn’t Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because of significant fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%.
The first incarnation of Send Money was launched in December 2009. It lets you pay friends through a credit card or your PayPal account. What’s new is that you can now also opt to include a digital greeting card, good for sending money on birthdays and other holidays. The only Facebook data the app needs is your friend list, and even then you still have to hunt down a payment recipient’s email address before you can transfer funds. Send Money doesn’t integrate with Facebook’s own payment system, it doesn’t require any secret data or APIs, and I’ve heard it wasn’t even built inside PayPal.
Facebook has its own payment system that lets users receive its virtual currency Credits in exchange for money paid through credit cards, PayPal, and other means. Users spend the Credits in social games for power-ups or extended game time, and the developers redeem these Credits for 70% of their worth while Facebook keeps its 30% tax.
The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-site purchases that are incentivized with Credits rewards through companies like ifeelgoods. If users could transfer Credits to someone else, the occupation of “Credits Miner” would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This would essentially create a secondary market for Credits and undermine Facebook’s ability to make money on them.
P2P Credits transfers would also make users a more lucrative target for hackers. Someone could steal your account info and dump your existing balance of Credits into their own account, or even buy more Credits in your name and send them to themselves. When Facebook originally developed Credits, it correctly determined that it could significantly reduce its risk of fraud by disallowing P2P transfers.
The other main reason there’s no Credits P2P payments is because it not Facebook’s focus, due to a mix of developer ecosystem politics, long-term monetization, and Facebook’s lean startup style. Facebook and PayPal are close. They’re strategic partners, with PayPal helping the social network process Credits purchases, and PayPal’s founder Peter Thiel is an early investor and advisor to Facebook. Moving into P2P payments could upset this partnership, and lead PayPal to remove itself as a Credits purchasing method.
To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldn’t have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platform’s mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so there’s no need to move into a risky sector such as P2P payments that’s outside its core competencies and dominated by incumbents.
Facebook is still a relatively small company. It needs its Credits team optimizing payment flows and fostering partnerships to milk the virtual goods market. It also needs to make Credits as a better payments processor for apps, through which more content companies are selling digital media like film rentals.
Right now, Facebook simply doesn’t have the resources to divert attention to P2P payments, and there’s no indication that such a need isn’t already being met off-site by PayPal, even if the Send Money app didn’t exist. One day that could change, especially if social ecommerce takes off and it allows Credits to be used to purchase physical goods from approved merchants. For now, Facebook is making the same smart choice about P2P payments as it made about virtual gifts, social games, music, and brand management — leave it to third-parties and concentrate on improving its core infrastructure.
The CNN Washington Bureau’s morning speed read of the top stories making news from around the country and the world. Click on the headlines for more.
WASHINGTON/POLITICAL:
CNN: Congress passes continuing resolution, avoids another shutdown threat
Congress passed a temporary spending measure on Thursday that will keep the federal government funded and open for business until December 16. The continuing resolution was necessary because the federal government is set to run out of money by midnight Friday.
CNN: White House shooting suspect faces attempted assassination charge
An Idaho man who acquaintances say called President Barack Obama "the anti-Christ" was charged Thursday with trying to assassinate him in a shooting incident outside the White House, federal authorities said.
CNN Money: Energy Secretary Chu offers no apologies for Solyndra
Energy Secretary Steven Chu made no apologies Thursday for the $535 million loan guarantee the government made to now bankrupt solar panel maker Solyndra, saying the company's collapse was unforeseeable and politics did not play a role in the approval process.
CNN: Secret Service confirms Cain protection
Presidential candidate Herman Cain will receive protection from the United States Secret Service, the agency confirms to CNN.
NATIONAL:
CNN: Syracuse puts associate basketball coach on leave amid police probe
Syracuse University placed associate men's basketball coach Bernie Fine on administrative leave Thursday over an inappropriate contact allegation made by a man in 2005.
CNN: Court: California same-sex marriage fight can continue
A complex legal fight over the constitutionality of same-sex marriage is back on track after California's highest court on Thursday allowed an appeal over a controversial ballot initiative to move ahead in federal court.
CNN: Authorities: Tons of drugs went through cross-border tunnel
A nondescript white warehouse building in southern California hid a sophisticated drug smuggling tunnel that traffickers used to transport tons of marijuana from Mexico into the United States, authorities said.
CNN: ‘Occupy’ protesters, police clash during ‘day of action’
Thousands of Occupy Wall Street demonstrators deluged New York on Thursday, a show of strength in the movement's original home that was echoed nationwide as part of a "mass day of action."
INTERNATIONAL:
CNN: U.S. to send Clinton to Myanmar
U.S. President Barack Obama announced Friday that he will send Hillary Clinton to Myanmar next month, the first visit by a U.S. secretary of state in more than 50 years.
CNN: Defectors in Syria strike pro-regime office
Army defectors in northwestern Syria - armed with rocket-propelled grenades - attacked a pro-government youth group office and clashed with Syrian security personnel Thursday, activist groups said.
CNN: New radiation scare for rice in Japan
Japanese authorities have halted the shipment of rice from some farms northwest of the Fukushima Daiichi nuclear power plant after finding higher-than-allowed levels of radioactive cesium, local authorities said Thursday.
CNN: Al Qaeda-linked group finds fertile territory in Nigeria as killings escalate
Two weeks ago, dozens of armed men descended on a town in northern Nigeria and killed more than 100 people in a coordinated series of bombings and gun attacks.
BUSINESS:
CNN Money: Debt committee: Market reaction a big unknown
Given how volatile markets have become, predicting how traders will react to the congressional debt committee next week is a dicey undertaking.
CNN Money: Stocks in sharp sell-off
U.S. stocks fell sharply Thursday as jumpy investors dumped risky assets on fears of more debt trouble in the eurozone.
Wall Street Journal: As Whirlpool Exits, Jobs Hunt Begins
When a new refrigerator plant opened here in 1962, this city held a parade to celebrate the arrival of a big employer. Now the resilience of Fort Smith, long noted for its ability to attract manufacturers and their well-paying jobs, is being tested again.
In Case You Missed It…
An emotional Herman Cain breaks down in tears during an interview with affiliate WMUR.
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Denver Broncos <b>News</b>: Horse Tracks - 11/19/11 - Mile High ReportThe WSOP Circuit Harveys Lake Tahoe has featured will culminate this weekend with a $1600 Main Event. Check out our recap of the ring events thus far.
Previewing the 2011-2012 World Series of Poker Circuit Harveys <b>...</b>The 2011 World Poker Tour Jacksonville kicked off on Friday and attracted 188 players for Day 1a. Matthew Jarvis looks to be the early chip leader.
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Denver Broncos <b>News</b>: Horse Tracks - 11/19/11 - Mile High ReportThe WSOP Circuit Harveys Lake Tahoe has featured will culminate this weekend with a $1600 Main Event. Check out our recap of the ring events thus far.
Previewing the 2011-2012 World Series of Poker Circuit Harveys <b>...</b>The 2011 World Poker Tour Jacksonville kicked off on Friday and attracted 188 players for Day 1a. Matthew Jarvis looks to be the early chip leader.
2011 World Poker Tour Jacksonville Day 1a: Jarvis Bags Bunches <b>...</b> PayPal relaunched a peer-to-peer payment Facebook app today that some news outlets are misinterpreting as a partnership between the two companies. I’ve confirmed with Facebook that it’s not. It’s just a standard application on the platform, and Facebook couldn’t really do anything to stop PayPal. But why hasn’t Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because of significant fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%.
The first incarnation of Send Money was launched in December 2009. It lets you pay friends through a credit card or your PayPal account. What’s new is that you can now also opt to include a digital greeting card, good for sending money on birthdays and other holidays. The only Facebook data the app needs is your friend list, and even then you still have to hunt down a payment recipient’s email address before you can transfer funds. Send Money doesn’t integrate with Facebook’s own payment system, it doesn’t require any secret data or APIs, and I’ve heard it wasn’t even built inside PayPal.
Facebook has its own payment system that lets users receive its virtual currency Credits in exchange for money paid through credit cards, PayPal, and other means. Users spend the Credits in social games for power-ups or extended game time, and the developers redeem these Credits for 70% of their worth while Facebook keeps its 30% tax.
The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-site purchases that are incentivized with Credits rewards through companies like ifeelgoods. If users could transfer Credits to someone else, the occupation of “Credits Miner” would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This would essentially create a secondary market for Credits and undermine Facebook’s ability to make money on them.
P2P Credits transfers would also make users a more lucrative target for hackers. Someone could steal your account info and dump your existing balance of Credits into their own account, or even buy more Credits in your name and send them to themselves. When Facebook originally developed Credits, it correctly determined that it could significantly reduce its risk of fraud by disallowing P2P transfers.
The other main reason there’s no Credits P2P payments is because it not Facebook’s focus, due to a mix of developer ecosystem politics, long-term monetization, and Facebook’s lean startup style. Facebook and PayPal are close. They’re strategic partners, with PayPal helping the social network process Credits purchases, and PayPal’s founder Peter Thiel is an early investor and advisor to Facebook. Moving into P2P payments could upset this partnership, and lead PayPal to remove itself as a Credits purchasing method.
To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldn’t have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platform’s mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so there’s no need to move into a risky sector such as P2P payments that’s outside its core competencies and dominated by incumbents.
Facebook is still a relatively small company. It needs its Credits team optimizing payment flows and fostering partnerships to milk the virtual goods market. It also needs to make Credits as a better payments processor for apps, through which more content companies are selling digital media like film rentals.
Right now, Facebook simply doesn’t have the resources to divert attention to P2P payments, and there’s no indication that such a need isn’t already being met off-site by PayPal, even if the Send Money app didn’t exist. One day that could change, especially if social ecommerce takes off and it allows Credits to be used to purchase physical goods from approved merchants. For now, Facebook is making the same smart choice about P2P payments as it made about virtual gifts, social games, music, and brand management — leave it to third-parties and concentrate on improving its core infrastructure.
The CNN Washington Bureau’s morning speed read of the top stories making news from around the country and the world. Click on the headlines for more.
WASHINGTON/POLITICAL:
CNN: Congress passes continuing resolution, avoids another shutdown threat
Congress passed a temporary spending measure on Thursday that will keep the federal government funded and open for business until December 16. The continuing resolution was necessary because the federal government is set to run out of money by midnight Friday.
CNN: White House shooting suspect faces attempted assassination charge
An Idaho man who acquaintances say called President Barack Obama "the anti-Christ" was charged Thursday with trying to assassinate him in a shooting incident outside the White House, federal authorities said.
CNN Money: Energy Secretary Chu offers no apologies for Solyndra
Energy Secretary Steven Chu made no apologies Thursday for the $535 million loan guarantee the government made to now bankrupt solar panel maker Solyndra, saying the company's collapse was unforeseeable and politics did not play a role in the approval process.
CNN: Secret Service confirms Cain protection
Presidential candidate Herman Cain will receive protection from the United States Secret Service, the agency confirms to CNN.
NATIONAL:
CNN: Syracuse puts associate basketball coach on leave amid police probe
Syracuse University placed associate men's basketball coach Bernie Fine on administrative leave Thursday over an inappropriate contact allegation made by a man in 2005.
CNN: Court: California same-sex marriage fight can continue
A complex legal fight over the constitutionality of same-sex marriage is back on track after California's highest court on Thursday allowed an appeal over a controversial ballot initiative to move ahead in federal court.
CNN: Authorities: Tons of drugs went through cross-border tunnel
A nondescript white warehouse building in southern California hid a sophisticated drug smuggling tunnel that traffickers used to transport tons of marijuana from Mexico into the United States, authorities said.
CNN: ‘Occupy’ protesters, police clash during ‘day of action’
Thousands of Occupy Wall Street demonstrators deluged New York on Thursday, a show of strength in the movement's original home that was echoed nationwide as part of a "mass day of action."
INTERNATIONAL:
CNN: U.S. to send Clinton to Myanmar
U.S. President Barack Obama announced Friday that he will send Hillary Clinton to Myanmar next month, the first visit by a U.S. secretary of state in more than 50 years.
CNN: Defectors in Syria strike pro-regime office
Army defectors in northwestern Syria - armed with rocket-propelled grenades - attacked a pro-government youth group office and clashed with Syrian security personnel Thursday, activist groups said.
CNN: New radiation scare for rice in Japan
Japanese authorities have halted the shipment of rice from some farms northwest of the Fukushima Daiichi nuclear power plant after finding higher-than-allowed levels of radioactive cesium, local authorities said Thursday.
CNN: Al Qaeda-linked group finds fertile territory in Nigeria as killings escalate
Two weeks ago, dozens of armed men descended on a town in northern Nigeria and killed more than 100 people in a coordinated series of bombings and gun attacks.
BUSINESS:
CNN Money: Debt committee: Market reaction a big unknown
Given how volatile markets have become, predicting how traders will react to the congressional debt committee next week is a dicey undertaking.
CNN Money: Stocks in sharp sell-off
U.S. stocks fell sharply Thursday as jumpy investors dumped risky assets on fears of more debt trouble in the eurozone.
Wall Street Journal: As Whirlpool Exits, Jobs Hunt Begins
When a new refrigerator plant opened here in 1962, this city held a parade to celebrate the arrival of a big employer. Now the resilience of Fort Smith, long noted for its ability to attract manufacturers and their well-paying jobs, is being tested again.
In Case You Missed It…
An emotional Herman Cain breaks down in tears during an interview with affiliate WMUR.
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Denver Broncos <b>News</b>: Horse Tracks - 11/19/11 - Mile High ReportThe WSOP Circuit Harveys Lake Tahoe has featured will culminate this weekend with a $1600 Main Event. Check out our recap of the ring events thus far.
Previewing the 2011-2012 World Series of Poker Circuit Harveys <b>...</b>The 2011 World Poker Tour Jacksonville kicked off on Friday and attracted 188 players for Day 1a. Matthew Jarvis looks to be the early chip leader.
2011 World Poker Tour Jacksonville Day 1a: Jarvis Bags Bunches <b>...</b>
