Virtual Currency Equals Love

On the 11th Day of Christmas my true love gave to me … 100 Facebook credits and told me I could go crazy buying virtual stuff for my farm on Farmville. Frankly, it was not what I expected to receive from my true love. I’m really not the kind of girl who is into farming, nor do I get warm and fuzzy from buying pixels that look like artichokes or cows. So, it may be that this year, my true love gets the boot. But, while virtual currency may not be the secret sauce for romance, especially at Christmas time, it’s probably not appropriate to dismiss this new virtual currency too soon or the other virtual currencies and barter arrangements that are popping (and have popped up) on the Web. (Related Article:Social Commerce: Who’s Turning Visits into Cash? )

There are many such arrangements from offer-based currencies like SponsorPay and TrialPay, to virtual currencies used for gaming like WildCoin and SocialGold. For this post, though, I’d like to stick with Facebook, which isn’t just the biggest thing going but even has its own movie. This seven-year old company has more than 600 million active users. That’s 100 million more inhabitants than the entire European Union and twice as many as the good old USofA. And it’s still growing fast.

Facebook’s virtual currency is Facebook Credits. So, what’s the big deal about Credits, you ask? Well, here’s what. When an entity that big and growing introduces a “currency”—as the European Union did a decade ago—it is big news and can have big consequences. At the moment, the main use for Credits is to pay for virtual goods like those that have made Zynga, the game company for social networks, which has a market cap now equal to that of game giant Electronic Arts. But commerce is going to come quickly to Facebook even though it is nascent now. Almost every single retailer will have a fan page there by the end of this year, and most of the big guys already do and have tens of thousands of fans already. Retailing 101 tells us that merchants sell where there are customers and increasingly a lot of those customers are hanging out on Facebook. Now, I guess that it could be that the naysayers are right that merchants won’t want to sell stuff on Facebook, and people won’t buy on social networks. My money is on social commerce growing explosively. (Related Article: Is 2011 the Year for Social Commerce?)

So what does that have to do with Credits? Possibly, not much if commerce on Facebook doesn’t ignite. But if it does, Facebook Credits will become the electronic currency for an enormous economy. People and businesses may then choose to hold their Credits rather than cashing them in for outside currencies (like dollars or euros) because they can use them to buy and sell things right on Facebook. That cuts out a lot of transactions that could go on plastic cards.

Moreover, Facebook might decide that they only want to let people buy Credits or cash them via an ACH transactions. Then a significant portion of transactions could get diverted from those that can be made with traditional cards. Just to play this scenario out a bit more, Facebook could also decide to let people use their Facebook Credits off of Facebook to, say, pay local merchants, who are part of their new Foursquare squashing local marketplace offer, Facebook Deals. That would mean that they could have potentially have hundreds of millions users with their currency enabled and be in a position to ignite their own payment system offline.

Yes, it’s also true that so much of this is possibly fanciful. Anyone who has been in the payments business, and especially if they’ve followed, knows that it is quite hard to launch a successful card business. There is a lot more to it than just having a bunch of customers lined up wanting to use your new payment type. Virtually no one who has tried has succeeded. And, what does Facebook know about payments anyway?  But, Facebook is different though for the same reason the United States, China, and the European Union are different. It can basically require everyone in its borders to do business with the currency it chooses because it has a critical mass of people on the platform and can make the rules. (Related Briefing Room: Payments Around the World)

The good and bad news for the industry is that Facebook isn’t the only entity getting into virtual currency. In fact, the worrisome trend for the payments industry is that so many players are introducing methods of payment that don’t involve the use of cards. True, many of these require people to buy the currency with a card, but there’s no guarantee that will be anything more than a stepping stone to something more disruptive for the industry’s traditional players. It makes sense to start out by inserting a new layer over top of the traditional payments layer to get people comfortable with the “something new” – then switching them to the “something really new” becomes less of a struggle. (e.g. see PayPal).

What starts to get interesting is that these new virtual payment concepts are being introduced to, by and large, a whole new group of consumers who are (a) more interested debit than credit products, (b) typically have fewer credit options available to them so are forced to use debit, ACH, prepaid or cash-like options (c) have not really established an affinity with a particular card company or brand, (d) are spending more time on rather than off Facebook and (e) seem to trust it for reasons that many other consumer segments don’t understand. (Remember, this is the generation that adopted Blippy  – the application that tells your friends what you just bought automatically when you buy it.) For this segment, it seems pretty logical to think that doing business on Facebook with Facebook Credits is really no big deal. And, with 600 million (and growing) consumers running around with Credits, it probably won’t take the intervention of the Three Wise Men and a Christmas miracle to get merchants on board either.

Now, if you excuse me, there are artichokes to harvest on my Farmville farm. My virtual Credits are burning a hole in my virtual wallet.

Happy Holidays, everyone! And, may your every wish for the new year come true!

Twelve Days of Christmas


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The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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