Nearly 18 months after Facebook first discussed its Platform payments system, the first live integration of Facebook’s “Pay with Facebook” payment service is now live as of this weekend. Now, users in 3 applications – GroupCard, Birthday Calendar, and MouseHunt – can buy virtual goods with Facebook credits, marking a first step toward what could become a major new source of revenue for the company.
Unlike earlier guesses about what a Facebook payments service could look like, Facebook’s “Pay with Facebook” is entirely based on Facebook’s intermediary virtual currency. Before being able to pay with the Facebook payments option, users must first buy Facebook “credits” directly from Facebook. Once they have credits in their account, users can then spend them however they like in Facebook applications that have integrated Facebook’s payment solution or in Facebook’s gift shop.
The idea behind this approach is that Facebook acts as the merchant of record in all cash transactions with users, thus owning the direct billing relationships themselves. However, it will be interesting to see how involved Facebook gets in disputed transactions with Platform merchants – its new payment terms of service says:
If you do not like something that you bought, you should talk to the merchant—just like you would in the real world. In some cases, we will be the merchant, and we will work to address your concerns. In other cases, if we are not the merchant, we encourage you to try to work things through with the merchant. However, if you are not able to work things through with the merchant, we want you to tell us so that we can evaluate the situation as well.
Although the alpha test is only live with 3 applications now, developers interested in participating in the test can let Facebook know through this form. The speed with which Facebook rolls out the test to more developers likely depends on how well this initial batch of tests go. Based on how long it’s taken for the initial test to get rolled out, we’re guessing the tests will be pretty limited for at least a couple months while Facebook works out all of the operational kinks associated with operating and managing a universal virtual currency.
The fees associated with the service are also yet to be finalized. Facebook will likely take a much lower percentage fee than Apple takes from iPhone app sales and soon transactions (30%), but Facebook will likely be trying to find the optimal fee rules in the upcoming weeks and months as well.
For now, it’s clear that Facebook is starting to take (at least baby) steps toward building direct monetization programs on its application Platform. Earlier this year, it started running an alpha test of its own in-house ad network. The Facebook payments system marks the second leg of that monetization effort. However, the true value of payments may not be realized until Facebook rolls it out across Facebook Connect – enabling Facebook to power transactions across a broader swath of the web.
The financial community would like Facebook to speed up its Platform monetization efforts. Maybe Yuri Milner will be encouarging Facebook to accelerate its virtual currency monetization plans now that his investment firm DST, which has invested in numerous social networks monetizing through virtual currency, owns a $200 million chunk of the company.