Facebook, Your Future Bank : New gizmos, Gadgets gazette Blog

Monday, May 16, 2011

Facebook, Your Future Bank

Fall behind in the game FarmVille and the poor crops inside your Facebook window wither. Remedies include biplanes or rejuvenating your "farm coins," but if you're out of those, there's another solution: Buy Facebook Credits with cold, hard cash.

Nongamers may have missed Facebook's clever foray into the world of "virtual currency," where Facebook Credits cost 10 cents each and can be exchanged for game points or cartoony gifts. Those dimes are adding up—the U.S. market for virtual goods will reach $2.1 billion in 2011, according to research firm Inside Network. Facebook's currency, while just part of that market, is getting real. You can now purchase gift cards for Facebook Credits at Wal-Mart (WMT), Target (TGT), and Best Buy (BBY).

So why couldn't Facebook use them as real currency, too? In fact, why couldn't Facebook become your bank?

Money Is A-Changing

At first blush, this seems like a crazy idea. Facebook would need to overcome consumer privacy concerns, expand its Credits into a payment system that works everywhere, and surmount regulatory hurdles to handle businesses such as deposits and mortgage servicing. Crazy, until you realize how smartphones are changing the world of money.

Jack Dorsey, co-creator of Twitter, started Square in 2009 to help local merchants accept credit cards with iPhones. AT&T (T), T-Mobile, and Verizon (VZ) have formed Isis to turn smartphones into mobile wallets. And American Express (AXP) launched Serve on Mar. 28 to link checking accounts, credit cards, or debit cards to phones and computers. All of this interest is spurred by fees—billions of dollars in the global payments industry that now flow to Visa (V), MasterCard (MA), and American Express. Every time you swipe a credit card, the merchant must pay a few percentage points to the credit firm. Change card processor, and all those fees could go somewhere else.

PayPal did exactly this on the Web about a decade ago, when it pioneered a simpler way for eBay (EBAY) users to transfer funds securely; PayPal now has 94 million active accounts and is nearing $4 billion in annual revenue from $92 billion in PayPal transactions—about 18 percent of all global e-commerce. The next payment platform is no farther than that glass gadget in your pocket.

Move Over, PayPal

Who could supplant PayPal for a piece of the currency pie? The most logical bet is leading communication networks that work on mobile devices with millions of active customers. Beyond cell carriers, Apple (AAPL) has a consumer base through iTunes. Google (GOOG), busy defending search as consumers shift to mobile, recently partnered with MasterCard and Citigroup (C) to put mobile payment functionality into Android phones.

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