Is This the Dawn of the Facebook Credit Economy?

What You Need to Know About Social-Media Website's Virtual Currency

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Ian Schafer
Ian Schafer
If you start looking closely, there have been a series of developments that are pointing to Facebook Credits, Facebook's "virtual" currency, becoming something much bigger than what it is today.

One way to explain what Facebook Credits are and how they work is by hearkening back to the arcades we used to visit as kids, where they would re-interpret the classic "change" machines into "token" machines. We'd put dollars into them that we could spend anywhere, and get tokens out that were only good at that arcade. It's brilliant. They get your money, even if you don't spend it all there.

Well, that's pretty much how Facebook Credits work. Today, they are only good at existing merchants (mostly those that sell virtual items, such as Zynga, who have just signed a five-year deal with Facebook to keep this going). But that list is expected to continue to grow, and as usage increases, online merchants may eventually have no choice but to accept Facebook Credits at checkout. If we get to that point, the business of e-commerce and m-commerce may get a huge jolt, and the discussion around Facebook and privacy may just be getting started. Here's what it may look like in the very near future:

Facebook Credits are backed by actual national currencies and will render exchange rates at points-of-sale moot.
Facebook Credits have the potential to be one of the strongest standardized debit systems in the world, because each credit used has actually already been spent by a consumer in a transaction. This isn't Facebook extending "credit"; it's actually creating its own currency that can be bought at a particular exchange rate.

You may be already familiar with the "Gold Standard," where each unit of currency has a value that corresponds with a certain unit of gold. You may be less familiar with the "Gold Exchange Standard," which, as defined by Wikipedia, "may involve only the circulation of silver coins, or coins made of other metals, but the authorities will have guaranteed a fixed exchange rate with another country that is on the gold standard, hence creating a de facto gold standard, in that the value of the silver coins has a fixed external value in terms of gold that is independent of the inherent silver value." In other words, countries get together and agree on a fixed exchange rate for gold, allowing the same gold standard to apply everywhere, regardless of paper currency. The same applies to Facebook.

You can currently acquire Facebook Credits by using several different currencies. But each has its own de facto exchange rate; so three Facebook Credits for someone in the U.S. have the same value as three Facebook Credits for someone in Italy. No more complicated calculations at checkout; the exchange rate was already applied upon purchase of the Facebook Credits. Anything that can make the checkout process easier may result in increased sales.

Facebook Credits may become the one global mobile payment platform.
If Facebook continues its growth on mobile platforms, then Facebook Credits will have the opportunity to become the default mobile payment currency accepted worldwide. Half a billion people would not have to sign up for an account to use them, because they already have the account. And anyone with a mobile phone could potentially use Facebook Credits at points-of-sale in physical locations. The data, learning, market research, and point-of-sale advertising implications are potentially limitless.

It may spell the end for PayPal and Google Checkout, or they may become re-energized as the Facebook alternatives.
PayPal is the leading non-credit card third-party way of processing online payments via e-mail or electronic account. Google Checkout has aimed to compete in this space as well. But a widely-accepted Facebook Credit economy has the potential to severely limit the usage of these other services out of convenience. But for those looking to still spend money the old-fashioned way (which may still ultimately be the way people choose to spend their money), these could earn renewed support and usage as payment (and Facebook) alternatives.

Purchases can be shared as part of the Facebook experience. But will people want to that?
When not only the information about the transaction, but the transaction itself happens via Facebook, it gives Facebook access to much more user data that can be used to deliver more targeted advertising. It can also lead to more information about transaction being shared by people as well.

But you don't have to look further than Blippy or Facebook's old "Beacon" strategy to know that people have been burned or are iffy when it comes to automatically sharing purchase behavior with others, even their friends. Much of that has to do with there not being enough reward for doing so. The opportunity for Facebook Credits is to reward people for engaging with brands and retailers. If using Facebook Credits more often, or sharing information about their purchases results in discounts or even the earning of more Facebook Credits, you can count on consumers to reveal more to their friends and Facebook, as long as the value exchange is clearly identified.

This kind of access to purchase habits and behaviors may finally be able to help justify using Facebook as a true CRM tool for brands, allowing for the tracking of sales back to influence and relationships, making them better marketers in the process.

The foundation is being laid for Facebook Credits to potentially be one of Facebook's biggest revenue opportunities, and its extension into social gaming is made even more obvious with the recent Zynga deal. It will be difficult for merchants to decline accepting Facebook Credits if adopted en masse by consumers. Incentives will ensure that they will at least be a heavily considered option for brands looking to reward engagement.

This will all present a new privacy hurdle for Facebook to overcome, as even more data will be attached to Facebook accounts, and more security will need to be added to a platform that has had its share of challenges in that area.

But any way you look at it, the implications for brands is tremendous as a new way of buying, selling, measuring, and rewarding is born.

Ian Schafer is the CEO of Deep Focus, and can be stalked on Twitter at
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