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What do Facebook, Gmail and iTunes have in common? By 2015, they might be dominant online payment providers.
At least that's the thinking of Dave McClure, a Silicon Valley startup investor. In a post the other day (caution: heavy profanity), he argued that "in 2015 the default login & payment method(s) on the web will be Facebook Connect, Google Gmail, or Apple iTunes".
McClure believes that because these services are used on a regular basis, they're perfectly positioned to become payment powerhouses. After all, their users use them frequently. That reduces "password friction", which he cites as a major factor in poor conversions.
But is McClure, who served as Director of Marketing for PayPal from 2001 to 2004, right? Probably not. While I think that Facebook has a great opportunity to cash in on virtual currency, I think McClure is wrong: Facebook, Gmail and iTunes are not going to be "default" payment methods on the web. Here's why.
Your passwords aren't secure.
In theory, there's a lot to like about McClure's idea. But the reality is that the online accounts you use everyday aren't very secure and it's increasingly obvious. Ironically, on the same day McClure published his post, Facebook was named the greatest corporate security threat by Sophos because of the growing amount of malware and phishing activity that takes place on the popular social network. And just yesterday, Twitter, one company McClure says thinks could also make a move in this space, announced that some of its accounts had apparently been compromised through a password-based attack.
It doesn't take much effort to see that merging frequently used accounts with a global payment platform would be a scammer's dream because there are so many ways to gain access to an account. From XSS exploits to malware , services like Facebook and Twitter are especially vulnerable, and are only made more vulnerable by third party apps and functionality like Facebook Connect. And let's not also forget another big problem with frequent-use social networking accounts: all the information you make available publicly often provides hints to commonly-used passwords and the answers to your password reset questions.
These companies aren't prepared to handle payment-related customer service.
Web 2.0 services may be able to skimp on customer service when they remain Web 2.0 services, but once money is involved, customer service isn't optional if you want to succeed. One only need to look at complaints about Google Checkout to see why, at a minimum, McClure's idea of Gmail-as-payment-service isn't going anywhere.
While McClure does mention that lost passwords were a huge headache at PayPal and I don't doubt it, it's not like dealing with people who have forgotten their passwords is all there is to payment provider customer service.
You can't forget about the merchant.
In his post, McClure only evaluates the potential of Facebook, Gmail and iTunes to serve as payment services from the consumer standpoint. The convenience they might offer to consumers is very important, but McClure ignores a whole host of other merchant considerations. From fee structure to integration options, these services would need to compete with all of the other payment acceptance options merchants currently have. That's a tall order. Even PayPal, which is 100% focused on payments, is criticized and shunned by many merchants. Why should anyone expect companies that don't focus solely on payments to fare any better?
Payments would be a drag on these services.
Becoming a payment provider might look attractive on the revenue side, but I think McClure takes for granted what it really takes to play ball in the payments space. There are plenty of legal, regulatory and compliance issues, fighting fraud is a costly, never-ending activity, and dealing with banks and credit card companies isn't much fun either.
Notwithstanding Google and its less-than-successful efforts with Google Checkout, the question for any of the companies McClure lists is: why bother? The investments required just to do business are pretty off-putting. I'm not sure why Facebook, in particular, would want to distract itself with this when it might very well be able to make billions of dollars annually simply selling virtual currency that's used within Facebook's ecosystem.
By 2015, McClure's companies may very well be taking some of the money out of your wallet, but they aren't likely to own it.
Photo credit: House of Sims via Flickr.