One of the most important social network evolutions will be a uniform payment system to pay for digital and physical goods. Right now, there are contending platforms – credits, points, checkout baskets, and PayPal – creating confusion for the consumer. Imagine that one day, we might have the ability to buy real goods with real money by flashing our social network identity at the point of sale.

As social media inserts itself further into our daily lives, ecommerce marketers are mastering the art of digital engagement, and new payment technologies are emerging and being seasoned. As more platforms converge with social networks, leaders will emerge. 

eBay was the first ecommerce site to recognize the need for a more efficient way to pay. By acquiring PayPal, eBay led the way in internet and mobile commerce and is enjoying the rewards. The company recently reported that PayPal’s net total payment volume grew 24 percent for a total of $34 billion.

“The real issue is expanding payments beyond digital goods,” said Dave Kaminsky, research analyst, Emerging Technologies, Mercator Advisory Group. “Right now, you can only buy digital items on Facebook. You can’t flash your Facebook account and buy a burger at McDonalds.”



From Traditional Advertising to Payment Credentials

Before the internet, business relied on advertising and public relations to promote products and build brands through traditional media platforms - television, radio, or print. Mad Men, the hit AMC television show, depicts the intense focus on advertising in the 1960s and the right pitch that would sell Heinz baked beans to the masses.

In today’s Googlized world, ecommerce focuses on engaging users of Facebook, Twitter, and the like by prompting them to click on ads and click through to payment. 

“We have gone from a focus on advertising to a world where the future is around payment credentials. Today, payments have become the most important thing,” said Gary Schwartz, author of The Impulse Economy: Understanding Mobile Shoppers and What Makes Them Buy. “The value is in the payment layer because payment credentials come with a relationship with the customer. The end game is payment for the sake of relationships.”

Schwartz points out that while social media has the potential of influencing people, the context has to be right. “Facebook is not a place to shop,” said Schwartz. “Just because you have the word social does not mean you can marry commerce. It’s more about context – to marry social with commerce – you have to be in a buying modality.”

For example, the popular new website, Pinterest, has good potential to translate to sales dollars because when people are collecting and pinning up items – recipes, summer dresses, furniture, other stuff -- they are more likely to click through and make a purchase.

When a new website makes the A list, it may attract lots of visitors but it won’t last unless it can be monetized.  If Pinterest, for example, is going to last, it must ramp up its commercial side.  Plain advertising won’t keep users engaged. They want giveaways, sweeps, samples, events, and videos. Advertising dollars have shifted from TV to social games and social media. 

Cindy Gustafson, managing director at Mindshare, said that, on average, 30 percent of a brand’s advertising spending is allocated to digital, which includes online, social games and mobile (The New York Times, May 4, 2012).



The Many Ways We Can Pay

Facebook and merchants have a strong interest in moving commerce onto Facebook because that’s where their customers are. As a payment solution, the giant social network offers Facebook credits to pay for digital and virtual goods in games and apps across Facebook.

According to some marketing experts, consumers will buy 40 billion Facebook credits this year. It is a rapidly growing business segment and outpacing advertising. Comparing the first quarters of 2012 and 2011, advertising revenues grew by 37 percent while payments revenues grew by 98 percent.

According to Facebook’s amended S-1, the company is on track to earn almost $1 billion from payments in 2012.  In the first quarter of 2012 it earned $186 million in payments and other fees. That was almost double what it earned in the first quarter of 2011. 

“If the social network wanted to make a leap into enabling payments for physical goods, it would need to add another layer to its payments system. The most effective way for Facebook to approach this would be to partner with an established online payments company,” said Kaminsky.

Eric Chan, COO and co-founder at Embee Mobile, a rewards program for your mobile phone, said it’s all about information. “Facebook and a payment vendor would be the authenticator,” explained Chan.

What would the Facebook user show as identification? Would it be a card? Your mobile device? Maybe a thumb print? Chan said it could be any one of those things.

Embee Mobile uses Facebook as its marketing platform. Lately, the company has moved away from advertising as a way for mobile phone users to earn currency.  They are looking at other things people can do, such as completing tasks online. For example, if someone completes a market research survey, they get Embee Points.



Disrupting the Payment Card System

There is a lot of chatter about disruptive payments start-ups that intend to change the paradigm. This may or may not be true, but let’s look at some relatively new technologies and companies that have entered the payment space.

One is Dwolla, a payments network that has been offering both an online and mobile payments platform. It is not a PayPal model. It is a tool for enabling payments without plastic cards and fees. According to the company website, Dwolla created a new network architecture to disrupt the costly electronic payments landscape. Micro-payments are free; the charge for any transactions over $10 is an affordable $0.25.

Dwolla would like people to use the service with merchants online and in retail stores, as well as with their social network connections or any email or phone number.

“The current legacy costs and problems that are handcuffing financial innovation are not only fixable issues, but revenue opportunities as well. Dwolla’s starting over, shifting the model, replacing the structures, and giving it away to businesses, consumers and financial institutions for pretty much free so you can innovate and monetize like never before,” Jordan Lampe, builder at Dwolla, told us.

Dwolla investors include Union Square Ventures, Thrive Capital, Village Ventures, A-Grade (Ashton Kutcher), Paige Craig and others.

Portland-based Chirpify raised $1.3 million in equity funding the last week of April for its effort to bring payments to Twitter. Chirpify will use the capital to build a payment platform on top of the Twitter microblogging service. It also plans to roll out a payment platform specifically for digital content where musicians can sell songs and concert tickets on Twitter.

MiiCard, another technology startup, safely connects social network users to their bank accounts to verify IDs. This real-time online identity verification service allows a consumer to prove that “I am who I say I am,” to an Anti-Money Laundering standard, without the need for a physical ID check.

LivingSocial, an established daily deals entity, is going after payments through a plastic card. Chase Card Services and Living Social recently announced the launch of the LivingSocial Rewards Visa Card. They are giving five points per dollar spent on LivingSocial purchases; three points per dollar spent on dining; and one point per dollar spent on all other purchases. There is no annual fee. Upon approval, the consumer receives $30 in Deal Bucks.



MasterCard Launching PayPass, a New Digital Wallet

In early May, MasterCard revealed a full new suite of digital wallet solutions, packaged together under the moniker of PayPass Wallet Services. The payment network says the new digital wallet product “will make it faster and easier for customers to make purchases in stores or online by allowing them to securely pay with a simple click of the mouse, touch of the tablet screen or tap of the smartphone.”

PayPass Wallet Services is made up of three component pieces: PayPass Acceptance Network (PayPass Online and PayPass Contactless), PayPass Wallet and PayPass API. American Airlines and Barnes & Noble are among the first retail partners to plug into MasterCard’s newest offering.

“We realize that when it comes to payments, no single wallet will rule them all,” wrote MasterCard chief emerging payments officer Ed McLaughlin in a written statement. “PayPass Wallet Services simplifies the shopping experience while providing flexibility and choice to merchants, banks and consumers.” •



Using Gift Cards as Payments

Marc Rochman heads up Openbucks, a two-year-old Mountain View startup that he calls “The Gift Card Payment Network.”

“We’re like the Visa of the prepaid market,” says Rochman, originally from the city of Lille in northern France. “Like Visa, we connect card issuers, retailers in our case, such as Subway, Circle-K, Burger King and CVS, with online merchants, who need to collect payments.”

Here’s how it works: You buy a prepaid card worth, say $20, when you’re having lunch at Subway, for instance. When you’re ready to pay later for something online at a participating site, including games, you click “Pay with Gift Card” and it directs you to a mini-digital store of the brand you selected where you can complete the transaction with the code on the back of the card.

Rochman says cards for the Openbucks network are available at more than 50,000 stores in the US and Canada and can be spent at thousands of online sites, listed on the Openbucks website. Retailers are happy, he says, because more than half of the people who buy or reload their gift cards end up making an additional purchase. And he says merchants, who pay a fee to Openbucks each time a card is redeemed, get an inflow of first-time customers.



Incentives Taking Off

“Eventually mobile payments will be integrated with social networks,” said Kaminsky. “Right now, niche payments, like Facebook credits, are getting a foothold in social media. Although social payments are not yet mainstream, incentives through social networks are taking off.”

Check-in based incentives, like Foursquare, in particular are an easy way for merchants to integrate social networks into the transaction process. Foursquare is enabling merchants to eliminate the coupon flyer and become more relevant with the mobile user. Mobile couponing caught the attention of Walgreens when they decided to target on-the-go consumers looking for instant savings.

The Deerfield, IL-based drug giant was the first national advertiser on Foursquare nearly a year ago. It recently joined with the location-based social network to send instant, scannable coupons to customers’ phones when they check in at any Walgreens store. No response, text or any action is required to unlock the coupon.

Walgreens was the first retailer to offer the mobile coupon program back in November, the company said, and there was a limit of one coupon per customer for each deal released. The first coupon was for 50 percent off all varieties of Arizona Iced Tea cans.

“We’re using mobile technology and social media to better engage Walgreens customers, to give them convenient channels to interact with us and to deliver products, services and savings they truly value,” Sona Chawla, Walgreen’s president of e-commerce, said in a press release.

Whether we use points, credits or cash, it’s about trust. It may take some time before your Facebook account replaces your debit card at the grocery store. “But we will continue to see more and more choices,” said Chan. •