What Can Facebook Learn from Google Checkout and Amazon Payments?

I've been thinking a lot about this whole idea of "Pay With Facebook" and the ability for people to eventually use their Facebook credentials to pay for things on and off Facebook. When I was at Google, I worked on Google Checkout for a year and have also been spending a lot of time studying Amazon Payments as well. I wouldn't describe myself as a payments expert, but it seems to me that a successful payments system or network has to have two things at a minimum:

1. A very large user base of people who have given you a payment instrument. 2. Publishers, merchants, or partners who feel comfortable surfacing your payment option to their customers.

Having a large base of customers is not enough - you need a large base of users who can and will provide you with some kind of payment instrument. When Google Checkout launched, there were quite a few people who already had Google accounts - if you use Gmail, Google Calendar, Google Docs, or just about any other product, you've probably created a Google account. But only a fairly small number of those accounts have any payment instrument attached to them. Having a relationship with a large base of consumers is good, but you still have to activate them and get them to connect a payment instrument to that account.

The publishers or e-commerce sites you want to target have to feel comfortable having your payment offering in front of their customers. I haven't seen a lot of good analysis on why Amazon Payments haven't taken off more widely in both consumer and business applications. I suspect the reason is not that there aren't enough customers with Amazon accounts with payment instruments attached to them. The payment tiers are certainly competitive. I suspect the reason why it hasn't taken off as much is that most small to medium sized e-commerce players view Amazon with a wary eye. Do they really want Amazon building a relationship with their customers? Do they really want to show that Amazon button and encourage their customers to think about looking for the same product at Amazon? Do they ultimately want a company that could end up being a competitor to control their payments flow? The answer to most of those questions is probably "no."

So what can Facebook do to mitigate the risks mentioned above?

Lead with games - I think targeting games on Facebook makes sense. That's where the money is. They should be able to get plenty of people to enroll credit cards, ACH, Zong accounts, or whatever other payment instruments they support as we know that people are already spending lots of money on social games today. Leading with games will not get them the entire Facebook audience, but it will get them in front of customers who do want to pay for things and are active Facebook users.

Beware of bundling - Facebook clearly has global aims in changing the world of advertising. At some point, I am sure (very very sure) that they will roll out a product that looks and acts like AdSense. It might even be tied to Facebook Connect or Pay with Facebook. If that is the case, I suspect there will be tremendous pressure to bundle the payments piece with the advertising piece. I'm not sure this is wise.

If you're really into Facebook and Facebook games, I encourage you to check out "Inside Virtual Goods - Future of Social Gaming" as it goes deeply into these topics.

Thoughts? Feel free to leave a comment below. Thanks for reading.