Suddenly, payments are a big deal again. There’s a whole new market and everyone from titans to startups are going after it.
Two things are driving it:
- Mobile. Every company is betting that we’ll use our phones as wallets.
- Virtual goods and Facebook. Somehow, Zynga and other social games makers on Facebook have managed to make micropayments work. This opens up all sorts of new potential opportunities to make people pay for stuff and to use Facebook’s social graph to drive more people to pay for more stuff.
In this context, PayPal’s hitting 100 million active users is pretty significant, because payments are a network effects business. Consumers will only use a payments service that tons of merchants use. Merchants will only use a payments service that tons of consumers have. This is why Amazon and Google haven’t made much inroads in the space despite their massive reach (and, in the case of Amazon, superior product).
But Facebook has a very strong network itself and, like eBay did with PayPal, can force a huge amount of people by making it mandatory on its platform. As Facebook drives an increasing share of online commerce traffic (which is a mortal threat to Google), it can get merchants to take Facebook Credits as payment.
Meanwhile on mobile the stakes are completely different. Platform owners are promoting technologies like near-field communications, which are built into the phone and let you pay by waving your phone at the cash register. Startups like Square are trying to get past the chicken-and-egg problem of creating a new payments system by focusing first on helping merchants accept credit cards, only to then do away with credit cards altogether.
Who will win?
Only time will tell.
In the meantime, talk about a game of chess.
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