>Fraud. Paypal and others use complex algorithms, special teams and God knows what. But Facebook has an unique and unparalleled data base of a user’s history, friends, activities and what not.
The author seems to confuse credit risk and fraud risk. Credit risk pertains to the probability of you being unable or unwilling to honour your commitments. Fraud, within this context, pertains to the unauthorised use of funds. Facebook's data may be a uniquely valuable to evaluating the former, but to fighting the latter it is less important than existing transaction history databases.
Financial fraud is an immensely complicated problem. An estimate quoted in The Economist recently put the fraud loss rate at approximately 0.35% of transactions and up to 1.8% for online payments [1]. Cross-border payments are a niche unto themselves - even with margins as high as 10%, the fraud risk still poses a high enough barrier to entry that even the banks handle just 5-10% of remittances [2].
It's 11AM and so far Visa and American Express already have 1-3 data points of swipe activity on me. Over the day they'll get 5-10 swipes apiece (+1 NYC). Facebook has a tremendous amount of value in its dataset, but think for a moment about how much Visa, Mastercard, American Express, or your primary bank know about where you live, what you spend on (and by virtue when and where you spend it), and, by aggregating that data, who you tend to spend with. That is what's valuable for anti-fraud and by proxy payments processing.
"The Economist recently put the fraud loss rate at approximately 0.35% of transactions and up to 1.8% for online payments"
For the ~$2 trillion[1] going through online payments, bringing down the online fraud loss by every 0.1% is equal to $2B, if over time Facebook can reduce that online fraud rate by 0.5% or more there is your $10B.
Using your real identity to make online payments could reduce that to real world levels.
If this is the case then reducing the fraud rate from 1.8% to 0.35% in online payments (a reduction of 1.45%) would calculate to a savings of $29B for this industry.
Thus, if Facebook is able to be a major part of that reduction by using real identities then they will get much of this transaction business. If they are able to pull this off there is no stopping them...
Feel free to rip me apart, but there is some validity to may arguments :)
Using your real identity to make online payments could reduce that to real world levels
How many of your friends have had their facebook accounts stolen? For me, it's a few percent. "Oh look, another random acquaintance is stuck in Abu Dhabi and needs me to wire them some money"
Facebook security isn't nearly good enough to be handed my wallet. Actually it's not my wallet that's the problem, it's the wallet of everybody who uses "password" as a password.
> Facebook security isn't nearly good enough . . .
Pretty sure most cases where people's accounts get hacked have nothing to do with the security of the website, except inasmuch as the site fails to provide an authenticator. Most "hacking" involves getting a computer virus or entering your password into a site that is not actually Facebook.
This is true. On the other hand, online banking security starts from "the client computer is compromised", and a new service that says "you're fully liable if your machine is hacked" will have... problems getting traction.
"online banking security starts from 'the client computer is compromised'"
Facebook currently (or did) reset the password by having you identify the names of your friends using their pictures. I could see this as a way to authenticate a transaction.
Really? None of your friends have pictures of cats or their babies or grainy shots of them and four other friends as their profile pictures? Because sometimes it feels like half of mine do.
Very true, now the question is who they need to acquire to gain that technology (Square? Maybe, maybe not). Paypal processed US$ 71 billion in 2009, an increase of 19 percent over the previous year. I don't know what they did in 2011, but it might be around $100B?
The question is not if online payments is able to work, it is a question of if Facebook is able to crack the nut and reduce the fraud by using real identities. There are real problems as you have pointed out, but (and it is still a very big BUT) IF (and that is a very big IF) they are able to pull it off it will be a game changer for them.
All told, it's probably more valuable and actionable information than Facebook will ever have about you. Oh look, you claim to "like" some restaurant that gave you a special deal for mashing the "like" button. Isn't that precious--meanwhile, you actually eat more often at this one just across the street.
Facebook data is not useless for assessing credit risk. People with high credit scores are likely to be connected to each other via social networks. The converse is likely also true.
Although it is controversial, banks seem to be starting to look at this.
Facebook does have data that can be used to fight fraud; e.g. "which of these 10 photos if your friend" or "which of these 10 cities did you visit last year".
Visa/Mastercard/Amex only have your transactions to go on so naturally they have spent billions building fraud tools around this data; that's not to say there are not a lot of other data points to build these tools.
But pay-with-facebook is also going to be limited to what you can buy - so thewir risk is greatly reduced
They don't have to worry about stolen cards used in the high street, they don't have to do cash advances, they don't have pin pads skimming people's pins in stores.
The author seems to confuse credit risk and fraud risk. Credit risk pertains to the probability of you being unable or unwilling to honour your commitments. Fraud, within this context, pertains to the unauthorised use of funds. Facebook's data may be a uniquely valuable to evaluating the former, but to fighting the latter it is less important than existing transaction history databases.
Financial fraud is an immensely complicated problem. An estimate quoted in The Economist recently put the fraud loss rate at approximately 0.35% of transactions and up to 1.8% for online payments [1]. Cross-border payments are a niche unto themselves - even with margins as high as 10%, the fraud risk still poses a high enough barrier to entry that even the banks handle just 5-10% of remittances [2].
It's 11AM and so far Visa and American Express already have 1-3 data points of swipe activity on me. Over the day they'll get 5-10 swipes apiece (+1 NYC). Facebook has a tremendous amount of value in its dataset, but think for a moment about how much Visa, Mastercard, American Express, or your primary bank know about where you live, what you spend on (and by virtue when and where you spend it), and, by aggregating that data, who you tend to spend with. That is what's valuable for anti-fraud and by proxy payments processing.
[1] http://www.economist.com/node/21554743
[2] http://www.economist.com/node/21554740