Facebook to take on PayPal? Not so fast

The social network wants to collect your shopping data, but it's not trying to become the next PayPal.

Jennifer Van Grove Former Senior Writer / News
Jennifer Van Grove covered the social beat for CNET. She loves Boo the dog, CrossFit, and eating vegan. Her jokes are often in poor taste, but her articles are not.
Jennifer Van Grove
2 min read
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Surely, Facebook envisions a future when you shop on your smartphone or tablet and keep the company in the loop on all your purchases -- but the social network poses no threat to PayPal.

The company plans to test a pay-with-Facebook mobile checkout option, as scooped by AllThingsD, but it's not trying to take over the complicated payments processing market, as has been suggested. Instead, Facebook wants to collect more data -- the best kind of data -- to pass on to its advertisers.

According to reports, the pilot Facebook feature will let social networkers pass along their credit card and billing information with a single click when making a purchase on mobile. The actual transaction, however, will be handled by the payments provider used by the application in question, according to TechCrunch, which means the system works with PayPal, Braintree, and other processors. Facebook confirmed to CNET that it is not processing payments.

"We are working on a very small test that gives people the option to use their payment information already stored on Facebook to populate the payment form when they make a purchase in a mobile app," a company spokesperson said. "The test is designed to make it easier and faster for people to make a purchase in a mobile app by simply pre-populating your payment information."

And that makes a lot more sense than Facebook attempting to become the next PayPal.

The social network needs data -- to continue to boost its burgeoning mobile ads business -- more than it needs to reinvent the wheel. If Facebook can act as middleman between mobile shopper and app maker, and help people quickly get through the often overly complicated mobile checkout process, then the company can help its advertisers fill in the blanks between online exposure and purchase.

"By understanding what consumers 'like' and discuss on the platform, Facebook understands much about their propensities and inclinations," Altimeter Group digital advertising and media analyst Rebecca Lieb told CNET. "But...actual spending data -- knowing what people buy -- breaks opens the possibilities of advertising, targeting, and messaging in ways that are extremely precise, valuable, and meaningful to advertisers."

In theory, Facebook's middleman approach to mobile payments could work, as the company maintains close ties to thousands of developers who've already put Facebook hooks inside their applications. But Facebook Gifts, the 1-year-old online marketplace where people can purchase presents to send to friends, has failed to gain meaningful traction or generate revenue, highlighting the social network's inability to convince its 1.15 billion members to mix commerce with their status updates.

The question is, Lieb said, will consumers want to hand over credit card info to a company associated with social and sharing? Early evidence suggests that the answer is no.

Update, 1:36 p.m. PT: With comment from Facebook.