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When Will Facebook Disrupt the Mobile Payments Business?

Around the world, people are paying for goods and services using their cell phones -- except here in the United States. Nokia [NOK], which bought a stake in mobile payments company Obopay last spring, is preparing to roll out its new Nokia Money service this quarter, but its focus is on African and Central American populations where traditional bank accounts aren't popular. When will someone step in and make billions on domestic mobile buying? And when it happens, who will be the big winner?

The explosion of mobile payments here in the U.S. may be belated, but it's inevitable, say experts. As Morgan Stanley [MS] noted in its report last month, mobile Internet use in the U.S. is about to boom over the next five years, and with that boom will come enormous potential for low-friction, Web-based mobile payments. As their report says:

Consumers who want to pay for content are more likely to do so via a simple payment system requiring many fewer keystrokes than credit card entry on the fixed internet. eBay's PayPal could be particularly suited to the mobile internet.
That's true; PayPal currently has one of the best mobile payments solutions out there, among other good ones like Boku, Zong, and Amazon TextPayMe. But with only about 70 million active users worldwide, PayPal is relatively uncommon except amongst frequent eBayers, and it's one of the bigger services out there. The real golden child of electronic payments may be the ubiquitous Facebook -- if only it can get its operations off the ground.

Facebook may be seeing positive cashflow and excellent rates of growth, but it's also dismally unprofitable considering the size of its user base. That gives it the impetus for an all-out mobile payments push. It's already primed for success: with about 100 million active users in the U.S., it already reaches about half the population between ages 15 and 64, and it already has those users accustomed to using their Facebook credentials all over the Web. Its Facebook Connect portable gateway technology has already been adopted by 80,000 websites, says Facebook, including giants like MySpace [NWS] and YouTube [GOOG].

But other players are trying to wrest the payments market from Facebook's sleepy grasp. American Express [AXP] just spent $300 million buying online payments startup Revolution Money Inc., a pet project of AOL founder Steve Case. Nokia spent $70 million on its Obopay stake, and venture-backed Boku acquired two smaller competitors this summer for an undisclosed sum.

The market for mobile Web payments is still "wide open," says, though industry trade journals assert that competition is heating up. Facebook already has a little-used payments system called Facebook Credits in its incipience, and has been scrambling to ramp up operations as recently as two weeks ago, according to our sister site Cnet. The Palo Alto company's online payments got off to a bad start after it hired Google Checkout developer Benjamin Ling in 2008 and saw him promptly return to Google because of internal disagreements. Despite its stumbles, Facebook may unveil a revamped Credits system at F8, the company's developer conference in April, and industry blog AllFacebook says the company stands to add $100 million in revenue to its balance sheets within the first year of activity.

Issues abound, however. Since 70% of Facebook users live outside the U.S., an internationally-available Facebook Credit would have to be pegged to a basket of currencies, which, as I've written before, could lead to hedging. Security is also an issue; anyone who has used PayPal knows that the Facebook Payment Operations will have to create Fort Knox-like security almost from scratch if it hopes to gain users' trust. Recent phishing attacks aren't heartening.

Still, Facebook is planning on seeing the majority of its traffic come from mobile phones within just a few years, Facebook's former iPhone app developer Joe Hewitt told me recently. If the company can get a handle on frictionless electronic payments by then, we might see the big blue social network become one of the decade's most unexpectedly profitable companies.

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