Social Networking

and
Payments

A Presentation to the
Federal Reserve Bank of Philadelphia’s
Payment Cards Center
Elizabeth Rowe
August 9, 2010
 In U.S., Social Networks Have Grown
Quickly

Visited a Social Networking Site in the Past 30 Days

100%
90%
80%
70% All Adults
60% Age 18-34
50%
40% Age 35-49
30% Age 50+
20%
10%
0%
Fall 2007 Fall 2008 Fall 2009

Source: Simmons New Media Study, 2010

Facebook has 500 million users, with half living outside the U.S.
Globally, the largest domestic social network is China’s Qzone, with 388
2 million users.
 Time Online is Spent Playing Games at
Social Networks
U.S. Monthly Time Spent on Internet Sectors (millions of hours)

Classifieds/Auctions

Multi-category
Entertainment

Software Info

Search

Videos/Movies

Instant Messaging

Portals

Email

Games

Social Networks/Blogs

0 200 400 600 800 1000

Source: The Nielsen Company, 2010

3
 Online Gaming (Micro)Payments are a
Major Engine for Revenue

Facebook Revenues From Payments

2009 - 2012
Payments as a
Gross Company
Year Payments Revenue Percentage of
Revenues
Company Revenues

2009 $25 million $550 million 4.5%

2010 $70 million $1 billion 7.0%

2011 $400 million $5 billion 8.0%

2012 $1.1 billion $11 billion 10.0%

Source: Facebook and Analyst Estimates,

2010

4 Facebook takes 30 percent of each payment it processes.

 Smart Money is Following Virtual
Currencies

Social Games Are Attracting VC and Corporate

Investors
Date Target Investor Investment ($)

July 2010 Playdom Disney $563.2 million

$12 million –
July 2010 Kongregate GameStop
$40 million

July 2010 Zynga Google $100 million

Zynga and Digital

April 2010 Tencent $300 million
Sky Technologies

Digital Sky
December 2009 Zynga $180 million
Technologies

Source: Company Press Releases, 2010

5
 Consumers Increasingly Comfortable with
Virtual Transactions

Facebook
P2P
Apple

Social
Amazo Networking
n iTunes (digital goods)
(experience)

eCommerce
(physical
goods)

6
 Virtual Payments: Harbingers of
Challenges to the Larger Payments System?
Consumer/
Merchant A Bank
Business

Traditional Flow of Payments

Merchan
Merchan
tt A
A

Merchan Consum
Consumer/ t C er

Business Bank

Consum
Consum Merchan
Merchan
er
er tt B
B

Emerging Flow of Payments Diminishes

7 Centrality of Banks and Issuers
 Global Experimentation with Social
Networks as Payment Platforms

Country #1 Social Network Country #1 Social Network

Czech Republic Lidé Philippines Friendster

Hungary iWiW Poland Nasza-Klasa

India Google’s Orkut Russia vkontakte

Japan Mixi South Korea Cyworld

Netherlands Hyves Taiwan Wretch

As a Rule, Each Country’s Largest Social Network is Home-

8
Grown
 The Dutch Model: Disruption and Revenue
Loss for Traditional Payment Providers

Hyves Transactions Move Seamlessly From Virtual to Real Worlds

9
 China Regulates Virtual Currencies
USD Value of
Chinese Chinese Social Virtual
Year Action by Central Bank
Online (#) Gamers (#) Currencies in
China

Announces it may supervise virtual

currencies to prevent their affecting
the value of the Yuan. The Bank
2006 threatens to put Q-coins (a virtual 111 million 37.5 million $850 million
gaming currency) issued by Tencent
Holdings under its oversight if the
coins enter wider circulation.

Calls for halt in trading of virtual

2008 currencies as the coins enter 216 million 59 million $1.1 billion
mainstream economy.

Tries to halt trading of virtual

2009/2010 currencies and places Q-coins under 400 million 124 million $3.2 billion
bank oversight.

10
Source: Xinhua News Agency, 2006, 2008 and 2010
 Conclusion

Virtual payments have the potential to introduce risk into

the payments system.

They also represent engines for economic growth and

innovation.

If these payments gain traction and liquidity, their

disruptive potential should be monitored and moderated
by regulatory authorities.

Thank you for your time today.

Elizabeth Rowe
11