Inside Facebook

With nearly 80 million active users in 190 countries and 19 currencies, and a strong record of fraud prevention, PayPal is still the single largest payment processor of virtual currency microtransactions inside Facebook applications – despite not having created any special payment products for app developers. Today, however, the company formally released new “Adaptive Payments” APIs that enable app developers to process PayPal payments on the page, instead of making users leave the application experience to go to PayPal’s site.

Basically, this means the friction associated with using PayPal in-app will go down, making it easier for users to buy more virtual currency and goods in social games. Several Facebook Platform payment companies are expected to integrate the new service, with PlaySpan’s Spare Change and Super Rewards, as well as FundRazr and Payvment, announcing support today. Most offer and payment aggregators offer a variety of payment options, including services from large payment platforms like PayPal and Amazon, as well as new mobile payment services, prepaid cards, and credit cards, in their payment walls.

Here’s how the PayPal widget looks in a screenshot provided by PlaySpan. (However, this is not yet live in the Spare Change app on Facebook.)

Overall, it’s a big move by PayPal that will help it penetrate even more of the free-to-play virtual goods market in social and online games. In the last few years, a plethora of new payment companies have sprung up to service app and game developers, as we’ve been covering extensively here on Inside Facebook and on Inside Social Games.

Facebook itself is testing its own “Pay with Facebook” API for app developers, enabling Facebook users to purchase Facebook Credits (Facebook’s virtual currency) to spend either inside the Facebook Gift Shop or some inside third party Facebook applications. However, you can’t buy Facebook Credits with PayPal. Many have speculated about whether Facebook wants to built out more of the payment layer itself, but we think the company is likely to do more partnerships with payment companies in the coming year like the one it did with Zong recently.

To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.