Facebook pulls down the curtain on 'Credits'. Why?

To buy an app on Facebook, users had to buy Facebook credits. Each Facebook credit was equivalent to a dime. This meant that if I have to buy an app which cost me say 40 credits, in reality it cost me $4 to buy the app. $4 for an app may not seem to be too expensive to me but if I convert that to the Indian currency which is INR 62.70 (as per the exchange rate on 16th September, 2013) it would cost me INR 250. Two months back the same app when the exchange rate was around INR 56 for a USD, the app would cost me INR 224.

The problem with such an approach which was adopted by Facebook is that the pricing would differ for international users and the fluctuations in the forex market would impact the actual cost of the app. Facebook makes 30% as commission for every online transaction conducted on Facebook and it was important to find a solution. The payment team at Facebook felt that the large scale adoption is not happening due to exchange rate related issues and led to international customers avoid transactions through Facebook credits. This also led to the developers taking a hit on the revenue earned.

Talking to Techcrunch on pros and cons of using Facebook Credits v/s Payments through local currency, Deb Liu, Payments Team Leader at Facebook, stated that Most users were actually spending in one game or a couple of games. Local currency payments were benefiting [developers] more than using Credits. This led to Facebook announcing in March, 2013 that they would make a transition from paying through credits to making local currency payments. Earlier this week, Facebook has closed down the Facebook credits system for making online purchases.

In the video below Gareth Morris, a Partner Engineer speaks about the migration of credits to local currency payments.

Source: Facebook Developers

LTP View: Facebook might have made a move in the right direction by phasing off Facebook Credits. Considering its growing international user base (India is #2), such a move should help as it will make the buying process seamless and quick with less steps, more economical with less dependence on exchange rate fluctuations and good for developers to customize pricing as well. Though Facebook earned only $214 Mn in quarterly revenue as per their Q2 2013 earnings report, it would be interesting to see how much this latest move would affect them in terms of revenue.