Facebook Quietly Tightens Its PayPal Payout Policy, Now Requires Extra Authentication To Use It

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As Facebook continues to build out the App Center and its overall business as a platform for third parties, it’s also tightening up how payment policies work within it. In one of its latest moves, the company has changed how it pays out to PayPal accounts for new (not existing) developers who select that option. Specifically, Facebook now requires extra levels of authentication for new developers using PayPal, similar to what is required of those who ask for payouts to large emerging markets like China, India, and Brazil as well as some mature countries such as Australia, Japan and Norway.

The extra authentication comes in the form of identification such as incorporation papers for the developer’s business or photo IDs, and is in line with what Facebook requires for those who request to be paid directly into bank accounts in the same list of countries.

As I understand it, the change has been made to help mitigate risk on payments out to those countries and help build out the credibility of the platform — rather than as a move to restrict payments via third parties, or in response to reported problems, or as a precursor to any moves for Facebook to launch its own payout service.

On the latter point, Facebook declined to comment on whether it planned in the future to take on any of the payments services that eBay-owned PayPal currently handles for developers, but getting security right and risk down on the payout service across the whole of its geographical footprint would be essential if Facebook did decide to pursue something like this.

Facebook holds money transmitter licenses in several states in the U.S., as well as in individual countries internationally. These are required for companies that accept and transmit electronic currency, and so moves like this one are often made to get in line with regulations around those licenses. Other companies that hold such licenses include Amazon, Google and PayPal itself. A money trasmitter license is also necessary if Facebook ever did want to get into payments competing against PayPal.

The extra authentication is required for all new developers using PayPal, regardless of what country they are coming from. This is in line with what Facebook requires of developers when they ask to be paid into bank accounts in certain countries. That full list countries is Argentina, Australia, Brazil, China, Guadeloupe, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Norway, Philippines, South Korea, Switzerland, Taiwan, Thailand and Turkey, as well as the French regions of Guiana, Martinique and Reunion.

In contrast, developers who request to be paid into bank accounts based in another set of countries — including the U.S., most of Western Europe and a few others — do not need extra authentication. That full is is United States, Canada, United Kingdom, Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Singapore, Slovakia, Spain and Sweden.

News of the change in the PayPal/Facebook policy was first reported last week by the blog Bank Innovation — although when I ran that story by Facebook for a comment, I was told the blog got the story wrong by saying that Facebook was eliminating PayPal payments altogether.

It’s unclear how many developers are on the Facebook platform today. Facebook notes that as of March 2012, some 9 million apps are integrated with Facebook — although it’s not clear how many are actual Facebook apps that use its payout system for revenues made from credits and in-app purchases.

In 2011, there were about 550,000 apps on the platform, and given the emphasis the company has put on the App Center in the last year, that number will certainly have grown. In that sense, the need to keep the platform as secure as possible is essential in Facebook’s effort to make the service generate more revenue and be more profitable.

In the past, PayPal has created other transactional products that Facebook has declined to develop itself, for example its Send Money app that lets Facebook users send money to each other via a PayPal-powered Facebook app. Separately, Facebook and its photo-sharing app Instagram have started to require some users to produce photo identification when they violate the company’s terms of service.