Social network Facebook Inc., already a growing threat to established Internet portals, might also be setting its sights on eBay Inc.'s (EBAY) PayPal online payments unit.

Over the past several months, Facebook has gradually expanded the scope of the nascent online payments system its 250 million worldwide members can use to buy virtual and real-world gifts. The social network has accommodated more currencies, is testing new technologies and has recruited a handful of online payments specialists.

The developments suggest Facebook aims to build an online payments business that could one day augment its advertising revenue, the company's primary source of revenue. It could also put Facebook on track to challenge online payments leader PayPal, a unit that struggling eBay has highlighted as its primary growth driver over the next several years.

"It's not an easy business to do well, but Facebook has a good shot at it," said  Ben Schachter, an analyst at Broadpoint AmTech. "It is a [long-term] threat."

Facebook declined to discuss its long-term payments ambitions, but recent developments suggest the social network is taking the opportunity seriously.

The company late last year launched a virtual currency called Facebook Credits with which users can buy items such as digital flowers and greeting cards at the social network's "gift shop." The system, in which users buy Facebook Credits with their credit cards, was expanded in May to include a handful of third-party game developers and virtual gift makers who have built Facebook applications.

The following month, Facebook started accepting payments in 14 new currencies, in addition to the U.S. dollar, a logical step given that more than 70% of users live outside the U.S.

This month, the company revealed it is testing a system for users to buy physical merchandise, like real roses, through Facebook's payment platform. It also launched a test to let some users buy Facebook Credits by billing their mobile phones.

Recent hires suggest Facebook is aiming high. In May, the social network hired Prashant Fuloria, a formerGoogle Inc. (GOOG) product management director who worked on that company's Checkout service. It also recently hired Ivan Kirigin, co-founder of shuttered micro-payments service TripJoy.

Analysts believe Facebook will try to establish its payment system as an on- site "wallet" and then leverage Facebook Connect -- which lets people use their Facebook IDs to log into participating third-party sites - to deliver "one- click" purchasing capability across a broad range of Web sites.

Facebook Chief Executive  Mark Zuckerberg said in a recent interview that payments has the potential to be "really important" business for the social network. He also hinted Facebook Connect would feature prominently in that strategy.

It won't be easy going up against PayPal, which generated $2.4 billion in revenue in 2008. EBay projected earlier this year that PayPal's revenues would hit $4 billion to $5 billion in 2011, as it continues to capture share of transactions on eBay, as well as through third-party merchant sites, and expand into mobile and non-retail payments.

Scores of payments start-ups, not to mention Internet titan Google, have failed to knock PayPal off its perch, Schachter and others are quick to note.

PayPal spokeswoman  Amanda Pires declined to comment on Facebook as a potential rival.

Bruce Cundiff, online payments analyst at Javelin Strategy & Research, said Facebook's chances of success will depend on whether it can develop a clear online-payments strategy, build a brand consumers can trust and convince merchants they should accept Facebook's virtual currency.

Scot Wingo, CEO of ChannelAdvisor Corp., which makes software that helps merchants sell goods on eBay, said Facebook's social nature creates interesting possibilities, such as letting shoppers tell their "wallet" to automatically inform friends about any product they purchase with Facebook Credits.

The social network could also bolster its ecommerce bona-fides by tying Facebook Credits to product and merchant reviews written by their friends, a significant improvement over the usually anonymous reviewers that people rely on today, Wingo said.

Source: money.cnn.com