Ignore J-Lo. She, like Facebook Advertising, is a distraction.

Facebook's real business model is PayPal. Only much, much bigger.

Steven I. Weiss writes in Forbes:

But Facebook does have something unique for producing revenue, something far more elusive and something a great many of the most-valued American companies wish they could generate. It’s been the dream of every web firm to date, and a good number of offline businesses as well: Facebook is the only universal ID to represent a majority of American consumers.

A foolproof virtual ID requires three elements: a unique account with name, a photo ID, and a digital signature. Ideally, it will be easy to implement on the web and on mobile devices, and contain the ability to be easily implemented for login to others’ services.

Facebook has all of those things, and with its virtual ID, it can implement an in-system revolving credit account that can be tied to nearly everything you buy, rendering clunky and relatively useless nearly every competing system real or proposed today. And where the relatively paltry mobile advertising market is seen as a major count against Facebook as the world of mobile expands, Facebook’s presence on nearly every smartphone means it can dominate the mobile space for virtual IDs, and thus virtual transactions...

Facebook has achieved the holy grail of the web: the key to making the credibility and reliability of personal shopping and physical media work for both consumers and providers without being tied to physical objects like credit cards, newspapers and DVDs. It works across the web, mobile, and other devices. That’s something that’ll have the $77 billion Visa, $64 billion American Express, and $50 billion Mastercard wondering if they’re worth anything at all.

Read more.

He also has more detailsThe Daily Beast:

Facebook's already done the hard work of getting a billion people to use the site as a virtual ID; the road from there to becoming the universal wallet is a relative breeze.

As I discussed with Forbes managing editor Bruce Upbin, Facebook's virtual ID can easily be used as a credit card (which we'll call "FacebookCard")—a revolving-credit account, just like your Visa or MasterCard, that's usable anywhere. Facebook would have to spend some of the billions it now has in the bank to set up customer-service operations and credit facilities with banks to launch it, and invest in making Facebook logins more secure; the things every credit-card company has to do in order to operate.

You'd apply for credit with FacebookCard over the phone or online, just like you've done for the credit cards you have today. Once that account is established, you can use your FacebookCard to buy anything, anywhere.

In 2011, 15 million people bought Facebook Credits: http://techcrunch.com/2012/06/23/why-facebook-is-folding-on-credits-and-doubling-down-on-payments/

Facebook Credits accounted for 15% of Facebook's revenues in 2011.

Facebook made some changes this week to phase out Credits and allow them to perform transactions in native currency according to Peter Vogel:

Credits will be phased out by the end of the year and users will simply have a Facebook account with a balance measured in Dollars in the U.S., or whatever currency is native to a country. Facebook’s new member accounts will function similarly to an iTunes account: a user adds a credit card to their account, digital goods can be purchased and immediately charged to the card on file, or can be drawn from stored value in that account.  If you are given a Facebook gift card, in card or digital form, you would add that reward code to your account and that value would be stored until you use it – just like an iTunes gift card is added to your account and stored until spent.

We still expect Facebook to be become a dominant player in the Payments space, similar to a PayPal. Last year, 15 million people bought Facebook Credits, according to their S-1 filing, so it’s assumed Facebook has close to 15 million credit cards on file. By the end of this year, once paid apps are added to Facebook’s App Center, it wouldn’t be surprising if 50 million people, or about five percent of Facebook’s users are purchasing apps and other digital good, like movies, music and TV episodes, which means Facebook would have a pool of 50 million people who have entrusted it with their credit card information

At that point it’s a very short distance to a “Pay with Facebook” blue box showing up every time you make an online purchase (on web sites everywhere, not just on Facebook). Why re-enter your credit card number when you already trust Facebook to handle the transaction and bill your card? For users this could be seen as more convenient and safer than entering their credit card number on multiple sites. Facebook is PayPal on steroids, with the strength of a billion members.

And then, what’s to stop Facebook from introducing a Facebook Credit Card?  Facebook could be bigger than PayPal and become Visa or MasterCard as well. Facebook has the potential to become a universal wallet for both online and offline purchases.

Peter Thiel grew PayPal into a billion dollar currency company.

Can he coach Zuck into growing Facebook into a trillion dollar currency company?

Facebook's current 1 billion users control most of the world's money: http://www.businessinsider.com/facebook-stock-to-moon-2012-6

Very interesting point. Probably, Forbes thinks that business are like Transformers - you push a button and the car becomes a robot-warrior. While I do not believe it's that easy, there is something to this idea.

It's triggered my thinking that original investment, made by Peter Thiel, was not to pokes and pictures web site... Based on Facebook Effect, he got interested after Mark Z passionately explained that facebook is a social utility, which maintains universal social profile. With his paypal experience, he seen something bigger in this product.

Facebook profiles can POTENTIALLY be used in legal and financial area. THEORETICALLY... facebook profile should be able to replace even credit history. Car Loans on timeline, anyone? If you missed a payment, the record shows up on your timeline and everybody see it...:)

Question is what can be done practically?

Does facebook have the horse power to takeover Visa, MasterCard and Equifax? Sure. They have global reach, best tech team in the world, billions on bank accounts and direct line to congress and president Obama.

Can they make a real financial product? I doubt it can be done with ease described in Forbes. The whole organizational culture required for financial organizations is vastly different.

Can the people, excited about sharing and open world, be excited as much about security, secrecy, verification, validation and fraud detection?

Can they "stay focused and keep shipping" while adding completely new business line?

Bigger question, will the users, who associate Facebook with photos, pokes and likes be open to attach bank account to this thing?

Time will show.

Next question is, why Facebook and not Apple? App store has have like 120 mil credit cards on profile.

User identity is liked to devices and network contracts, which actually verified with SSN etc.

I also think it will take less work to turn a cell phone to a wallet...

Apple certainly believes that.

This is why Facebook is allegedly working on their own phone, too.

And don't count out Google, Amazon, Paypal, and Square.

Payments are big business, and the banks are ripe for disruption.