Lookout PayPal, Facebucks are coming.

Facebook is under the gun to develop a direct business model and the LA Times reported last week that they are working on creating a virtual currency system that just might be the answer.

With only $300 million in the bank and an estimated $20 million per month burn rate of that cash, Facebook and its investors are eager to find a winning revenue model beyond advertising. As with many Web 2.0 companies, Facebook has struggled to come up with a direct revenue stream that is integrated directly into the day-to-day user experience.

A virtual currency system, which I’m calling “Facebucks”, would allow users to buy the virtual currency in blocks and maintain a balance that can be used for one-click purchases. Enabling one-click and micro transactions for smaller impulse purchases has proven to be wildly successful for virtual worlds and even more so for Amazon and iTunes.

It’s not clear how many ways users will be able to use the currency, but items from Facebook such as the $1 gifts is a no brainer, as well as virtual items and services in 3rd party Facebook applications.

PayPal, the current largest online payment service, has reason to be concerned. Not only would it lose out on presumably all of the transactions it currently processes for 3rd party Facebook applications but it also could see other parts of its online business erode. Facebook has twice as many users as PayPal which may cause online merchants to scramble to provide Facebook at the checkout.

(Home page photo by Laughing Squid.)