When Facebook Is a Bank...
Facebook is mere weeks away from having a regulatory green light in Ireland to allow its users there to store money on the site, and make payments to individuals, the Financial Times reports.
Yes, Facebook is getting into electronic money.
The company's primary initial interest in e-money authorization throughout Europe is so that it can facilitate remittances--the transferring of money by a foreign worker to an individual in her home country--and other various person-to-person payments, the paper reports.
"Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion," a person familiar with the company’s strategy told the Financial Times.
At first glance, remittances might seem like an odd and narrow path into becoming a trusted online bank, or even a digital Western Union. But over the past few months, as Facebook CEO Mark Zuckerberg has been talking about getting Facebook to more users around the world and, particularly, to those in developing countries, it makes more sense. Facebook spent $19 billion to acquire WhatsApp in order to reach toward that goal of expanding its user-base to places without reliable wireless Internet.
This time, Facebook isn't just acquiring companies that can help it--it's doing the leg work itself, with Sean Ryan, the company's vice president of platform partnerships, at the helm. (Though the Financial Times reports that the social network attempted to pay $10 million to acquire a senior employee from Azimo, a UK-based social money-transfer service.) Facebook would not comment to the Financial Times, calling its reporting "rumor and speculation."
Let's take a step back. It was back in February of 2013 that Azimo added Facebook integration. But the integration is simply to pull user information from Facebook to Azimo; it does not allow one to send money over Facebook. At least not yet.
The Financial Times reports that Facebook has been in discussions with Azimo, and also two other London-based startups in the international money-transfer space: TransferWise and Moni Technologies.
Facebook already makes about 10 percent of its revenue from transactions that take place within the site--but this isn't really banking. Not yet.
Last year, $2.1 billion in transactions happened on the site. But these were almost exclusively payments for games (Facebook takes up to 30 percent of these payments), according to SEC filings. Facebook formerly hosted a virtual currency, Facebook Credits, which was used for apps and games, but no longer exists.
In the United States, Facebook is authorized to do some money transferring. But, according to the Financial Times, that's fairly limited. Mostly, the company processes payments for the companies using its platform to charge users for in-app purchases.
It makes sense that Facebook appears to be first working on performing bank-like services in Europe, where regulations are slightly less complicated than in the United States. And more than half of Ryan's team is based in Europe and Asia, with a particularly significant team in London. And it already has the rails in place to process payments through Facebook.
Google already is authorized in the UK to issue electronic money, and Vodafone has en e-money license in Europe.
These facts considered, one can reasonably expect it won't take long for Facebook to soft-launch the payment features once it has the Irish stamp of approval. It will be interesting to see whether--and if, then how--the company goes about targeting foreign-born workers.
Also, it's unclear how much of a cut of each transaction the social network will take. It'd be simple to charge a smaller rate than Paypal, Western Union, or the startups in the space. But perhaps that's not the value-add Facebook--which already connects friends and family around the globe--seeks to provide.
Then again, Facebook Gifts--the company's marketplace for virtual goods, gift certificates, and deliveries--hasn't exactly taken off, so it's possible the company might ditch the inside-marketplace strategy and adopt a more mobile-wallet-minded approach, as has Google with Google Wallet. If it is moving in that direction, it's certainly mindful that other major web companies around the globe, including Tencent and Alibaba, are also adding mobile transactions to their business models. And it better move fast.
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.