Facebook is definitely coming into the world of online-payments. I’ve been saying this for a long time and it seems the pieces are starting to fall into place. It all started with a brilliant article by Farhad Majoo for Fast Company, aptly titled: The Great Tech Wars of 2012, in which it was envisioned that the payments war would be played out between four players: Google, Apple, Facebook and Amazon.
I’ve been tracking Facebook in the US (with respect to their approvals) for State Money Transmitter Licenses (or MTLs). I first wrote about it on Quora, on a question: Facebook & Payments: Why are start-ups or Facebook itself not using Facebook’s large user base for money-transfer services? (this article was written in April 2013). Back then, when I was tracking Facebook, they only had a couple of money transmitter licenses.
Today, in April, 2014, it seems Facebook has acquired all the necessary licenses including territories like Puerto Rico and US Virgin Islands. See this link for a spreadsheet that highlights the States for which Facebook has money transmitter licenses.
Today, Financial Times is covering an article (thanks to Chris Skinner’s tweet on this) about Facebook applying for a money service business license in the UK.
Mr. Skinner also covers this on his blog at Financial Services Club – Facebook is getting regulatory approval to start financial services division. The Financial Times article, Facebook targets financial services is a great read on this.
To summarize an important paragraph from the FT article:
Not content with being just a platform to host cat photos and status updates, Facebook is readying itself to provide financial services in the form of remittances and electronic money.
The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.
The authorisation from Ireland’s central bank to become an “e-money” institution would allow Facebook to issue units of stored monetary value that represent a claim against the company. This e-money would be valid throughout Europe via a process known as “passporting”.
Whilst many argue that Facebook’s platform is not ripe for money-transfers, I beg to differ.
Speaking to my contact within Facebook, specifically within Facebook payments group, it seems they have studied the payments framework meticulously and are confident it can be used in a safe and secure manner for the transfer of funds. Privacy pundits argue that Facebook hasn’t done enough in the space of privacy and security and adding payments onto the platform will be a fizzled launch at best. Users will not trust Facebook with their bank and/or card information. I disagree again!
I personally believe users will jump on to the platform. It has a lot to offer. Facebook payments if launched successfully and with the right formula (no one knows about the formula, everyone is tight lipped about it), would be the high-watermark for the payments industry. You’re potentially looking at one of the world’s largest bank in-the-making. Ask the millions of users who do not have access to frictionless cross-border payments (the millions of freelancers, etc.) and they will tell you how much they would love a Facebook peer-to-peer payments solution.
Just today, it was announced on GigaOm that Facebook has decided to spin off its Messenger into a separate division. This is a brilliant move by all counters. WeChat – which is owned by Tencent in China, has had phenomenal growth and success as being a separate division (for not only messaging) by also being a bank agnostic wallet provider. Today, contrary to the myopic view that PayPal is the largest wallet provider, the fact remains that Tencent’s WeChat is actually the largest wallet provider (read my answer on Quora: Why has PayPal been unable to become the standard for Internet payments?).
Agnostic messaging solutions that can add a layer of payments will be the largest wallet providers. Expect competition from WhatsApp – oh wait! That’s already owned by Facebook. So, you can see a trend that is beginning to emerge. Facebook Licenses + WhatsApp acquisition + Separating the Messenger Division = Worldwide Bank Agnostic Wallet = Brilliant strategy!
The sleeping giant has indeed woken up and it can truly disrupt the global payments space, especially if Facebook ventures out in the world of remittances.
- Facebook: Will Facebook ever launch a service that is similar to PayPal?
- Facebook: How disruptive can Facebook be with payments?
- Facebook: What should Facebook do next to drive a step-function growth?
- Ripple: How can organizations such as Facebook benefit from partnering with Ripple?