The Social (Payments) Network
Is Facebook gearing up to battle PayPal and the ever-growing list of companies in the payments space? Are they just preparing for the increased scrutiny that going public will bring? Or, perhaps they plan to revolutionize the financial service industry with their more than 845 million users worldwide?
The point is no one really knows.
A recent article in American Banker shined a light on the social network’s recent activity with state regulators, confirming at least 15 states have granted money transmitter licenses to Facebook. Facebook already maintains a digital currency, Facebook Credits, for use with Zynga’s Farmville and some of its other online games. Point being: Facebook is well positioned to provide person-to-person (P-to-P) money transfers with real-world currency.
What would a Facebook-based financial institution look like?
Well a lot like PayPal actually, but with more traffic – people updating their status, posting pictures, checking up on friends, etc. P-to-P transfers seem a natural fit. Banks have begun to offer P-to-P and need to take Facebook seriously as a competitor. Bank transfers can be as easy and convenient as simply entering the recipient’s email address and the amount to be transferred. If you are already logged in to Facebook, it could only take several clicks, eliminating the need to switch to a bank’s site or PayPal.
Currently, advertising space is the only product sold by Facebook. It stands to reason Mr. Zuckerberg and company would jump at the chance to squeeze more revenue from his website’s users. Taking a small percentage of the P-to-P transfers would generate additional revenue.
Facebook collects information about users, their preferences and activities on their site, giving them a huge advantage over other FIs. Only Google comes as close to compiling as much user information.
The popularity of the payment space continues to surge with a seemingly never-ending line of companies ready to compete for a piece of the market. Case in point: Retailers Walmart and Target recently announced that they, too, will soon launch a mobile payment system. Starbucks and Subway launched mobile payment solutions last year.
Retailers like to provide payment solutions because it enables them to offer special deals to customers, avoid paying costly transaction fees to FIs, and provide greater security than a multiple vendor system. Perhaps most important is the additional information about each consumer, which can be culled and analyzed in order to maximize sales from each individual and thus increasing the retailer’s revenue.
Questions remain about if and how Facebook would handle basic banking functions like deposits, interest, and fees, but FIs would be wise to prepare for competition from yet another company.