Apparently Facebook has applied for an e-money licence in Europe, according to today’s Financial Times.
That’s no big deal, as Google and PayPal have had bank licences since the mid-2000s in order to operate e-money capabilities. It hasn’t meant that Google and PayPal intend to be banks, although they might in the future. It does mean that, as per our regular dialogue about GAFA (Google, Amazon, Facebook and Apple), these guys want to get into payments processing.
For example, just the other day, Apple’s CEO Tim Cook said that payments is a space they want to get into.
With GAFA clearly focused upon the payments space, what does this leave for the banks?
And, in case you can’t access or didn’t see it, here’s the full Financial Times piece:
Facebook targets financial services
By Sally Davies, Duncan Robinson and Hannah Kuchler
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 Facebookto 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”.
Facebook has also discussed potential partnerships with at least three London start-ups that offerinternational money transfer services online and via smartphones: TransferWise, Moni Technologies and Azimo, according to three people involved in the discussions.
In the case of Azimo, Facebook offered to pay the company $10m to recruit one of its co-founders as a director of business development, according to people familiar with the situation. A Facebook spokesperson said the company did not comment on “rumour and speculation”.
London’s financial technology sector has thrived thanks to the high concentration of financial services companies, a congenial timezone for international transactions and a more unified regulatory environment in Europe compared with the US.
A foray into migrant remittances is part of Facebook’s push to increase its presence in emerging markets.
“Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion,” said a person familiar with the company’s strategy. Facebook recently passed 100m users in India, which is its largest national market outside the United States.
But it is unclear that people will trust Facebook to handle their money, given concerns about personal data mining by the social media network to boost advertising on the site.
Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion
The money transfer project, led by Sean Ryan, Facebook’s vice-president of platform partnerships, signals a strategic shift for the company, which makes most of its money from advertising.
It also comes as other internet groups – in particular, China’s Tencent and Alibaba – race to turn their sites into mobile payment platforms.
Google has reiterated its commitment to expanding its mobile payments and wallet products, which have yet to be widely adopted by consumers. It is registered in the UK to issue electronic money, in a process similar to the authorisation which Facebook is seeking in Ireland.
Obtaining an e-money authorisation in Ireland would require Facebook to hold capital of €350,000 and segregate funds equivalent to the amount of money it has issued, according to legal experts.
February 2014: Facebook’s acquisition of WhatsApp puts it at the heart of the communications world with an application that already has 450m users. Daniel Thomas, FT telecoms correspondent, says the deal shows Facebook wants to own the mobile phone home screen
Facebook is already authorised for some forms of money transfer in the United States, allowing it to process payments for developers who charge users for in-app purchases.
In 2013, the company facilitated $2.1bn worth of transactions, almost exclusively from games, according to documents filed with the Securities and Exchange Commission.
Facebook takes a fee of up to 30 per cent for such payments, and these fees account for about 10 per cent of its revenues.
Vodafone has acquired an e-money licence for the phone company to operate financial services in Europe.
“It’s great news that non-banks are challenging the traditional banking monopoly,” said Simon Deane-Johns, a UK-based lawyer and European payments expert at law firm Keystone Law.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
