The web-based money transfer market could be in for a large shakeup after it emerged Facebook is planning a money transfer business in Europe, expanding its existing options beyond the U.S.
Expert opinions are split as to whether a foray into the market by Facebook would cause a competitive danger for existing online money transfer providers such as eBay's PayPal division,
The social network, which already has money services licences in most US.. states but has not yet launched a money transfer business, is close to gaining regulatory approval in Ireland, its European base, for an online payment service - according to a report in the Financial Times.
Such a business would draw on Facebook’s extensive user base and existing mobile reach, but analysts are warning that success could depend on establishing a new level of user trust. It would also partner with existing technology startups to handle the transfers. The company has not commented on any potential launch, and the timing remains unclear.
Launching such a service extends what is perceived as the normal reach of social network companies and furthers the business concept of a “one-stop shop” for online money and communication needs.
In terms of the market repercussions, PayPal, Western Union and Moneygram will be supported by the fact they each have a long running web operation with millions of customers (PayPal itself has over 140 million active accounts and Western Union’s numbers are in the tens of millions).
Other online giants - in ecommerce and search - are also moving fast to get in on the act:
Facebook - as with Google and Amazon - would likely have a task on its hands to maximize money transfers to the same scale seen elsewhere. But the potential ease of use, given that so many web and mobile web surfers already spend much of their day linked to Facebook, does present a major long term advantage.
Todd Thibodeaux, president at IT industry association CompTIA, says any money services launched by Facebook would be a clear “broadside” to PayPal. “The big advantage Facebook has is its installed base [of over a billion users],” he adds. “No other single service could roll out something this major without having to get app adoption from day one.”
Money transfer services such as Western Union and Moneygram should also “be concerned” about a potential launch, adds Mark Little, principal analyst at Ovum. But he says that Facebook will need to do “a lot more” to establish a local presence, and local trust, in order to make financial services a success. Thus far, he says, localized services are “not one of [Facebook founder] Mark Zuckerberg’s trump cards.”
Indeed, Facebook faces some serious challenges over satisfying privacy concerns, as it builds an ever expanding remit for its business, and garners larger amounts of user and behavioral data. Its recent $19 billion acquisition of messaging service WhatsApp was swiftly followed by comments that it needed to really work to gain user trust, given the vast expansion in the number of users it has data on; WhatsApp has 450 million users.
From Facebook’s point of view, at least, launching a money service could make a lot of business sense. Facebook exists for “profitable sharing," of which this would be a key perk, Little notes. “This is especially important in emerging markets where moving small amounts of money around frequently is an everyday activity,” he adds. “Becoming a reliable financial utility also helps with lock-in for the rest of Facebook’s services.”
In emerging markets, the established players also have extensive operations in developing markets - but so does Facebook, including its apparent 100 million users in India.
Thibodeaux at CompTIA says he is “surprised it took Facebook this long to develop a strategy” in the money transfer arena. But he adds that this move has the potential “to be far more lucrative” than its other recent high profile acquisitions, of WhatsApp and virtual reality firm Oculus VR. “For $19 billion, Facebook could have replicated What’s App five times over,” Thibodeaux says, “but a financial service really builds on its strengths.”
It remains to be seen whether Facebook would compete against all of the existing dominant money transfer providers, or choose one to partner with. But a large battle may lie ahead.
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