Wednesday, May 7, 2014
Facebook is apparently ready to become a person-to-person (P2P) money transfer network. According to an April 13, 2014, report in the London-based Financial Times, Facebook was nearing the launch of P2P payments in Ireland. The apparent decision to launch a money transfer service in the region can be seen as a test bed for Facebook's larger ambitions of becoming a payments hub for its 1 billion user base.
The FT quoted unnamed sources that Facebook was "only weeks away" from gaining regulatory approval in Ireland for its remittance platform. The report said Facebook's P2P platform will be geared to facilitating "migrant remittances," with the goal of expanding its payment presence in emerging markets, such as India.
Facebook makes the bulk of its revenue from advertising. But 10 percent of its profits reportedly come from in-game payments for online and mobile games, such as Zynga's popular FarmVille.
Ken Paull, Chief Executive Officer at mobile payment firm ROAM, said Facebook's February 2014 acquisition of mobile messaging service WhatsApp for $19 billion clarified the social network's strategy. "With the acquisition of WhatsApp, I think that it makes a lot more sense in extending that messaging platform into a P2P money transfer service," he said.
Paull characterized the WhatsApp acquisition and the expected P2P network launch as part of the first phase of Facebook's deeper immersion into payments. "Their initial implementation isn't on the acceptance side, just on the P2P and money transfer side," he said. "So they have a number of steps or phases to go before they're really on our side of the business and compatible with chip and PIN, chip and signature type schemes."
The launch of Facebook's P2P network in Ireland is unusual, according to Paull. " I would say it's a much less mature market then the U.S. to start launching … and much less competition," he said.
Ireland is therefore a market where Facebook can experiment and "work out the kinks," Paull added. He believes Facebook would have less freedom to experiment, and face greater potential risks in case of snags in execution as well, if it launched P2P payments initially in the more mature and competitive U.S. market.
When comparing the payment strategies of tech giants Google Inc., Apple Inc. and Facebook, Paull views the latter two competitors as having bigger potential upsides than Google. Facebook and Apple (via iTunes) already have established financial relationships with millions of users who have attached funding mechanisms – debit and credit cards – to their social media accounts. As primarily a search engine, Google is playing catch up to persuade its users to set up Google Wallet accounts.
In May 2013, Google launched its own P2P network by integrating Google Wallet with Gmail accounts, so that wallet users can facilitate money transfers via email. More recently, reports have surfaced indicating Google plans to extend Google Wallet to its wearable technology solution Google Glass. But the success of such ventures rests on users' confidence with Google as a financial service provider.
"[Google Wallet] hasn't done really well," Paull said, reinforcing Google's uphill climb into payments. "They have a more challenging job to do to get consumers feeling comfortable, secure and incented to start attaching payment credentials to a Google Wallet or Gmail account," he added.
Paull even sees Facebook as having a brighter financial services future than Apple. He noted that Apple's reach is limited to consumers who have iPhones and iPads, whereas Facebook is not tied to any branded mobile devices. "[Facebook] is a very ubiquitous offering," he said. "It could apply to anybody with any type of phone or tablet. … If they can incentivize more consumers on that trend, I think P2P payments is a logical way to start."
Eventually, tech companies like Facebook will need to partner with payment businesses in order to expand into the merchant-centric brick-and-mortar world, according to Paull. When that time comes, ROAM will be waiting.
Paull believes the mobile POS solution provider, a business unit of global POS terminal manufacturer Ingenico SA, would be an ideal partner for Facebook. "If they extend what they do from P2P payments to more of a wallet purchasing capability for their users, then to me the next step could very easily be an extension of that into servicing the merchant side," he said.
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