Facebook To Diversify Into Financial Services

Facebook To Diversify Into Financial Services

Facebook, Inc. is moving into the financial services industry by introducing electronic money and remittance services

By Bilal Kamran on Apr 14, 2014 at 8:50 am EST

Facebook, Inc. (FB) seems to be branching out in all possible directions, and its latest venture involves it entering the financial services industry, according to the Financial Times. The social media giant is reportedly preparing to introduce remittance services and electronic money. It is currently seeking approval for the same from Irish regulators, and is expected to receive it within the next few weeks. After it is green signaled, users will be able to store money on Facebook and use it to make online payments or to transfer money to others.

Currently, the social media giant has a payment system in place for app developers who charge for in-app purchases. The company charges 30% for such payments, and revenues from this channel accounted for 10% of its total revenues last year. If its latest move is approved, Facebook will henceforth be classified as an electronic money (e-money) institution. According to the Central Bank of Ireland, e-money is any form of value stored on a technical device such as a chip card or computer memory.

The Irish central bank states that e-money institutions “can avail of the right to issue, redeem and distribute E-Money or to provide payment services in the other Member States of the EU.”

According to industry sources, Facebook is in talks with three London-based start-ups that are involved in remitting money internationally. International money transfer is a multi-billion dollar industry, and Facebook’s partnerships will strengthen the company's footing in this market.

Facebook recently crossed the 100 million user mark in India, which makes the country the second-biggest market for the social media giant after the US. Eventually, the size of Facebook’s Indian user base will match that of the US, which comprises nearly 180 million users.

Last year, India received $70 billion in remittances, more than any other country in the world. According to the World Bank, developing countries are expected to receive nearly $436 billion in remittances this year, and Facebook's partnerships with remittance companies, especially in emerging markets, will be an immense opportunity for the company.

Social media networks compete over increasing their respective user base and then monetizing it. By launching e-payments, Facebook seems to be following in the footsteps of Chinese micro-blogging service Weibo, which profitably integrated Alibaba Group's payment system Alipay. Twitter, Inc. (TWTR) is also in talks with payment processor Stripe Inc., as it is seeking to allow users to purchase directly through the Twitter platform.

Facebook currently boasts more than 1.2 billion users, from whom it generates $7.87 billion in revenues. Currently, the company earns more than 90% of its revenues from advertisement, but its foray into electronic payments and remittances will open a whole new revenue stream.

Facebook is also branching out in several other areas, having recently acquired messaging service WhatsApp and virtual reality headset maker Oculus VR for $19 billion and $2 billion, respectively. WhatsApp has more than 450 million active users, who have been assimilated into Facebook's user base since its acquisition. The company is also focusing on standalone apps for mobile devices, and recently separated Messenger from Facebook for mobile phone. By doing so, it is seemingly trying to maximize its presence on mobile devices and ensure that users continue to cumulatively spend more time on its products.

Moving forward, it is possible that the company will integrate the e-money facility with WhatsApp and/or Messenger. We will have to wait to see how exactly the social media heavyweight decides to go ahead with the rollout of its financial services though.

Facebook is currently up more than 2% in pre-market trading. During the last 12 months, Facebook has yielded more than 115% returns. However, recently the stock has lost its value due to a sell-off in momentum stocks.

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