Facebook Taking on Mobile Payments

Facebook  (NASDAQ: FB  ) has wormed its way into people's lives and now it wants to get into their wallets.

The social media network is weeks away from receiving regulatory approval in Ireland for a service that would allow the company to act as a bank of sorts, letting customers store money on Facebook and use it to pay for goods and services, FT.com reported. When Ireland's central bank approves the application the social media network would become an e-money institution, which would "allow Facebook to issue units of stored monetary value that represent a claim against the company." The electronic money would be valid across Europe through a process called passporting, the website reported.

Facebook has its non-U.S. headquarters in Ireland, and while it has not made any comment on whether it would offer a mobile payment service only in Europe, the developing world seems like a clear target for the company.

While the U.S. and Europe (for the most part) have stable banks and reliable online services like eBay's (NASDAQ: EBAY  ) PayPal (which is also global but does not have the user numbers Facebook does across its platforms), the developing world offers a huge market for secure payments from an institution that can be trusted. 

Why would Facebook want to be a bank (of sorts)?

Facebook's competitors are already making forays into the payment space. eBay has PayPal and Google  (NASDAQ: GOOG  ) has been making a push at having its customers link a bank account to their GMail account. Having people use a service like Facebook is planning or Google has already introduced is only part of the battle as the companies may win just from getting users to sign up. The sign-up, after all, gives the company access to bank account and credit card information. 

Once a company has that info, it can then offer more and more ways to spend money conveniently through the service, taking a small percentage on each transaction. Facebook has over 1 billion users on its mobile platform alone, which gives it an enormous user base to market payment services to. PayPal, the biggest e-payments service, has 143 million active accounts in 193 markets and 26 currencies around the world, according to the company. The company processes more than 9 million payments every day and processed $27 billion in mobile payments in 2013. 

That's a tempting market for Facebook. It has a huge audience on its core platform, and is on its way to a billion users -- mostly in the developing world -- on the WhatsApp messenging platform it just purchased for $19 billion.

Facebook has tried this before

Facebook attempted a payment system once before, offering Facebook Credits for for about a year between 2011 and 2012. That product only let users spend credits on apps and virtual items, not transfer money or pay for real world goods. The new system would let users move money around much in the way PayPal does. 

The social media giant does already process payments for some things -- like allowing developers to charge users for in-app purchases -- in some markets, including the U.S.

In 2013, the company processed $2.1 billion worth of transactions almost entirely from games, according to company SEC filings.

Facebook takes a fee of up to 30% in these transactions, which accounted for about 10% of its revenues, FT.com reported.

Growing those revenues by expanding the ways people can spend, make, and make financial transactions through the site seems like a logical way for Facebook to increase revenues from its existing user base. It's also a way to further monetize products like WhatsApp, which are not advertiser-supported.

Baby steps, then giant leaps

Facebook has to move slowly when it comes to entering the payment processing world because it has to prove to its customer base that it can reliably perform functions that were once possible only at traditional banks.

"Ovum's 2013 Consumer Insights found that only 1% of respondents trusted social networks like Facebook to deliver m-payments, in sharp contrast to the much higher levels of trust placed in banks (43%), credit card companies (13%), and mobile operators in the context of emerging markets (11% in China)," analyst Eden Zoller told CNET.

That's a huge mountain for Facebook to climb but it's not insurmountable. Trust goes up with time plus positive experiences. If Facebook gets customers used to buying things on the site and already has collected financial info, it's not a huge leap to think people would begin to trust it as they do PayPal. Even if Facebook only expands its in-app/on-site ability to sell things to its users and skim a portion of that payment, the company stands to make huge gains.

Do people even question how Apple (NASDAQ: AAPL  ) handles its credit card info, which hundreds of millions of users have sitting in the iTunes/app store database? Facebook could certainly get to that point, which would make it a potential global marketplace where the possibilities for social and sales to overlap are nearly endless.

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