Facebook Inc.'s eCommerce Interest Is Nice but Not Game-Changing

Word has it the social-media giant is looking to Ireland to test a new money-transfer service. That's nice, but will always be ancillary to its core business.

Apr 16, 2014 at 7:00PM

There's never a shortage of rumors swirling around Facebook (NASDAQ:FB). And after multiple acquisitions, a couple of which were outside Facebook's traditional "comfort zone," the rumor mill was bound to kick into gear. But the latest scuttlebutt suggesting the social media giant is exploring online money transfer alternatives, a la eBay's (NASDAQ:EBAY) PayPal service, appears to be more than idle gossip.

Investors seemed intrigued by the notion of Facebook entering PayPal's territory, as heavier than average trading volume lit a fire under its share price, albeit temporarily. Naturally, no one involved in the process is talking, but the move to allow online money transfers to friends, and presumably e-tailers, around the globe opens the door to several possibilities, all of which would be good for Facebook shareholders. But even as investors speculate, it would be wise keep your feet firmly planted in Facebook's real world.

The rumored deal
According to news sources in Europe, Facebook representatives have been discussing online money transfers with the Central Bank of Ireland. Word of Facebook's product expansion plans came from "several people involved in the process."

What makes the rumored discussions even more intriguing is that if the Central Bank of Ireland gives the go-ahead, it will open the door for Facebook users to transfer money in multiple countries in Europe. Ireland, so the story goes, was only one stop on Facebook's online money transfer tour. Along with Central Bank of Ireland, Facebook supposedly visited with multiple London-based wire transfer companies.

Rumor also has it that Facebook intends to move well beyond Europe and into emerging markets with its new foray. Which makes sense, considering Facebook CEO Mark Zuckerberg's focus on bringing Internet connectivity to the world.

The opportunity
There's no doubting the potential of the online money transfer business, as eBay's PayPal can attest. Last year alone, PayPal transferred $180 billion in 26 different currencies, from nearly 200 countries around the world. And what did PayPal get in return? Annual revenue of $6.6 billion, which accounted for over a third of PayPal's profits.

Clearly, there's revenue to be had in the money transfer business, and there's a lot more where that came from. According to research from Gartner, online mobile payments alone will more than triple by 2017 to over $720 billion. With numbers like that, it's easy to see why Facebook would like a piece of that awfully big pie.

Putting it in perspective
The opportunity is huge, but so too are the competitors. Amazon, Google, and Apple all come quickly to mind, in addition to eBay's PayPal, as industry heavyweights with plans to dominate the world's e-commerce-related money flow.

To Facebook's credit, it's in the enviable position of being able to slowly build a new business like money transfers, as it continues to do what it does best: generating oodles of ad revenue by utilizing data to target ads like no other. And with the coming explosion in online video ad spend -- eMarketer estimates the market to more than double to $12.3 billion by 2018 -- the roll-out of Facebook's video marketing alternatives, along with finally monetizing fast-growing Instagram, is where near-term growth lies.

Final Foolish thoughts
The latest rumors do raise an intriguing notion, however. As one industry pundit described the recent $19 billion deal for WhatsApp, "[I]t gives it [Facebook] access to millions of credit card records and which has a huge international reach, testing of auto-billing functionality, and now the news of financial service offerings confirm that they consider this space a key component in the larger war to own consumer identity."

Generating incremental revenue, not to mention the value of capturing user's money transfer data, is a sound objective. Added to Facebook's growing emphasis in online gaming, its newest expansion plans would provide another means of diversifying revenue streams. But that's all the money transfer deal is likely to be in Facebook's foreseeable future, which isn't bad, just not a game-changer.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, eBay, Facebook, Gartner, and Google-Class C Shares. The Motley Fool owns shares of Amazon.com, Apple, eBay, Facebook, and Google-Class C Shares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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