The FT is reporting that Facebook is looking at e-money services — including the ability for people to make peer-to-peer money transfers using money that is stored on Facebook itself — and has applied for an e-money license in Ireland as part of that. Facebook has declined to comment on the report, but we have confirmed with sources some of the details of what is going on.
Facebook made the rounds in London in December, and it spoke to several consumer-facing payments companies, including the three mentioned in the FT’s report: TransferWise, Moni Technologies and Azimo. But from the sounds of it there are others, as well.
“It was mainly about market discovery,” said Mike Laven, CEO of Currency Cloud, the London-based startup that powers payments at the back end for all three of these companies, as well as several of their competitors.
While Laven was clear to say it was “no secret” that Facebook was talking to a lot of companies in the financial services space, he believes that discussions of how such services would develop are still in flux.
“My impression is that Facebook is still trying to get a sense of the market, and see whether it would suit them better going off and doing it themselves or to work in partnership with others,” he said. “I would be surprised if Facebook’s conversations were only limited to those three.”
The FT reports that, among the different scenarios, Facebook offered to pay Azimo $10 million to recruit a co-founder as a director of business development. Azimo, it should be noted, already launched a Facebook integration in 2013, where via the P2P payments company’s Facebook app people can look each other’s details up and set up payments.
Azimo’s CEO and co-founder, Michael Kent, tells us that he was “Surprised to see it in the FT today,” but declined to comment specifically about whether Azimo was involved, or the recruitment bounty.
“We talk to everyone and are lucky enough to get a bunch of interesting offers and approaches coming up although we prefer to keep those to ourselves,” he said. “It would be very cool if Facebook and others got into money transfer, though, wouldn’t it? Could be truly transformational to an industry that has ripped off hard-working migrants for years.”
TransferWise’s co-founder and executive chairman Taavet Hinrikus, meanwhile, would not comment on the news except to say that it “validates the space.”
The idea of moving into e-money represents both a challenge, as well as an opportunity for Facebook.
On one hand, Facebook has not really demonstrated a huge amount of success so far in generating revenue from non-advertising services on its platform. In its last quarterly earnings for Q4 2013, total average revenue per user was $2.14 globally, but only $0.20 of that came from payments — the rest was from advertising. Its physical gifts service never really ever got off the ground, and it’s redirected those efforts to other e-commerce services like gift cards. Most payments today are around gaming sales on the platform.
But that also provides the imperative for why Facebook should look for other revenue streams — not just to diversify revenues but to help it meet different expectations from different consumers.
Facebook and other ad-based companies have attracted a strong dose of negative attention for how they advertise to and track users — the old “if you’re not paying, you’re the product” chestnut.
The rise of more anonymous services like Secret, Whisper or Wickr, or those that eschew advertising, constantly threaten to upset Facebook’s position as the No. 1 network. And at the end of the day, that’s a paradigm that only holds value based on how many of your friends are actually using the network; one of the worries has been that some groups, like teens, simply don’t use it as much anymore because their friends do not.
In that regard, while offering money transfers through Facebook’s main desktop and mobile apps are definitely two places for such a service to exist, there is another where it could make even more sense: the messaging juggernaut WhatsApp.
Facebook has now forked out $19 billion for a company that has been built specifically on a “no ads” business model that it has vowed to adhere to with Facebook’s blessing.
And yet Zuckerberg has said WhatsApp could be worth a lot more money one day.
Put these together and you can see why Facebook might also be looking very seriously at how it could move into remittance. WhatsApp is already used as a communications network between people in different countries, and is particularly strong in developing countries, touching users that Facebook does not.
Many remittance companies like WorldRemit and the YC-backed Regalii have tapped that very same demographic as WhatsApp for their money transfer services.
With a consumer mobile service like WhatsApp, says Currency Cloud’s Laven, “It’s just a small step to use it for payments both domestically and internationally.” Money transfer also happens to be a sticky service, with people returning to successful services regularly.
Among WhatsApp’s competitors, WeChat has made a strong move already into offering peer-to-peer payments on its network, with services like red envelope.
“WeChat payment registered users reportedly jumped 5 times given the viral effect of the red envelope app,” analysts at investment bank CLSA noted in a recent report, where they valued WeChat at some $65 billion in part because of the success of these services.
WhatsApp, it should be noted, also has made a strong case for expanding its platform beyond basic messaging to gain a bigger share of users’ mobile “wallets.” It’s planning to offer voice services, and last week it launched its first “MVNO” service, with a SIM-based plan on the E-Plus network in Germany.
The FT reports that another aspect of Facebook’s financial services ambitions is based around getting an e-money license, which would allow Facebook to “issue units of stored monetary value that represent a claim against the company.”
E-money would be valid throughout Europe, and “would require Facebook to hold capital of €350,000 and segregate funds equivalent to the amount of money it has issued,” it writes.
In Europe, carriers that have made moves to take on more mobile payment services also obtain e-money licenses — pointing to another area where Facebook potentially would try to flex its financial services muscles.
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