ANALYSIS: Financing a Facebook future

Facebook’s plans to launch mobile money services this month could be the company’s first step into entering the wider financial services industry, Capacity can reveal.

The company, which is now close to securing an electronic money licence from Bank of Ireland, will offer payment and remittance services and delve deeper into offering mobile capabilities.

Its biggest competitors, Google and Apple, have both indicated similar strategies, with Google first launching its largely unsuccessful Google Wallets service in 2009.

Apple’s CEO Tim Cook has also stated he is “intrigued by mobile payments” and recently revealed that the development of touch ID on iPhone handsets could enable the company to offer services through the technology.

For Facebook, its entrance into the mobile payments industry represents its vast global user base and the technology it has at its disposal. The company is already processing payments for “in-app” purchases, which constitutes approximately 10% of its revenues, and there are fears in the wider financial community that technology companies as a whole will inevitably make the move into the financial services sector beyond mobile.

One major stumbling block to Facebook’s overall financial services strategy could be the growing risk of cybercrime, which remains forefront in the minds of consumers. And given all the bad publicity surrounding data mining, will the public be able to trust technology companies with their money?

“When it comes to mobile payments and financial services, Facebook will have its work cut out and the biggest challenge will be consumer trust,” said Eden Zoller, m-payments expert at Ovum.

According to a 2013 Consumer Insights report from Ovum, only 1% of respondents trust social media websites like Facebook to deliver m-payments. This compared to 43% of respondents putting trust in banks, 13% in credit card companies and 11% trusting mobile operators across emerging markets.

Facebook, which also recently announced a deal to acquire instant messaging application WhatsApp for $19 billion, is already rumoured to have held talks with three startup companies in London that offer mobile transfer services through smartphones and online systems. Its initial offering in financial services will enable users to store money on its site and use the capability to pay and exchange cash with other users.

After obtaining authorisation from Ireland, financial experts predict the company could launch an attack on the asset management community, with everything from traditional banks to pension funds warned to watch their backs.

A recent PwC report states: “New entrants to the asset management industry from other sectors could disrupt a structure that has existed largely unchanged for several decades.” Murmurs from the asset management industry have equally suggested that the threat posed by internet companies like Facebook and Google could significantly damage their business models. Internet groups in China have also successfully evolved their portfolios to offer asset management services, including Alibaba, which raised approximately $65 million in its first 12 months.

PwC suggests that if this happens in the West, the blame could lie with fund managers for failing to keep up with technological advances. The consultancy company suggests the financial community is creating opportunities for companies like Amazon, Google and Facebook to exploit an industry which is already in trouble.

“A potential source of disruption could come from social media or technology companies,” stated PwC’s report. “Facebook could equally provide distribution services and partner with a bank or buy a back office servicing firm to create an integrated asset management structure.”

Market watchers have equally claimed that technology or social media companies are in the prime place to exploit the opportunities that exist in the financial sector through combining reach, knowledge and influence with the banking community.

For now, Facebook is taking small steps into the financial sector in the same way many operators have done in recent years. Zoller suggests the company should not rush into anything too quickly, given its failure to provide a successful m-commerce offering to date: “The Facebook Credits virtual currency got nowhere and was wound down last year, while the main m-commerce offering in place today – Facebook Gifts – has so far received a muted response from consumers.”

The rise in popularity for mobile payments predominately originates from Asia and Africa, and given Facebook’s increasing presence in emerging markets (200 million users in China) its initial step into financial services could have a lasting impact worldwide.

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