Facebook is seeking authorisation from the Central Bank of Ireland to become an ‘Electronic Money Institution’. Electronic money being defined as monetary value that is stored electronically, issued on the receipt of funds for the purpose of making transactions and accepted as means of payment by parties other than the issuer.
Thanks to the process known as ‘passporting’, which means a firm authorised by a single member state of the EEA for certain financial activities can exercise them through all member states, Facebook, if approved, could roll out financial services across Europe. This would essentially allow users to both store and exchange money via Facebook internationally and disrupt the current money transfer and payments market.
The payments industry has been quietly revolutionized in the past few years, seen more notoriously in innovations like digital currency Bitcoin but also in smartphone fuelled digital wallets and payment processors like Square which seek to break down the traditional stranglehold held by large banks, credit institutions and money transfer companies.
Facebook had previously dabbled in virtual currencies with Facebook Credits, launched in 2009, which could be purchased in your local currency and then used for in-app purchases, e.g. buying add-ons for a game. Facebook Credits were phased out in 2012, despite having been hyped as the future of micropayments on the site.
This shift away from a token or voucher-based service would seem to indicate just how important Facebook views the potential value of the payments side of their business, in as much as they were willing to jettison a big chunk of revenue in order to focus fully on becoming a platform for payments rather than creating their own version of a digital currency.
Why Payments Matter to Facebook
– Gateway to the developing world, where people are more likely to have a smartphone than a bank account.
– Allows them to exploit the huge database of payment information they have gathered from the use of Facebook credits.
– Helps embed them further into the unlimited world of micropayments, digital purchases and virtual currencies.