Is Facebook’s move to offer money transfer services a wise step?
A lot has changed in the last few decades. Invention of computer followed by the invention of internet have shrank the world. Huge aircrafts have made it possible to travel from one part of the world to another in very less time. All this has evaporated the boundaries of trade as distance is not a barrier anymore. It would not be wrong to say that today we are just a “click” away from anything.With the rise of trade, there arose a need for an easy, secure and efficient money transfer system. With the world divided into a large number of territories with complex political systems, each one having its own currency, laws and systems, it is a tedious task to devise such a global system.
We have a lot of such systems in place, the most famous one is PayPal which has had its own ups and downs due to the regulatory requirements of different countries. But still, it is very successful with more than 143 million active user accounts in 193 markets and 26 currencies around the world (as per PayPal Press Center here. There are still less number of players in this market and huge opportunity for companies to enter.
Recently various news websites published news claiming that Facebook is going to start a money transaction service. It said that Facebook is in the process of getting approvals and will start its services in Europe first.
Facebook’s revenue is mainly dependent on its ads. As per the 2012 Facebook filing to United States Securities and Exchange Commission, Facebook mentioned that in 2011, 85% of its revenue was generated from advertisements. You can find the complete filing here.
Further, if we take a look at the annual earning report after the company got listed, we find that the revenue share has been maintained near the earlier mark (Refer to the image below). You can find the complete annual earning report here.
This poses a great threat to Facebook as number of people using Facebook primarily on mobile devices has been increasing which will reduce the earnings as Facebook does not display ads on mobile devices. Also, click through rate is not very efficient way of revenue. It indicates that Facebook has to diversify its business to reduce the risk. In view of this, the addition of money transaction service seems a very smart move at this time.
As per the report, Facebook had more than 750 million daily active users for the last quarter of 2013. It provides a huge scope for the new service. First of all, it will be easier for people to trust a service from Facebook. Secondly, people usually like all-in-one package and addition of money transfer facility will increase the utility of Facebook.
This will also help in increasing user base as people who are still not using Facebook much will be more active. Thus, in a way, it will increase the advertising revenue as well. So, if this new service is successful, it will not only help in reducing risk for Facebook, but will also help in indirect increase of revenue through ads.
Now, the main issue is the existence of complicated and differing laws and norms in different countries following different currencies. Facebook has to get approvals in all these territories for actual success of the platform.
As of now, Facebook is seeking approval in Ireland to start a money transfer service. It will allow it to operate digital money transfer service in all the European Union member states through “passporting” without the need of any regulatory approval. However, in the United States, Facebook would need to get separate approval from all the 50 states.
Till now, Facebook has been the most popular and successful social networking platform on the internet. With time, it became a marketing tool for companies from being just an entertainment network. But its time for it to venture into more useful services which can make it backbone of international business. It will be interesting to see how it will help Facebook in its growth.
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