Facebook is close to regulatory approval in Ireland for creating an in-house digital currency system that users can buy and sell with on its site, according to reports by The Financial Times (FT).
If Facebook obtains the authorization from Ireland’s Central Bank, the social network will be able to issue units of stored monetary value that represent a claim against the company. Users will then be able to use the e-money to make transactions throughout the European Economic Area (EEA).
This practice is called “passporting,” in which the EU has simplified the regulatory environment for financial services, allowing digital payments to be used across member states without having to gain regulatory approval from each one. It would require Facebook to hold capital of €350,000 and segregate funds equivalent to the amount of money it has issued.
Meanwhile, Facebook is rumored to be looking for further financial services opportunities in Europe. The FT says that the social network has been in discussions with at least three London-based start-ups that provide international money transfer services online and via mobile, including TransferWise, Moni Technologies, and Azimo. It is still unknown whether Facebook will position itself as a mobile payment platform in the near future.
“The banking and payment industry is undergoing a period of massive disruption. High distrust in banks, outdated payment models, and new technologies enabling new behaviors make the e-wallet market attractive,” says Paul Munkholm, director of strategy at Kettle, a New York-based boutique digital agency. “The winners will likely be trusted brands that are rooted in technology and innovation, and have built large [and] engaged communities.”
A Facebook spokesperson declined to comment.
The social network already has permission for some forms of money transfer in the U.S., which allow payments within apps, including the Candy Crush Saga and Farmville games, from which Facebook charges a fee of up to 30 percent. The company facilitated $2.1 billion in transactions across Facebook in 2013, primarily to game developers.
E-money represents a competitive landscape for Facebook. Just last May, Google incorporated Google Wallet into Gmail, which allows users to make payments through their email accounts with a transaction limit of $10,000. China’s Internet giants Tencent and Alibaba started rolling out mobile credit cards last year, but their practice was soon halted by the country’s central bank, due to security concerns.
Nevertheless, Munkholm says that the financial services industry presents a good opportunity for Facebook. “This market is a natural fit for Facebook. A transactional platform with programs like Facebook Gifts is already in place,” he says. “As they move into the e-wallet space, they will be able to eliminate the middle man like PayPal to increase their margins.”