Will ABN AMRO make way for Facebook?
In April of this year, reports surfaced that Facebook applied for an e-money license in Ireland, which would allow the social network giant to provide an e-money service throughout Europe. Until now, Facebook has obtained permission already for several forms of money transfer in the United States. By receiving the license for Europe, it will join other firms such as Google and Vodafone, which have obtained e-money licenses for Europe too.
By becoming an ‘electronic money institution’, Facebook would become a direct competitor for institutions such as Western Union, allowing for the conversion of digital credits into cash by recipients, storage of these credits with the social network and purchasing products online.
Furthermore, money can be transferred cheaper than using traditional banks, especially when transferring money to developing countries. An example is India, where Facebook currently has over 100 million users – it is Facebook’s largest market after the US (Davies 2014). When one wants to transfer money from Europe to India using traditional banks, the fee for this service ranges from EUR 5 to as high as EUR 55, depending on the amount of money being transferred (ABN AMRO 2014). In comparison, one can send digital credits worth 200 euro’s from Europe to India for as little as 1 dollar, by using the London start-up called TransferWise. Facebook has been reported to talk to several companies such as TransferWise about a form of partnership (Bershidsky 2014).
Several issues are involved when Facebook will become an electronic money institution. The most significant one is naturally safety, especially after the scandals and fraud regarding Bitcoin, and Facebook’s personal data mining practices. Facebook will have to considerably change its practices and work on improving its image regarding trust and safety of sensitive information.
I believe that there is a big chance for Facebook to become a serious threat to traditional banking institutions in the future. Although it might take the company substantial efforts to deal with safety issues and perceptions, presently it can already be seen from Apple’s recent launch of Apple Pay, Alibaba’s Alipay and Paypal, that a major change is taking place in the global banking practices.
Do you believe this scenario will ultimately happen? And what can traditional banks do to defend their position?
ABN AMRO, 2014, Tarieven voor betaalopdrachten, ABN AMRO, 2014, https://www.abnamro.nl/nl/prive/betalen/tarieven/betaalopdrachten.html
Bershidsky, L., 2014, Who would use Facebook as a bank?, BloombergView, 14 April 2014, http://www.bloombergview.com/articles/2014-04-14/who-would-use-facebook-as-a-bank
Davies, S., Robinson, D., Kuchler, H., 2014, Facebook targets financial services, Financial Times, April 13 2014, http://www.ft.com/cms/s/0/0e0ef050-c16a-11e3-97b2-00144feabdc0.html#axzz3Ec1nS0Ce
Fortune, 2014, Need money? Check your Facebook page, Fortune, 24 April 2014, http://fortune.com/2014/04/24/need-money-check-your-facebook-page/
Gibbs, S., 2014, Facebook prepares to launch e-money transfer service in Europe, The Guardian, April 14 2014, http://www.theguardian.com/technology/2014/apr/14/facebook-e-money-transfer-service-europe