Who would want to use Facebook as a bank? That's the question that immediately arises from news that the social network intends to get into the electronic money business.
According to the Financial Times, Facebook is close to receiving authorization from Ireland's central bank to become an "electronic money institution." The status would allow it to process transfers and payments throughout Europe, where the market for non-bank financial services appears to be heating up with big new entrants such as Vodafone. The customers Facebook is targeting, though, might be as much in developing nations as in Europe.
The developed world, and Europe in particular, is far from the best place to break into banking. Most people are already perfectly capable of sending money to each other in various ways. According to the World Bank, the share of adults with bank accounts ranges from 98 percent in Germany to 45 percent in Romania, and financial inclusion rates in Europe will inevitably converge. Google has had an e-money license in Britain for almost three years, but its Google Wallet service appears to be bringing in little revenue. Full functionality, including personal transfers, is available only in the U.S., where 88 percent of people have bank accounts.
Facebook, however, may be taking aim at a different demographic: Migrants who work in the developed world and send money home to the developing world. This is an area ripe for disruption. The companies, some bank-affiliated and some independent, that now dominate the market tend to charge a lot for their services and mostly aren't much fun to use. Last year, they channeled a total of $404 billion in remittances, a number that the World Bank predicts will expand to $436 billion. The most expensive "corridor" runs from South Africa to Zambia: It costs $21 to send $200, according to the World Bank. The biggest recipient country is India, whose residents received $71 billion last year.