04 September 2015

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Will Facebook become a Bank?

14 April 2014  |  2835 views  |  0

The Financial Times and Twitter are already ravenously commenting the not unexpected move from Facebook into financial services. Indeed, not content with being just the platform to share cat photos and status updates, Facebook is apparently decided to provide financial services in the form of remittances and electronic money.

The move might appear without consequence in the most developed countries where money transfer is rather a matter of choice and convenience between credit cards or bank traditional transfers. However, if considered from the point of view of the global migrant community the situation looks strikingly different.

According to the World Bank’s latest issue of the Migration and Development Brief, international migrants from developing countries send US$404 billion in remittances to their home countries last year and India led the list with US$70 billion. Now, If one clicks on the fact that the Indian population of Facebook is around 100 Million,  and then one recalls the fact that FB acquired few weeks ago WhatsApp for the staggering amount of 18 Billion USD, then the business case start to appear crystal clear.

At least on the paper, because even if this year, the remittance flows to developing countries is expected to increase by 7.8 per cent to US$436 billion, and US$526 billion in 2016, the Money Transfer business is getting crowded: even if the Banks will be the bigger losers, because too expensive fees and unbearable days delays, already many other actors are trying to get a leading role: being PayPal and M-Pesa the most famous. Western Union a public quoted company does also money transfer for a living. Among the new players are Azimo, Transferwise and Moni which offers basically the same services and fees with different user experiences.

After only weeks when FB had obtained the regulatory approval in Ireland, the license would allow individuals to store money on Facebook and use it to pay and exchange money with others, according to the three journalists who prepared the Financial Times article.

But probably it will take a while before we can see an Icon to click and send money instead of likes via FB, the reason is that global remittances, is a major and in some countries heavy regulated business. Including those to high-income countries, money transfers are estimated at US$581 billion this year from US$542 billion in 2013, and rising to US$681 billion in 2016.

For many developing countries, remittances remain a key source of external resource flows, far exceeding official development assistance and more stable than private debt and portfolio equity flows. If Facebook become a leading player, many people will truly depend on the reliability of the system. It’s not the same to hope for a Like than expect money for surviving or pay the rent.

 

 

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