Facebook Inc. is becoming a payments contender a lot faster than it has led observers to believe.
In its S-1 filing this month, the social network revealed it got 15% of its $3.7 billion in revenue last year from payments, and said the next step would be to receive money transmitter licenses to avoid regulatory backlash. But that step is already behind the Menlo Park, Calif., company in at least 15 states, according to an American Banker analysis.
The licenses enable Facebook to handle transactions and to potentially transform its digital currency, Facebook Credits, into something that would allow it to compete more directly with banks.
"It all starts with having a large number of users and a large number of merchants and connectivity between the two — and certainly Facebook has that," says Philip Philliou, a payments consultant. "When you think about … products such as prepaid, global money transfer [and] person-to-person money transfer, these are all achievable products for them."
The requirements for money transmitter licenses vary from state to state. According to states' online listings, those that have issued licenses to Facebook's payments unit include: Arkansas; Delaware; Georgia; Idaho; Iowa; Kansas; Kentucky; Missouri; Nebraska; New Hampshire; North Dakota; Oklahoma; South Dakota; Texas; and Washington.
But Facebook may have licenses in still other states; not all make this type of information clearly available online. A search covering the remaining states and some U.S. territories found no further licenses, however.
Money transmitter licenses are required for a variety of reasons. Some states, for example, require these licenses for payroll companies. Others require the licensee to sit in the middle of Western Union-like money transfers. But for any company that can meet the requirements, the licenses are as easy to obtain as a driver's license, experts say.
"The pain in the neck is when you do it in all 50 states," says Brian Riley, a research director in the bank cards practice at Towergroup. "Your accountant usually handles it, because it's like sending out payments to all 50 states."
I think what's more likely to happen is that PayPal and other third-party developers will inevitably build out Facebook's payments applications -- allowing users to transact over the social network. I think that would give Facebook all the transaction data it needs to better market to advertisers, and also help the company eschew some of the fraud concerns that come along with being a payments company.
Sean Sposito, Reporter, American Banker