Is Facebook Angling to Take on Banking?

Banks are far from the only industry to be shaken up by Americans' increasingly wired existence. Newspapers have also struggled to retain readers and revenue as online competitors upended their print-based business model. Now Facebook has stepped in with a solution that's proved irresistible to several high-prestige publications — and the result may have big implications for banks.

Facebook is offering publications including The New York Times, NBC News, National Geographic and others a chance to reach 1.4 billion monthly active users — and reap lucrative advertising revenue — with a service called Instant Articles. Publications create content original to the social media site, and in turn Facebook accelerates the download time for articles viewed on mobile devices and opens its sophisticated online advertising tools to the outlets' sales networks.

Facebook has two major advantages over publications: consumers spend more time on it than on any other website, and its advertising tools include an endless trove of personal data that makes marketers salivate. Here are three scenarios in which Facebook could use these same advantages to make inroads into banking.

1. The Shopping Mall

It's easy to imagine Facebook partnering with a range of companies to sell everything from clothes to electronics. This could include teaming up with national or regional banks to provide financial services. Facebook wouldn't sell these products; they would manage the high-traffic online mall and lease space to partners. The social-media giant could share its extensive data on its users to help partner banks offer personalized services tailored to individual customers' habits. Facebook could also carve up the country and dole out territory to regional banks, tipping banks to birthdays, vacations, major purchases, graduations or other behavioral activities that might trigger the need for financial services. The company could also cultivate prospective customers by plying them with timely financial information and money management tips.

2. The Boutique Retail Bank

In recent months, a "buy" button has been popping up on sponsored Facebook posts. This could be a game-changing feature, since it allows the customer to shop and complete transactions without ever leaving the convenience of their favorite social network. On a larger level, this signals Facebook's entry into the world of social commerce. Click-through rates are helpful, but "buy" buttons show actual sales figures — a more definitive way for the site to measure results.

Given that Facebook already processes over one million transactions a day for game players and advertisers, it's highly possible that the social media giant could become a boutique retail bank by offering select financial services. Last year, Facebook applied for an e-money license from Ireland's central bank to allow it to create, send and store digital currency throughout the ITS European network. The social media giant has already obtained money services business licenses in 48 U.S. states. And as of March, users can now send money to one another via the site's "Messenger" app for free. Now that they are in the domestic market an expansion into lucrative international remittances cannot be far off.

3. The Full-Service Bank

Less likely than the two previous scenarios would be for Facebook to establish its own full-service online bank. This would be a radical direction for a company that has a spotty e-commerce record. Facebook Credits, a virtual currency used in games and non-gaming applications, was recently discontinued. Facebook Gifts, a gift-card concept that failed to meet expectations, was rolled into the current "buy button" program. The site could, however, contract with a major financial institution to manage operations and provide physical branch access. Instead of leasing space to the bank as in scenario #1, Facebook would establish its own branded bank and contract with others to run backroom operations.

It's important to consider what Facebook's Instant Articles business model reveals about the site as a competitive threat to banks. Although all the details haven't been released, it appears that publishers can keep all of the advertising revenue from their articles if they sell ad space through their own sales network. Instead, Facebook makes money by offering partners the chance to use its sales networks and marketing tools. If they choose to do so, the social media giant receives a 30% cut of revenue.

Think about that. Facebook has found a way to persuade publications to create free content for the site, which results in users staying on its site longer and driving up ad revenue accordingly. Because Facebook's primary interest is ad income, product pricing is of secondary importance.

This means that if Facebook enters the international remittance market, it could dramatically undermine the pricing structure driven by current behemoths like Western Union and American Express. Moreover, some analysts think that Facebook may make money transfers between its users free. Thanks to its huge customer base, existing user network and popular "messenger" communication channel, the cost of transferring money would be minimal.

And that's just the beginning. The very idea of a new financial provider that does not care about product profitability should have the whole financial industry shaking in its boots.

Kevin Tynan is senior vice president of marketing at Liberty Bank in Chicago. He can be reached at tynanmarketing.com and on Twitter at @kevintyn.