Facebook's Payments Past Could Fuel Its European Push

Facebook is reportedly close to obtaining a license to operate as an electronic money institution in Ireland, a move that builds on the company's years of experience handling payments on its home turf.

Facebook has been licensed as a money transmitter for years in the U.S. It obtained this licensing "to mitigate regulatory uncertainty" around activities such as paying developers and supporting its short-lived virtual currency, Facebook Credits. During its 2012 IPO, Facebook revealed it already received 15% of its revenue from payments.

Facebook's efforts to obtain licensing in Ireland were reported by the Financial Times. Because of the European Union's uniform money transmission licensing process, this license would be valid in other countries in Europe. If Facebook chooses to do so, it could enable cross-border payments, and the Financial Times reports it is working with at least three London start-ups to do so.

"The motivators for Facebook's interest in financial services likely vary, but given its core business, data is certainly a driver," says Jordan McKee, an analyst with the Yankee Group. "As evidenced by players like Venmo, P2P payments are becoming increasingly social, which is clearly a good fit for Facebook."

Facebook's social data is useful for risk management, and companies like WePay use Facebook data to vet clients.

Facebook, whose non-U.S. business is headquartered in Ireland, has a long list of payment products it has tested or indirectly supported, with mixed results.

Last year the social network began phasing out a system that let its users purchase gifts to mail to one another. It found that 80% of those gifts were gift card, so the company shifted its efforts to a plastic Facebook-branded gift card.  Facebook has also tested a mobile checkout system with JackThreads, an online clothing retailer.

"This is not Facebook's first foray into the payment and commerce arena," says McKee. "But its track record isn't exactly stellar." In particular, Facebook began phasing out its virtual currency, Facebook Credits in 2012 after seeing low adoption and users have yet to embrace its Facebook Gifts product, he says.

Facebook did not respond to a request for comment by deadline.

"Ireland is the logical choice because of their policies to embrace new technology and investors," says Adil Moussa, payments strategic marketing analyst at Adil Consulting.

Dublin-based Realex, for example, offers a financial account built as a social network, allowing users to name frequent payees to their social circles within the account.

Because Ireland's payments market is less saturated with mobile payment competition, the country provides a good opportunity for Facebook, says McKee. However, Facebook will have to contend with big competitors such as PayPal and Amazon.com, which both have a foothold in Ireland.

In 2014, mobile P2P and remittance in Ireland will exceed 15 million euros and the Yankee Group predicts it will increase to 350 million euros by 2018, says McKee.

According to the Yankee Group's U.S. Consumer Survey, more than 74% of consumers have a favorable brand impression of Facebook and about 10% would choose to use a mobile wallet created by the social media company.