Early in December, Facebook finally unveiled their newly acquired licenses for e-money and payment services out of Ireland. The rumors of Facebook entering the payment space in Europe have been going on ever since it was reported that Facebook applied for a money transfer license a while ago. Another clear indication of Facebook’s ambitions in payments was the hiring of former PayPal president David Marcus as head of Facebook Messenger. As Mark Zuckerberg stated in January last year, “We’ll partner with everyone who does payments.”
With Facebook Payments already operative in the U.S., an obvious play is to launch this service across Europe, as well, and the jury is out as to whether Facebook will be satisfied to provide a simple P2P payment service to create stickiness to their Messenger platform or whether they’re targeting the $500+ billion global remittance market, as well.
If we look beyond payments as an isolated service, Facebook as a licensed payment service company is representing several scenarios to which banks should pay close attention.
The coming payment service directive 2 (PSD2) is requiring that banks must offer payment APIs to third-party providers of financial services and allow users to mandate licensed third parties to 1) initiate payments and 2) extract account information.
Facebook is in a unique position to disintermediate retail banks as the most powerful digital ecosystem.
Facebook has already disrupted the classifieds market with the launch of Facebook Marketplace, and with PSD2, Facebook has the possibility of becoming their own payments processor as a PISP (Payment Initiation Service Provider) and connecting to bank accounts directly through APIs. Facebook may then ask consumers for permission to use their bank details as a payment method. Once you give permission, Facebook will be able to securely access your bank account and collect their payment.
In addition to cost savings, a solution where Facebook takes on the role as a PISP eliminates the need for complex check-out processes and provides “one click”-payment options for recurring customers. By collecting payments directly from customers’ bank accounts, PSD2 will also enable faster payments, as well as blur the lines between traditional industries.
Facebook also may become an AISP (Account Information Service Provider). The directive enables AISPs to present an aggregated view from more than one bank account. AISPs can analyze spending behavior or aggregate into one overview a user’s account information from several banks, rendering obsolete traditional mobile and online banking solutions based on one account.
It is already obvious that chatbots will have a significant impact on banking, as a majority of banking services could be automated through simple chat requests like “what is my daily spending limit until my next paycheck” or “approve and pay my outstanding bills.” Why bother to log into your bank app when everything is already available and secure directly in Facebook Messenger?
As a licensed payment services company, Facebook also has the necessary regulations in place to provide settlement risk to be compliant as a crowdlending platform (in some countries). Even though this is a crowded space, with almost 300 alternative finance and crowdfunding platforms across Europe, Facebook has a unique position in this space with its vast user base and ability to utilize user data, as well as account information for assessment of risk and creditworthiness.
Facebook is already in a unique position to disintermediate retail banks as the most powerful digital ecosystem out there for consumers. The key to Facebook’s powerful position is the ability to evolve alongside changing user behavior; so far, Facebook is excelling at this. What makes Facebook one of the most potent digital ecosystems is that it is based on managing the digital identity of every user in its user base, and, if done right, Facebook has the potential to render phone numbers, email addresses and bank account numbers obsolete.
Eventually this could make banks as we know them invisible commodity providers, where all customer interaction — payments, e-commerce and everyday banking — is conducted through digital ecosystems like Facebook Payments and Facebook Messenger. According to a study conducted by pwc, 68 percent of bankers are concerned with losing control over their customer interface. A regulatory compliant Facebook should definitely make those concerns turn into worries.
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