TechCrunch recently published an intriguing article on how Facebook has finally made its entry into payments space. Facebook is offering peer-to-peer money transfers at no charge to its users. Although the service is currently only available in the United States, the social network is reportedly awaiting approval from the Central Bank of Ireland to provide electronic financial services. If approved, Facebook could let users store money on its site and use it to pay for purchases and transfer to others.
As Facebook looks to offer its extremely affordable fund transfer service globally, it will be a very attractive alternative to the many who are stuck with expensive service providers that currently control the remittance market. However, making money from transferring money apparently isn’t part of the company’s plans.
“We’re not trying to make a profit out of payments,” said Steve Davis, Facebook product manager.
If Facebook’s money transfer business is meant to be not for profit, then what is its purpose?
The social networking leader is keen to build its user base, especially since its North American and European markets are reaching the saturation point. Facebook stands to draw new users from emerging markets who are drawn to the allure of cheap or free money transfers. And with all of these new users, they will be leaving a data trail that can be harvested for the sake of building Facebook’s targeting ability for its hugely successful and profitable ad network.
Although Facebook is certainly the biggest social network to enter the world of payments, it’s far from the first to do so. Chinese users on WeChat, the immensely popular mobile social platform, have already sent more than a billion e-money “red envelopes” to each other during the past Lunar New Year.
The amount of money electronically changing hands is mind-boggling. As money transfers continue to grow on social networks, we need to ask ourselves an important question. Who is minding the store with regards to due diligence? Remittance businesses like Western Union and MoneyGram must follow strict anti-money laundering (AML) and know your customer (KYC) rules. Failure to comply results in multi-million dollar fines and penalties. But what about social networks?
The lines have blurred when it comes to the definition of money service businesses (MSBs), which are typically regulated in most countries. Even though Facebook may not make any money from providing its service, the potential for money laundering through its network is a very real risk that cannot be overlooked. The same can also be said for WeChat and all other forms of social payments. Social networks that offer peer-to-peer money transfers are, in effect, MSBs.
Regulators are struggling to keep up with the breakneck pace with which payments are evolving. Nonetheless, this doesn’t change the fact that AML/KYC concerns must still be addressed.
“Money movement is extremely important. While technological innovations like WeChat can move billions over a weekend, we need to provide them the right tools to make the process safe,” said Stephen Ufford, Founder and CEO of Trulioo.
What can social networks offering to move money online do to improve their due diligence?