This article is a bit forward thinking, but there could potentially be some positive aspect to the recent news about Facebook (FB, Financial), and I'll try and explain why I think so.
About two or three years ago in a city that I was temporarily living in, I used to walk to the train station and pass a house where, in a living room, there were about six kids sitting together with laptops every day. There was a giant white board up in the background and it was clear that the living room space they were working out of had been converted to a semi-office. One day, without notice and curious as to what was going on, I randomly walked in.
After asking, they told me that they were a very young startup company who was working on an iPhone app together. I introduced myself to the "boss" and told him that I had a lot of VC connections and that I'd be interested to hear his story. So, he gave me a pitch on the company's app. The sole purpose of the app? To be able to shuffle money around among you and your friends easily. He pitched me on a situation where four friends go to a restaurant and don't feel like divvying up a bill that one guy pays. They then use their accounts to do the math and transfer the appropriate funds to one another with one or two quick clicks, and everyone (including the restaurant) saves time.
Sure, companies like PayPal have looked at online money transfer to corporations and shops, but this was the first time I had heard of something being used on solely a local platform, person to person. Think of all the ways you transfer bits of money to people: parents giving kids allowances, tipping a doorman in the city, paying for a friend's coffee. All of these aren't PayPal-esque in size, but haven't been explored in depth yet by app makers.
Square and Bitcoin have kind of touched on the conveniences of having a mobile wallet, and it's definitely a niche that I think is still in the very early stages of its adoption curve. Thus, when I found out that Facebook was focusing on it, I liked the idea.
It was reported this last month:
- Facebook is close to receiving approval from Ireland's central bank to become an "e-money" institution that would enable users to store money on the social network and use it to pay and exchange money with other members, the FT reports.
- The move would help Facebook boost its presence in emerging markets, as it would provide remittance services in which migrant workers send money home to their families.
- Facebook has also discussed possible partnerships with TransferWise, Moni Technologies and Azimo, startups that enable online money transfer services.
- Facebook has a leg up to jump into this niche, as well, for several reasons.
First, Facebook is already a semi-reliable name. We know they're a billion dollar company and that they are established, so the security issue is much smaller with consumers than it would be with a brand new app.
Second, Facebook already has its customer base. It doesn't need to go out and market the app, because people already have it.
Third, the projected growth in the global mobile wallet market is enormous. It's exactly the kind of growth a company like Facebook needs to get out in front of. Zuckerberg may be rich, and he may be getting a bit older, but it still seems that he continues to know what's "trending."
Additionally, I would be wary of companies like Western Union (WU, Financial) who specialize in person-to-person money transfer, should it not start to adapt to the way in which this industry could continue to shape.
Though certainly not for a short-term gamble on Facebook, I believe this niche could definitely help Facebook continue its aggressive long-term growth and that the company is on stable footing as an investment for the long term. I'll be watching closely to see what develops with Facebook and the mobile wallet market.
