Facebook has received a license from the Central Bank of Ireland to serve as an electronic money institution in Europe.
The broad nature of Facebook’s existing user base – globally, the company has an average of 1.18 billion daily active users – may give it an advantage over any competitors looking to establish alternative payment schemes in Europe. But the fact that it is a social network first and a payment entity much later means the company needs to be very careful.
The legal entity holding the license is Facebook Payments International Ltd. (FBPIL), according to a Facebook spokesperson.
“The license enables us to roll out products like charitable donations on Facebook and potentially peer-to-peer payments via Messenger in Europe, as we have in the U.S. The license authorizes FBPIL to issue donations from Facebook users to charities registered in the European Economic Area (EEA) only and peer-to-peer payments, within the EEA,” the spokesperson told PaymentFacilitator.com.
The European Economic Area is an area of free movement of goods and services that includes the members of the European Union as well as Norway, Iceland and Liechtenstein.
The fact that Facebook already has a significant presence with an active user base across Europe is important, according to Tim Buckingham, director at London-based Payments Services Ltd.
“The issue with Europe, as opposed to the U.S., is how to target cross-border customers. Europe is notoriously difficult to deliver a pan-European payment solution that is accepted by each country,” Buckingham said.
“One challenge is that Facebook is, well, Facebook. Is a social media site going to be trusted with money transfers by its users? I would imagine that this is going to be something of a slow start but with the right support, you can see this developing into one of the major players in the European market.”
However, if criminals feel that they can hide behind the Facebook system, the site could be a magnet for money launderers.
“As a regulated entity, Facebook’s size and relative lack of expertise in this space may well ring a sounding bell for money launderers and criminals alike, who will be more than keen to push the boundaries of the new systems,” he said. “If Facebook gets this wrong, given that they will have to stand behind the transactions financially, it could be an expensive learning curve. It will be interesting to see how Facebook is going to handle the enhanced KYC and due diligence required to meet its statutory obligations.”
Facebook has said that it sees payments as one part of the company’s overall plan to let users do pretty much anything through the site. These European capabilities follow similar announcements In the U.S. this year, where the company is allowing users to make payments through Messenger and facilitating donations to nonprofit organizations.
“Overall it is a logical step and if Facebook can get over the ‘social media, not a bank’ prejudice then it should be a successful one that could target the European market in a non-provincial manner that may well appeal to its customer base, but the financial risks might be significant,” Buckingham said.