Facebook is a few weeks away from gaining regulatory approval for a mobile payment system in the United Kingdom, according to a report from the Financial Times. This would allow users to store money on the social network and use it to pay and transfer cash to others.
The approval from the Central Bank of Ireland would also allow Facebook to tap into the remittance market, in which foreign workers transfer money to people in their home countries. Facebook's second-largest market is India, with 100 million active users. Remittances in the country topped $71 billion last year, according to World Bank.
Facebook's foray into the remittance market could prove lucrative and provide the social network with an additional revenue stream outside of advertising. The World Bank reports that globally, people channeled $404 billion in remittances last year. Transfer fees averaged about 8%.
[Get a grip on your account. Read 10 Most Misunderstood Facebook Privacy Facts.]
"The most likely scenario is that Facebook will allow their users to use this new functionality as a bank," said Brian Blau, research director at Gartner, in an interview. "They could surface this functionality as a payment system, but in some countries we could even see Facebook tie their payments to device operations. That could mean the phone itself could be the payment mechanism."
While the mobile payments market is hot -- Juniper Research says it will reach about $507 billion this year -- Facebook has struggled to tap into it. Former ventures included Facebook Gifts, which let users purchase items for a friend's birthday; Facebook Credits, a virtual currency for games that it will wind down; and Facebook Deals, which aimed to rival Groupon, but was shuttered by Facebook in 2011 after a four-month test.
Facebook also faces tight competition. Not only will the social network compete with services such as Google Wallet, which lets you transfer money via email attachment, it will go head-to-head with traditional banks, money transfer businesses, and other services such as PayPal.
But the social network's biggest challenge to overcome is consumer trust. According to Ovum's 2013 Consumer Insights report, only 1% of respondents said they trust social networks to deliver mobile payments. In contrast, 43% of respondents trusted banks and 13% trusted credit card companies.
"Over time we'll see technology providers like Facebook move into payment technology as a way to expand their influence and drive revenues and engagement within their own ecosystems," Gartner's Blau said. "Facebook will need to overcome their issues with user trust and convince businesses that transactions through its platform are not only complimentary to their current payment process, but will benefit them or even become a primary revenue source."
Trying to meet today's business technology needs with yesterday's IT organizational structure is like driving a Model T at the Indy 500. Time for a reset. Read our Transformative CIOs Organize For Success report today (free registration required).