Facebook has rolled out a product in the United States that allows users to transfer money to each other via Facebook message. Your Facebook Messenger account is linked to a debit card. It’s an interesting premise and amazingly well executed. I haven’t seen a better implementation of person-to-person money transfer.
But — there’s a big but. The collective response from my friends? Yawn.
I tried sending money to more than two dozen of my friends. The most common response was nothing. (The money was automatically returned to me a couple of weeks later.) The second most common response: I’m not giving my debit card to Facebook.
Facebook’s other payments experiments have failed, including a Facebook branded prepaid card issued by Discover and Facebook Gifts. Like money transfer, those products were all aimed at the U.S. market. That’s a terrible mistake.
The United States has firmly entrenched credit card networks such as Visa, MasterCard and American Express. There is a robust banking system. Credit ratings bureaus such as Experian and Equifax provide a trust index. Aside from a lunatic fringe, people have faith in the U.S. dollar.
All of this makes for an extremely difficult place to launch a payments products. You’re up against powerful players who have their own interests. The combined value of AmEx, MasterCard and Visa is $370 billion. Facebook is worth $260 billion, and only a sliver of the company is working on payments.
But there is tremendous opportunity for Facebook to go after payments in places like Latin America, Asia and Africa.
Facebook could partner with local businesses as a point of presence. Customers would give their money to a nearby retailer, who would add money to the customer’s Facebook account. People who need cash could come in and take cash from the retailer. Facebook could also work with a local mobile operator, which already has such a retail network network.
In many of these countries, there is a credibility gap. Citizens can’t trust banks or the government.
With terrible institutions, moving money around is hard. Want to move a lot of money in cash? Hope that you don’t get robbed along the way. Facebook is an institution that has credibility in much of the world.
Facebook has spent a lot of time and energy catering to the developing world. Chief executive Mark Zuckerberg has talked extensively about getting the next billion people online. Why do Facebook pages look so small on big monitors? Because they’re being designed for people with less capable equipment than Silicon Valley engineers with 30-inch screens sitting on top of 1 Gbps connections. Facebook also has much leaner mobile versions for countries with slower data speeds.
Payments is an area where Facebook can help the developing world (as well as build a profitable, defensible business). With 1.5 billion people on Facebook, there’s a good chance that the person you want to send money to is already on Facebook. This is also true of many small businesses.
Want to pay for that samosa and chai? Send me a Facebook message.
The fundamental basis of any monetary system is trust. You have to trust the institution handling the transaction and that institution needs to trust that you will hold up your end of the deal. Facebook is in a great position to build the commercial trust graph, much like it has built the friend graph. In countries without credit bureaus such as Experian and Equifax, Facebook already has the best trust graph there is.
Remittances is another area where Facebook could make money and help the developing world. Companies such as Western Union extract heavy rents for transferring money from one country to another. Facebook can slash fees to a minimum and still make billions in the process.
Facebook could make those transactions as seamless as sending a message. In countries where Facebook has managed to build a small business network, that money from the United States could be spent immediately.
Other companies have done this successfully in a region. In Kenya and Tanzania, people can send money to each other from their mobile phones using M-Pesa. Like Facebook, Safaricom (the operator of the service) is at its core a communications company.
Many products that don’t succeed in the United States can succeed elsewhere. Most people snickered at this tiny product called “WhatsApp.” No one in Silicon Valley used it or paid attention to the company. But tens of millions in the developing world preferred to use it rather than to pay extortionate text messaging fees to local carriers.
Facebook bought WhatsApp for $19 billion. In that case, it was possible to buy the answer. That might not always be the case.
Rakesh Agrawal is the CEO of redesign | mobile, a marketplace for connecting consumers who need questions answered to service professionals. He frequently writes about technology companies and finance.