Tuesday, November 15, 2016

Facebook obtained its e-money license : is it the gamechanger for the bigtech disruption of finance ?

About three weeks ago, Facebook has obtained it's e-money license in Ireland. This was in the making since early 2014 and it begs the question whether or not this will mark a big shift in the banking landscape.

Bigtech going for finance?
One could argue that the move by Facebook is another of many steps of big tech players moving into the financial arena and disrupting the financial sector. Where Google has lead the pact from London (with a license in 2007), Amazon chose Luxembourg (license in 2010, passport-out in 2012). With Facebook going down the same path, could we expect Apple or Microsoft to also set up their e-money institution?

My guess is that the bigtech will indeed all move towards some form of e-money license in Europe. It will allow them a direct billing and payment relationship with their customers as well as a role in terms of payment provider for their platforms and services. This is not to say that they will move there fast. If I'm correct, my Google account payments still do not flow via their e-money institution but via a normal bank.

Now, if this happens indeed, will the bigtech further move into financial services or just stick with digital cash and consumer credit?

Bigtech won't dive deep into finance
I don't expect the bigtech to move into full finance for many reasons. We've seen some of the current players moving still quite slowly and sticking to the straightforward business of e-money.

Moving towards other business lines leads to increased complexity and regulatory burden. Bear in mind that the future revenue opportunities for financial institutions as a whole are quite limited and not so attractive. Finally, financial institutions are often held to a higher standard with respect to maintaining their customers privacy, whereas customer data are the lifeblood for Bigtech.

Further move towards less-cash society
The main impact of bigtech going e-money will therefore be the acceleration of our move to wards a less-cash society in which strong brands, platforms and retailers issue their own payment instruments and digital cash. From the outset, Facebook cash could become a big hit as it has the user base, a regular usage pattern for its users and the possibility to best integrate it's e-money functions within their own platform

Only time will tell whether Facebook is also viewed by the public - reputationwise - as a partner to be trusted with your money. But we can rest assured that their offerings will certainly contribute to a less-cash society.