Facebook to Provide Remittances? The News and the Bigger Picture

> Posted by Jeffrey Riecke, Communications Associate, CFI

A few days ago news broke that Facebook, the social media giant with over a billion users worldwide, is making preparations to begin offering international money transfer services. Although the development has been dismissed by Facebook as rumor, the prospect of this enormous network enabled for money transfer and the huge global need for this service makes this a story worth following.

The news, initially shared by the Financial Times and sourced from individuals involved in the proceedings, indicates that Facebook is weeks away from securing regulatory approval from Ireland’s central bank to allow its users to store money on the site and use it to pay others. Facebook’s headquarters for Europe, the Middle East, and Asia is in Dublin. If approved, Facebook would be permitted to issue units of stored monetary value represented as “claims” against the company. Regulation in this area pertaining to Europe would allow approval in Ireland to green light services throughout the entire continent. The Financial Times also mentions that Facebook has had discussions about potential partnerships with several start-ups that offer international money transfer services through both smartphone and online platforms.

Facebook’s reach is massive, 1.23 billion at the end of last year, and it’s becoming increasingly diverse. Last week, thanks to increases in internet access and mobile penetration, the company achieved a milestone in India: 100 million users. Some analysts say by the end of this year India will surpass the United States (with 180 million) as the country with the most Facebook users. The social media site is big elsewhere in Asia, too. It is the most popular social network service in all but six of the region’s countries. After the US and India, Facebook’s largest countries by-users include Brazil, Indonesia, Mexico, Turkey, the United Kingdom, and the Philippines. Facebook has a large presence in Africa, as well, with 13 million users in Egypt, 9.4 million in South Africa, 5.3 million in Nigeria, 1.8 million in Kenya, and 1.4 million in Ghana.

Like Facebook, remittances volumes are increasing on the whole around the world. In a new brief on remittances and migration released last week by the World Bank, it’s shown that remittances to developing countries reached about $404 billion in 2013, an increase of 3.5 percent over 2012. Annual growth is expected to increase to an annual average of 8.4 percent over the next three years. In 2013, India received the most international remittances with $70 billion, followed by China with $60 billion, and the Philippines with $25 billion.

The world of remittances, once dominated by cash-to-cash money transfers, is increasingly going digital, through mobile money and online services. For example, long-time industry player Western Union experienced a 41 percent increase in online transactions in 2012. Along with such familiar market entities, mobile network operators, start-ups, and established internet companies (like Facebook) are entering the field. As we mentioned in a blog post earlier this week on M-Pesa expanding to Romania, M-Pesa offers international remittances, as do other mobile money outfits. Last week, in an encouraging act of cooperation, two mobile network operators announced a partnership enabling remittances between customers of the two services, which bridges a frequently-traveled remittance channel between the Ivory Coast and Burkina Faso. WorldRemit, an online-based start-up that allows money to be sent to the recipient’s phone, bank account, or designated pickup location, recently completed one of the largest Series A funding rounds (first round of early-stage funding) of any European financial technology business.

Whether or not Facebook decides to join these groups, the expansion of the market for sending remittances is good news for clients. In many countries, the total volume of remittances is greater than the total volume of exports. And the influx of additional players in the market is conducive to competition and lower prices. What’s more, electronic services are naturally more efficient, for both the provider and the client, than the brick-and-mortar-based equivalents. According to the World Bank, the average total cost of sending remittances fell in the first quarter of this year, decreasing below 8.4 percent, compared to its rate of about 9.0 percent last year. The average cost of remittances in Sub-Saharan Africa (SSA) remains an elevated 12 percent. In SSA, where mobile penetration is higher than banking penetration, mobile-based remittances are a clear opportunity.

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