Facebook Ready To Enter Digital Payments - Via Bitcoin?

Summary

• In April reports surfaced that Facebook was seeking approval from the Central Bank of Ireland to start a service to allow users to send/store money on its platform.
• Facebook recently hired PayPal President David Marcus to lead its Messaging Apps (a potential avenue to expand into payments).
• David Marcus was an adamant supporter of Bitcoin prior to joining Facebook.
• Remittances are a $500B low hanging fruit ripe for disruption.
• Apple may have finally opened the doors for Bitcoin Apps within iOS.

Introduction

A little over 2 months ago, Facebook (FB) made headlines for reportedly trying to obtain approval with the Central Bank of Ireland to send and store payments on its website.

The Guardian provided slightly more information in its publication on the matter:

Facebook is preparing a money transfer service in Europe that would allow it to compete with the likes of Western Union, while giving users the option of storing money with the social network or buying items online.

The US tech firm is seeking regulatory approval in its European base in Ireland for "e-money" status, which would see it issue digital credits that can be converted into cash by recipients.

The firm already has permission for some forms of money transfer in the US, which allow payments within apps, including the Candy Crush Saga and Farmville games, from which Facebook takes a 30% cut. The company facilitated $2.1bn (£1.3bn) in transactions across Facebook in 2013, primarily to games publishers.

Approval in Ireland would allow Facebook to operate an e-money service throughout Europe using "passporting", which allows digital payments to be used across EU member states without having to gain regulatory approval from each one.

This is potentially very big news for Facebook. As of now, the company makes nearly all of its revenue and profits from advertising. With 1B+ users spread all across the globe, Facebook has a unique opportunity to be a very disruptive force in the payment industry.

Things got even more interesting when Facebook followed up these payment rumors by poaching a digital payment visionary.

Enter David Marcus

On June 9th, Facebook hired David Marcus, the President of PayPal (EBAY) to lead its efforts in mobile messaging.

Marcus joined PayPal in 2011 as VP of mobile, to help lead its mobile payment efforts.

If Facebook is going to introduce a payment service, it's likely it could be tied to its messaging apps. Google (GOOG) (GOOGL) did something similar last year, when it allowed Google Wallet users to attach and send money with Gmail.

Marcus has also gone on the record in support of the disruptive potential of Bitcoin. He also insinuated numerous times that PayPal was considering integrating the crypto-currency into its services under his watch.

For more info on Marcus/Bitcoin see the links below:

• "Why Paypal is Bullish on Bitcoin" - Fortune (May 2013)
• "PayPal president David Marcus: Bitcoin is good, NFC is bad" - Cnet (December 2013)
• "Paypal President hints at Bitcoin policy change" - Upstart (January 2013)
• "Paypal President David Marcus - 'I Really Like Bitcoin'" -CoinReport (February 2014)

David Marcus makes Facebook's payment entrance far more realistic in my opinion. His experience in both mobile and payments seems like an ideal fit for not only Facebook, but any disruptive payment product taking advantage of the platform shift to mobile.

His open support of Bitcoin is yet another intriguing fact, given how much traction the crypto-currency is receiving in digital payments right now.

Bitcoin Remittance/Payment Startups Gaining Steam

Online remittance startups like BitPesa that specialize in Bitcoin, have recently come into the spotlight.

As most Bitcoin followers know, remittances are a low hanging fruit for disruption, thanks to the proliferation of mobile devices. Money transfer services like Western Union (WU) charge obnoxious 10%+ fees to send money overseas. This technology and fee structure is wildly outdated to say the least.

For example, BitPesa (which only works in Kenya for now) charges 3% for a service that accomplishes the same goal. It does this by utilizing Bitcoin to get the money into Kenya, then converting it into the local currency.

Coindesk reports that global remittances total $500B annually, and the average fee for a given transaction is 9%. It's not hard to see how wildly popular and accretive a remittance service launched by Facebook would be, if it were to dramatically undercut the incumbent's fees (as BitPesa is doing).

Apple Finally Letting In Bitcoin Apps

The timing may finally be right for a major tech company to proliferate the mobile use of Bitcoin, thanks to Apple (AAPL). Apple had notoriously banned all Bitcoin transfer apps from The App Store, until several months ago.

Recently (as of WWDC), Apple has made a policy change, which has allowed Bitcoin transfer apps back on the market.

This opens the doors for a company like Facebook to begin integrating Bitcoin features into its suite of iOS apps. Apple's ban on Bitcoin apps had been stifling the crypto-currency's mobile adoption, and isolating hundreds of millions of iPhone and iPad users. Now that all has changed.

Conclusion

A service that will allow Facebook users to send and store money is a game-changer with or without Bitcoin integration.

The hiring of David Marcus gives us yet another clue that Facebook is strongly considering launching a payment service of its own. With a user-base over 1B and climbing, this represents a significant monetization opportunity for the rapidly growing social network.

If Bitcoin is integrated into Facebook's payment service, not only will the crypto-currency benefit greatly, but Facebook has the potential to disrupt a large chunk of the digital payment industry in one fell swoop.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.