Thu Apr 17 2014
Live Index (1454 articles)

Will Facebook’s Latest Move Cripple the Finance Industry?

In September 2012, shares of Facebook (FB) hit their all-time low of $ 17.55.

The stock has been on an upward trajectory ever since.

It even enjoyed a short-lived break above the $ 70 level back in March, which got me thinking…

In light of Facebook’s recent acquisition spree, including the $ 2-billion purchase of Oculus, were the lows of 2012 a historic buying opportunity? I believe so…

Already a fifth of the time that Americans spend on their smartphones is spent on Facebook. And now the social media juggernaut is reportedly weeks away from the regulatory approval it needs to launch an e-payments service in Europe.

With Facebook’s European headquarters in Ireland, the country’s central bank must approve Facebook as an electronic money institution.

The conquest of American banks would undoubtedly be next.

To shed more light on this developing storyline, I asked bestselling author Karim Rahemtulla to share his opinion.

Karim, who’s been covering the stock since it IPO’d, says that Facebook’s “ubiquity” makes it a legitimate threat to take over the world of commerce.

~ Robert Williams, Founder, Wall Street Daily

These days, it seems like everyone wants to know how social media will evolve.

Which companies will survive long enough to deserve seemingly commonplace valuations of 20 and 30 times sales or double and triple the market multiple for earnings?

Is Facebook (FB) dead because younger users are migrating to other media apps like Snapchat, Instagram (which is owned by Facebook, by the way) or whatever the next new thing might be?

Well, late last week, Facebook gave astute investors a glimpse into what the future holds, and the company showed why it’ll remain the dominant force in social media for some time to come.

Can You Say “Banking”?

Facebook announced that it’s close to obtaining regulatory approval from the Irish monetary authorities to provide financial services for users.

More specifically, Zuckerberg’s firm is seeking approval for a service that would allow users to store money on Facebook, use the funds to pay for goods and services, and exchange money with others.

Not only is Facebook’s Irish entry the first shot across the bow to companies like PayPal – owned by eBay (EBAY) – that offer services for money transfers and merchant payments, but it’s also a wake-up call to bigger banks that offer a whole suite of services.

You see, while both PayPal and the banks have been around much longer, they lack the one crucial ingredient that will make Facebook the dominant player of the future: eyeballs!

Like many others, I’ve come to rely on the site for events ranging from sports to social gatherings… and I’m not the “generation” that most people associate with Facebook. But I am in the age group (35 to 60) that’s joining Facebook faster than any other.

This is important, as Facebook needs us to spend money on things that give the company a cut. Tweens and Millennials may love posting pictures, but they don’t buy like we do.

Consider this scenario: Just the other day, I was on my Facebook page and noticed that a friend had a birthday. She was in a different state, and I thought it’d be a nice gesture to send her a present. With Facebook banking, I could do so in a matter of clicks!

Remember, Facebook’s power is its ubiquity: It’s become routine to check my page, converse with friends over the FB messaging service – and, most recently, text when I’m overseas, since Facebook acquired WhatsApp.

On top of that, my conventional bank doesn’t offer any particular benefits that make me want to stay with them. Security is suspect, especially in light of all the recent hacking. Why would Facebook be any less secure?

In an age where relationship banking with big banks is non-existent, why couldn’t a company that has dominated social networking succeed? I’d consider banking through them in a heartbeat, and I think others would, too.

If you’re still not convinced, consider the numbers coming from all of this: If Facebook were able to engage just 10% of its user base in banking services, it’d be the biggest bank in the world in terms of the number of clients.

Clearly, not all social media sites are created equal. Some, like Facebook, are leaps and bounds ahead of others in terms of user interface, offerings and clientele. And with this latest venture into the banking business, FB is starting to convince former skeptics (like myself) that it’s the single company with the potential to dominate the sector.

Ahead of the tape,

Karim Rahemtulla

We’re currently in the midst of a “global resource chase.” So says Oil & Energy Daily’s Chief Investment Strategist, Karim Rahemtulla – a 20-year veteran of the global financial markets. What’s more, this increasingly intense chase for power and energy means there’s no better time to be an oil and energy investor. And with Karim on your side, you’re in great shape to profit. Learn More >>

Live Index

Live Index