Facebucks?

According to a piece in Fortune, Facebook users will soon be paying their bills and transfering money while they socialize online, as the company starts to support services for banks that want to engage with their customers in the business of online banking.

They are now planning an application in partnership with Australia’s Commonwealth Bank that will allow users to make payments to third parties and Facebook friends. While the transactions are made via Facebook, Commonwealth will secure transactions with its own authentication system as it currently does on its online and mobile banking site.

The bank believes that by creating private experiences on social media, it can better engage customers. Facebook will benefit as well as this should drive more traffic to Facebook, and open the doors to other avenues to monetize its platform. Currently in an internal beta, with the first version built in March, the application is expected to launch sometime this year.

This is a pivotal opportunity for Facebook (NASDAQ:FB) because, while it generated $186 million from its payments business in the first quarter of 2012, the bulk of it came from a single account – social gamemaker Zynga (NASDAQ:ZNGA.)

The Monetization of Facebook

This is not the first institution to enable financial transactions on Facebook. A startup called Loyal3 now allows Facebook users to buy fractions of shares in companies they “like” and share that on Facebook. The program launched earlier this year with Fifth & Pacific Companies (FNP), the publicly-traded owner of Juicy Couture, Kate Spade and other fashion brands.

Catching up to 2007

One story Fortune apparently missed is that KeyPoint credit union is already offering Facebook banking.  KeyPoint Federal Credit Union (powered by MShift) was the first financial institution in the world to offer Facebook account access in Nov 2007 (post here), back when the social network had “just” 50 million users.

In the ensuing 4 plus years, despite an increase of 800 million more users, not a single major financial institution followed in KeyPoint’s footsteps until now.

As reported in Netbanker, India’s second largest bank,ICICI Bank has also launched comprehensive Facebook services including account info, offers, and a general jump-page to the bank’s main website.

Keypoint represents it as a fully secure channel providing members with high-speed internet access the opportunity to view their accounts via Online Banking within Facebook. According to their site, account access is very secure with all account information data encrypted with a minimum of 128 bits, and no user data being stored on the Facebook servers.

To add the KeyPoint Banking Application to your Facebook account and view your KeyPoint Online Banking account from within your Facebook webpage, you only need to:

  • Sign-in as you normally would to your Facebook account.
  • Using the search tool, type KeyPoint.
  • Next to the word “Application” within the search results, click on KeyPoint CU.
  • On the right-hand tool bar, click on Add Application.
  • KeyPoint will be added to your Facebook applications.
  • View your KeyPoint accounts by entering your Online Banking user name and password. On subsequent visits, your account balances are automatically displayed with no login, provided you are logged into your Facebook account.

The benefits, according to KeyPoint are that:

Within Facebook, it provides secure, one-click access to your Online Banking Account information where you can view account balance information, as well as timely information from and about KeyPoint Credit Union. It also provides a forum for KeyPoint Credit Union members to socialize.

Privacy Issues and Risks

Privacy: Unlike customers of Loyal3, who may share that they’re fans of the brand, people are more protective of the private nature of their financial activities, so Facebook will be responsible to their banking partners for not sharing such information. Still, Facebook obviously sees opportunities to broaden its network and people engagement. This is important to them because today, a mere 16% of a brand’s fan base actually engages with a company’s Facebook page. Finding other ways for users to interact with brands on Facebook could help firms that are looking to grow their social media presence, while helping Facebook grow as well.

Risks: Risks include the potential for spam messages that could look like a friend in trouble, prompting users to send money through their Facebook app. However, scams like these are inherent to any virtual medium today, and unlikely to deter the Facebook user who finds Facebook Banking a convenience. Commonwealth Bank says it won’t launch the app unless it can offer customers a 100% guarantee of security.

Possibilities: The possibilities of this new “private walled Facebook platform” are compelling. Other industries will be likely to use such a platform. Facebook may become a launching pad for people to conduct numerous financial transactions such as collecting their paychecks, buying medical insurance or paying the IRS.

A Match Made In Virtual Heaven

The project has the potential for a win-win. For Commonwealth, it can get find new customers and better engage with existing ones. As for Facebook, it should build another revenue stream and help to boost page views.

Even though there might be some privacy and security issues which would need to be ironed out, social banking could be a huge hit and become one of Facebook’s major revenue engines as Facebook could take a cut off each fund transfer or each bill payment as a convenience charge.

Given its massive user base of more than 900 million monthly active users, if even a small fraction start transacting regularly, it could mean a significant source of cash for Facebook, which currently relies primarily on socially targeted advertising to make money.

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