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Can Facebook compete with banks?

By David McMillin · Bankrate.com
Friday, February 24, 2012
Posted: 5 pm ET

As account holders deposit dollars into the nation's banks, a little social media website appears to be using a different currency.

Okay, so it's not exactly little -- it's Facebook. You know, the site with hundreds of millions of users, massive buzz about its upcoming IPO and now, an official request with the SEC to use its digital currency to transmit payments.

According to a recent American Banker story from Sean Sposito, Facebook's users are already using the currency, Facebook Credits, to buy items in online games that users play within the website. The company officially filed to receive money transmitter licenses, which are necessary for any organization dealing with currency.

So how much is a Facebook Credit worth? Ten cents. The company certainly managed to add up those dime-sized purchases in 2011, too. In a filing with the SEC, Facebook unveiled earnings of $3.7 billion from this online currency last year.

I don't expect the Facebook Credit to replace the dollar anytime soon, but there are some pretty big possibilities here. Facebook has users all over the world. If this digital currency gains enough steam to make online purchases from retailers with Facebook pages, the banking industry will be somewhat cut out of the action without any merchant processing fees or wire fees.

Imagine the path that money might take once it becomes official Facebook currency. Let's say a customer uses Facebook Credits to download software from a merchant within the social network. The merchant then buys advertising on Facebook with those credits. The ads help fuel the merchant's growth, and before you know it, more consumers are using credits to download new software editions. Where are the dollars and banks in that picture?

While my understanding of money transmission and the rules and regulations surrounding currency exchange is rather limited, I think Facebook has some serious potential among its most dedicated users. Many recent reader comments on posts have voiced plenty of distrust with the banking industry as a whole, which makes me wonder if Facebook has the power to become a real player in the transmission of money. Of course, this is still in its infant stage. I certainly wouldn't be able to find any use in buying credits for online games, but I'm sure there plenty of online users who can.

What do you think? Would you use Facebook Credits? Do you expect the social media company to try to compete with banks?

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