A Bed of Nails and Global Limitations

Jan 10, 2013
Posted by: David

To understand the limitations of a social media and payments marriage, one need only look across the pond I would argue.

The social media models that the payments industry has been experimenting with tend to be considered within a U.S. context under the assumption that if it works in the States it will spread globally, that assumption isn’t just myopic; it’s potentially dangerous.

Unlike the payments industry, social media has few boundaries excepting places like China where Internet access is filtered; so we’re trying to pair a virtually unregulated product with a highly regulated product.

That may work in the U.S. because from a regulatory perspective, by and large, it’s one, huge market, but Europe is many markets, each with its own set of regulations, even among EU members. And in Asia there isn’t even anything close to the EU.

The global social media and payments opportunity to a person resting on a bed of nails. Each nail represents a different country with a different regulatory environment and each must be dealt with individually. There’s one very big nail—the U.S.—but it’s going to take many more nails, all of these other markets around the world, to support the body instead of impaling it.

Open-loop products, for example, require a different issuing bank/licence in each country in which they operate. For this reason, a universal social media currency (e.g., Facebook credits) cannot be practically implemented on a global scale as a regulated product – although it is interesting to note Paymium, which operates the Bitcoin-Central exchange, has partnered with PSP Aqoba and French bank Credit Mutuel Arkéa in a move that means the currency will provide the protection of mainstream bank accounts to its users.

The move means that Bitcoin-Central is now the first Bitcoin exchange operating within European regulations, and Bitcoins will now be subject to the same protections as Euros held at Credit Mutuel Arkéa.

India, for example, whilst having a very forward looking central bank is also high regulated. All money transfers must go through the central bank, in fact it is one of the few countries to expressly stop Visa/MasterCards being sent in to family members for remittance purposes.

One bright spot in the picture is that many closed-loop products, to an extent, can operate outside a regulatory framework as they in effect work only at a single merchant, but Facebook abandoned closed-loop credits because they were more hassle than they were worth.

Should a major social media player like Facebook find a universal currency model that works and starts to gain major traction even if only in the U.S., it is likely not be too long before it attracts regulators’ attention – although it may take some consumers to lose money with it first.

Microsoft, Visa and MasterCard have all been investigated repeatedly by regulators for monopolistic practices or had price controls imposed on them, but Facebook has not, and it’s about as close to a social media monopoly as there is. Add payments to the social media mix and don’t be surprised if people, as in regulators suddenly care a great deal more.