Facebook’s new currency, Libra, was launched last month to much fanfare. Subject to regulatory approval, it is due to come online in the first half of 2020.
There has been much written about Libra already, but from conversations we’ve had since launch we know there is a lot of interest out there in how it might impact digital commerce. We’re therefore having a go at summarising some of its potential impact.
Similar to the Chinese social app WeChat which has integrated payments, Libra will be built into Facebook Messenger and WhatsApp as well as Libra’s own app. It will allow users to send and receive peer-to-peer payments in messages.
This sort of functionality has been rumoured for some time, so it doesn’t come as much of a surprise. Anyone that has travelled to Asia and used WeChat will agree with this, but it will be of major significance to the development of eCommerce - for companies and consumers alike.
Dependent on its adoption the change could enable hundreds of millions of people around the world to send money across borders as easily as they presently send text messages. It is also claimed that Libra will let you buy items or send money to people “at low to no cost”, suggesting that only a small commission will be taken from transactions.
27 partners were already signed up at launch including organisations as varied as Visa, Stripe, ebay, Uber, Spotify and Vodafone. You can almost certainly assume that they and others will accept Libra payments and that you’ll be able to order them more seamlessly from the Facebook family of products.
Libra could potentially open up new business models with microtransactions which haven’t previously been viable owing to card transaction fees. It could also be in a strong position to set the standards in identity verification - at least in the short run - as well as defining the rules and levels of enforcement in respect of privacy of transactions.
Finally, one of the most significant uses announced would be for the 1.7bn people without a bank account to make instant, and nearly free, international money transfers from their mobiles.
Facebook has gone to great lengths to emphasise that your transactional data will remain separate from Facebook’s family of products. Nevertheless, part of the value exchange with Facebook was pointed out by its VP of Blockchain, David Marcus: “if more commerce happens, then more small businesses will sell more on- and off-platform, and they’ll want to buy more ads on the platform, so it will be good for our ads business.”
Having followed the promise of cryptocurrencies for some time Facebook is making a bold play to realise some of its much hyped potential. It doesn't seem an understatement to say given some of the above points that the product could have far-reaching consequences.
There are, however, hurdles still to be overcome before the scheme goes live, and they will continue into the early days as it is becoming established. For example, the digital currency will require buy-in from various parties. Financial institutions will need to accept it. Customers will need to trust it if it is to be widely taken up, and it will also need to get the nod from regulators. Facebook says it has been speaking with regulators and central banks, but it will likely find the conversation demanding in some areas of the world, such as the EU.
Indeed the G7 thought the project significant enough to set up a working group the day after the announcement, who are tasked with reviewing its implications in conjunction with the IMF and central banks.
Facebook has certainly put a lot of thought into how it is set up though to overcome anticipated barriers. For example, crypto currencies have been limited by transactions speeds in the past but Libra can handle 1,000 transactions per second compared to Bitcoin’s 7 and Ethereum’s 15.
It has also taken steps to make it stable, to avoid the wild fluctuations of Bitcoin by pegging it to various “low volatility assets” including bank deposits and government securities in multiple currencies including the dollar, euro and pound.
You could argue that in setting up Calibra, the subsidiary now responsible for its cryptocurrency projects, and the association model the currency has (where each member organisation including Facebook has one vote on the governing council) this has been designed with regulators in mind.
In fact, maybe this is part of a pattern for Facebook in its attempt to manage regulatory pressures. Similar thoughts were voiced following the fact that it and other tech platforms are members of the World Federation of Advertisers instigated Global Alliance for Responsible Media that launched last month.
It is inevitable that cryptocurrencies will gain significantly wider adoption over the next decades. This sort of integration with the Facebook family of products will of course further accelerate mobile commerce. However, with regulators usually a few steps behind tech developments as many other commentators have already said, platforms with this potential global scale and impact do need close scrutiny upfront.
Alex Tait is the founder of the consultancy Entropy. He tweets @ASTait