Libra – Financial Inclusion, Some Strings Attached
On June 18, Facebook announced its plan to create a new digital currency, scheduled to launch in early 2020. The currency, Libra, will be anchored to a reserve of low-volatility assets and governed by the independent, not-for-profit Libra Association, a consortium of some pretty big names in tech and finance.
This isn’t Facebook’s first foray into creating a currency – it experimented with Facebook Credits for in-app purchases back in 2009, but shut down the project less than two years later due to lack of user adoption. This time, though, Facebook has the backing of companies like Mastercard, Visa, Uber, and PayPal, as well as the nice little perk of 2.7 billion active monthly users (compared to 300 million, give or take, in 2009).
This potential user pool, more than anything else, differentiates Facebook from other cryptocurrencies. The total number of blockchain wallet users worldwide sits at just 34.67 million – Coinbase, the largest cryptocurrency exchange, topped out at 11.1 million users as of January 2018 in the heyday of bitcoin. Put another way, with just 2% of Facebook user adoption, Libra would surpass the total number of cryptocurrency users worldwide, let alone any one exchange. Users will be able to use the Calibra wallet to send and receive Libra on Facebook, Messenger, and WhatsApp as well as in brick and mortar stores, with the goal of eventually expanding to other platforms and use cases as well. This invites comparisons to China’s all-in-one platform, WeChat – paying bills, small daily transactions, public transit fares – but also makes for a difficult position on the current antitrust front.
As Facebook tries to reposition itself as a privacy-focused platform – away from being the town square toward being the living room – it will need to discover new avenues for monetization. Currently, Facebook possesses its users’ personal and behavioral data on its platform and 3rd-party platforms that integrate with Facebook, but not its users’ financial data. Here’s where Libra steps in. Facebook says it will not be able to use Libra’s transactional data for targeted advertising (yet – jury’s still out on any future financial services that Facebook may roll out). However, if Libra’s ease of use through integration facilitates an increase in the number and frequency of transactions and money transfers through Facebook Marketplace, WhatsApp, and Messenger, these platforms will become all the more attractive spaces for digital advertising.
This is in line with Facebook’s pivot towards ecommerce, as search volume on its native Marketplace platform tripled in 2017, following its October 2016 launch. Take note of who doesn’t have a seat at the Libra Association table – e-commerce and traditional retail banks. Amazon, Google, Apple all have their own payments systems and stakes in e-commerce, and would lose market share if Libra gains traction, while large retail banks will be forced to change and adapt if Libra succeeds in shaking up the traditional banking system.
While Facebook and the other members of the Libra Association stand to profit from the success of Libra, do not discount the positive impact that this may have on individuals excluded from traditional banks due to lack of resources, valid identification, or financial literacy. Libra may present a way for those without bank accounts or credit cards to access digital goods and services and circumvent expensive international transfer fees. This initiative also shows that financial inclusion is becoming a mainstream topic and a business model in and of itself, rather than a niche or an afterthought. Monetization opportunities notwithstanding, Libra’s public mission statement is global financial empowerment and inclusion, and, given its connection to big names like Facebook, Mastercard, and Visa, is a visible step in actually achieving these goals.
However, one major roadblock to this inclusion play is Calibra’s reliance on government documentation for new account verification. This is a huge complication for the goal of “banking the unbanked,” as many are currently excluded purely due to the inability to provide said government identification. Another subsequent question arises – will people have access to physical locations to exchange fiat for Libra, given their lack of access to existing digital financial services?
Furthermore, inclusion also involves a technical understanding of the platform – Libra is targeting users who are the most removed from the underlying technology and, as a result, are the most vulnerable to potential predatory behavior and exploitation by bad actors. The Libra Association needs to make a concerted effort to promote transparency and education for its users to prevent any chance of loss of autonomy or privacy.
At the end of the day, Tuesday’s announcement was just that – an announcement. Libra faces many challenges in the upcoming half- to whole year to launch: growing political antitrust pressure against tech giants, technical challenges and limitations, regulatory compliance requirements, and public reputation re: user data privacy (lookin’ at you, Cambridge Analytica). Time will tell whether or not Libra will be spark for change or just a blip on the radar.