Banks were conspicuous by their absence when Facebook yesterday announced plans to launch its crypto-currency, Libra, in 2020, analysts say.
The social media giant shared plans for Calibra, a newly formed Facebook subsidiary, whose goal is to provide financial services that will let people access and participate in the Libra network.
The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app, and Facebook expects to launch it next year.
The group behind the crypto-currency is the Libra Association, which has 29 founding members, including some big names like Visa, MasterCard, Uber, Lyft, eBay and Spotify.
Rajesh Kandaswamy, chief of research and Gartner fellow for emerging technologies, industries and blockchain, says banks were conspicuously absent in the list of launch partners.
“Facebook’s proposal is an alternative payment network that runs outside today’s payment rails. But it is too early to say, for sure, if banks will not have a role. Note that credit is a key element related to payments today (especially in credit cards) and if this new network does not enable credit mechanisms, it might not be that attractive to everyone. So, there might be a role over time.”
Kandaswamy says Libra provides a mechanism to bring e-commerce more seamlessly available on social networks.
“This is a large business opportunity for Facebook, somewhat similar to WeChat. It also enables them to create another revenue stream that is not depending on selling users’ data and attention for ad dollars. Lastly, it provides a means to provide more services to users on its global network and benefit from it.”
Seshree Govender, a senior associate at Webber Wentzel, says Libra itself will not potentially target the banks, as the banks are not responsible for creating or issuing value.
Banks bear the responsibility of transferring value from one person to another and making sure someone is not able to double spend value, she explains.
This would not be threatened by crypto-currency, adds Govender. However, she notes this function of the bank may be threatened by the technology that underpins crypto-currencies, namely blockchain.
“Facebook will develop the Libra blockchain, which will serve the purpose of transferring Libra between its users and maintaining a record of transactions so as to prevent its users from double spending any Libra.
“Blockchain technology has the potential to disrupt the banking sector through disintermediation. Essentially, it is arguable that, should Facebook users utilise Libra and conduct transactions through the Libra blockchain, such users would no longer need a central entity such as a bank to give effect to the transaction, as the decentralised blockchain would perform the function.
“Importantly, it would not be Facebook’s Libra blockchain in particular that would target the banks, as all blockchain technology has the potential to do so,” Govender says.
She adds the most interesting aspect of this is the Libra Association consortium, which comprises big players in the crypto-currency, blockchain and payments industry.
“Essentially, this consortium will be responsible for building the Libra ecosystem. It will be interesting to see how such a consortium would be able to jointly grow this ecosystem. Also, there are a lot of questions surrounding the use of Libra, mainly regulatory questions.”
For Casey Kuhlman, CEO of Monax (a blockchain-native software as a service company), Facebook sees an opportunity to leverage blockchain technology to build a base infrastructure for the information age on which it will seek to build services and products in the financial arena.
“This announcement will bring media and market attention to other crypto-currencies in the short run. More importantly, the move is the continuation of a legitimising trend. This technology is real and it’s here to stay,” says Kuhlman.
“Those in the blockchain world are seemingly discounting this announcement as ‘yet another press release about a big company dabbling with the technology’. However, this seems quite different to me. There is real technical, community and financial work behind this announcement. While I don’t think the system is fully baked, I also think that folks within the blockchain ecosystem may be ignoring this at their peril.”
George McDonaugh, CEO and co-founder of KR1 (a London-listed crypto-currency and blockchain investment company), says Facebook is essentially trying to create a stable medium of exchange that can be used for making payments across its networks and, therefore, across borders.
“Think the current functionality of WeChat, Venmo and PayPal, but instead of transacting pounds and dollars, users will be transacting in Facebook’s Libra,” says McDonaugh.
He believes Facebook and Libra’s supporting corporations are doing this for one reason – data.
“It will be spun as banking the unbanked, revolutionising payments and connecting the world, but don't be fooled. This move into the murky world of crypto-currency is about tapping new wells of data, the modern day oil.
“No doubt there’ll be plenty of assertions over privacy protection and ‘decentralised’ hand waving, but this is all about Facebook enriching their reservoirs of data.
“Want a loan? Ask Zuckerberg. Want a credit card? Ask Zuckerberg, and everything will be at the click of a button on a platform that literally 30% of the planet’s population are using.”
However, McDonaugh says, Libra could crush merchant fees and potentially solve major issues with card fraud.
“If that wasn’t enough, if Libra is successful in seeing widespread adoption, watch a slew of new coins come to market from the other Silicon Valley heavyweights. Money is the next frontier for the candy crushing, social networking leviathans, and I, for one, would not want to be standing in their way.”
Marius Reitz, Luno GM: Africa, comments that the world’s consumers have changed dramatically over the past few decades, both in terms of demographics and behaviour.
He points out that increasingly savvy consumers want and expect things cheaper or for free, faster, safer and more customised to their specific needs, with more overall control by the individual.
The same goes for all the ways consumers want to use money, Reitz says. “We see these new types of crypto instruments unlocking an enormous amount of value to consumers in developing markets, impacting billions of lives positively in the process.
He adds the crypto industry is still in its infancy, so a lot can and will still happen. “We believe stablecoins like the Libra are a step in the right direction, not just as a technology in itself, but also because it will broaden the education of and access to other crypto-currencies, like Bitcoin, substantially. We believe it’s going to raise the tide for the entire industry, and carve out its own important use cases, just as those that Bitcoin or Ethereum (and others) have.”
- Full list of the Libra Association
- Andreessen Horowitz
- Anchorage Bison Trails
- Booking Holdings
- Breakthrough Initiatives
- Facebook’s Calibra
- Iliad’s Free
- MercadoLibre’s Mercado Pago
- Ribbit Capital
- Spotify Technology
- Thrive Capital
- Union Square Ventures
- Vodafone Group
- Creative Destructive Lab
- Mercy Corps