Facebook has announced the launch of its new crypto-currency called ‘Libra’ 2020 which will enable payments to be made by a special phone app, and by messaging services such as WhatsApp, so that spending the new currency could be as easy and fast as texting.
Management of the currency, units of which can be purchased via Libra’s platforms and stored it in a digital wallet called “Calibra”, will be the responsibility of an independent group of companies called the Libra Association.
In addition to Facebook, the Association has 27 other members/partners, all of whom will most likely have to accept Libra, including Mastercard, PayPal, eBay, Spotify, Uber, Vodafone, and a variety of charities such as Women’s World Banking.
Not Like Bitcoin
Libra will be protected from the kinds of wild fluctuations and instability that plagued the Bitcoin crypto-currency because Libra will be asset-backed and pegged to other currencies.
It also has the major payment and credit companies on board as members of its Association which means that it has already been legitimised, and is likely to gain widescale practical use in the real world rather than simply be seen as a fast money-making opportunity.
One of the major advantages of the Libra currency is that it has no traditional bank ‘middleman’, therefore enabling fast and frictionless transactions. This could help it to eventually become a global currency enabling easier international spending. It will also have the advantage of being fast and convenient to use.
According to Facebook, the initial main target market for the use of Libra is the 1.7 billion adults worldwide who do not have a bank account, although 1 million plus of these already have a smartphone, thereby enabling them to use the apps through which Libra can be operated. This “unbanked” segment of the potential market is known to contain mainly people from developing countries, a large proportion of which are women.
Some questions have already been raised, however, about how Libra will be able to meet other challenges such as being able to verify the identity of people in this demographic (many of whom don’t have ID documents), and how Libra can meet compliance challenges.
What’s In It For Facebook?
In addition to being recognised as being the company at the heart of what could potentially become a global currency, Facebook will receive a small commission amount for every transaction.
Security and Trust?
Ever since the Facebook/Cambridge Analytica personal data protection scandal, Facebook has suffered from a lack of trust. The thought of Facebook overseeing a currency has, therefore, made some commentators raise questions about the governance and security issues of Libra. In fact, even though Libra is Facebook’s currency, the governance of it will be split between all of the Association members. Also, the Calibra payments system will have strong protection to keep money and personal information safe by using the same verification and anti-fraud processes that banks and credit cards use. Any money that is stolen from the system will be refunded, thereby providing greater reassurance to users of the new currency.
What Does This Mean For Your Business?
Libra will give Facebook the opportunity to monetise another of its services, and an opportunity to diversify. The idea that Libra is for use by the 1.7 billion people without bank accounts is also good for PR, but it is more likely that Libra will gain more users with bank accounts in developed countries more quickly. It is also worth noting that even though the banks will not be middlemen in the use of Libra, banks will still be needed for people to use to buy Libra in the first place.
Many of us are personally unlikely to be regularly using or benefitting from the frictionless cross-border transferring of money, although this may be of real benefit to some businesses. That said, it is thought that only 12 markets will actually be ready for Libra when it launches, and although Libra is ready to go in the US, some countries e.g. India have restrictions on the use of digital currencies. Financial commentators have noted that Libra will also need to comply with regulatory structures in order to become a successful global currency.
Libra, however, already has the backing of the big payment and credit companies (who are partners in Libra), plus it offers the reassurance of being asset-backed and linked to other ‘real’ currency values. This may mean that (unlike Bitcoin) it appears to have a low risk for users which could fuel its rapid growth. Easy payments globally could, therefore, have a beneficial effect for businesses and economies worldwide, if security and regulatory issues can be tackled effectively.
Libra’s introduction also comes at a time when there is a worldwide trend of decline in the use of cash, and Libra may, therefore, be well placed to jump in to fill that gap.