SUMMARY: Facebook’s June 18, 2019 announcement that in 2020 they would introduce Libra, a global payment system based on its own blockchain technology, was met with interest and consternation around the world, due to FB’s 2.4 billion user base. Here, in brief, is how Bancore sees the consequences of FB’s move:
- Libra will not help with financial inclusion: consumers are unlikely to make the jump from unbanked to a virtual, online crypto-currency,
- blockchain is seen with suspicion in some countries and may even be or become outlawed,
- It’s still the same world as yesterday: the problem remains of converting from an online credit advice (from your expat son) on your screen to local currency cash-in-hand,
- Other major companies (Google, Apple, Amazon) will not hand this business to FB, but will want competing payment systems – an opportunity for smaller functioning payment companies, including Bancore.
- Libra may be a threat, but can certainly also be an opportunity for those Fintech companies who have solved the last mile/cash-out problem that an online concept simply cannot solve.
BACKGROUND: Facebook is the largest social media platform in the world. It stores and shares information for more than 2.4 billion people, and Its main business is selling access to these profiles in an intelligent way, by crunching huge amounts of data using advanced algorithms, aimed at predicting consumer behaviour, especially buying intentions and habits.
What would be more normal than adding a payment mechanism to this marketing platform, ensuring that companies not only reach their exact target audience, but also sell and invoice them for products and services – perhaps offered as a one-click operation?
LIBRA: How does Facebook’s Libra meet those objectives?
- It is a payments blockchain platform based on a crypto currency (Libra)
- The platform claims to target “Financial Inclusion”, meaning Facebook wishes to bank the billions of users around the world who are still unbanked (see point 1 above).
- It will allow global P2P transactions using Facebook and Messenger, and via the databases of onboarded and future users
- It will be secure and compliant, adhering to the best market standards today.
Let us for a moment dwell on these statements:
- OK, but not the first time that somebody establishes a “stablecoin”, fixing it 1-to-1 with a basket of major currencies. With the funds available to Facebook to back this “basket” and actually make the coin stable, this might be the most realistic option yet and should (if sense prevails) eliminate Bitcoin and other non-secured cryptos.
- Financial Inclusion is not achieved by just on-boarding a user to an account, but must include “cash-to-digital” and “digital-to-cash” conversions, since an un-banked user will initially want cash for his daily expenditures. This means a widespread agent network of actual humans, obviously far less scalable than an IT platform, and it means a remuneration scheme for these agents to support the Libra – a cost that will make the Libra less attractive than cash.
- P2P: if I am un-banked today with a Libra account and some coins, how do I convert the Libra remittance I just received from my brother to a chicken or to pay for my daughter’s school fees? Mastercard and VISA may allow Facebook to issue cards with Libra as the underlying currency, but there are no POS or ATMs in remote areas of emerging markets today – where an unbanked user typically lives.
- Secure/compliant: this is a bold statement, considering the amount of fraud and money in the world today. Combined with the fact that crypto currencies and projects are illegal in many countries today, this would force Facebook to apply for licenses in every country around the world – a task that no company has managed to so far. Unlimited funds from Facebook could make this possible, but it is a hugely time-consuming task – and not solvable by 2020.
So is Libra a threat or an opportunity for Fintechs and consumers?
Short term, probably mainly a threat – why?
The biggest threat from Libra to Fintech Impact companies around the world is not that Facebook has introduced something that may eventually improve the lives of unbanked people around the world, but the perception in the market that Facebook has already achieved that.
For the consumer it is also a threat, since some solutions that would actually improve their lives might disappear due to lack of funding, which short term will lead to consumers being forced to use expensive or less compliant payment systems.
It has been said that “perception is everybody’s reality”, so the real threat is that the perception of Libra will stall or even kill some important Fintech Impact projects that would actually change people’s lives for the better.
Bancore Group A/S