So it's been a few weeks now since Facebook announced their cryptocurrency, Libra. Over that time, I have come across a number of articles, opinions and other diatribes trying to make sense of what it all means for us today, as well as for tomorrow. One of the triggers for me to writing about Libra was the fact that many of our customers, investors, partners and well-wishers wanted to have our views on Libra. So here’s as concise a view on Libra as possible, and more specifically – from the perspective of app ecosystems and borderless payments. I’ll admit in advance, it is really, really hard to not have a lot to say about this.
I’ll preface my thoughts with a simple tip of my hat to ANY company, big or small, that tries to put a foot forward in not only solving the issues of cross border, small-value transfers, but also in doing their bit in making the world a smaller, more inclusive place.
So does that mean Facebook is one of the good guy here?
Uh, no… What Facebook over the course of the last few years in particular (only revealed more recently) has shown is their focused intent on gathering, storing, and manipulating user data to the maximum extent possible in order to gain financially. It certainly started as a novel idea, to connect the world around us - but Facebook is a business, for profit.
Regulation – There is simply no getting around this – cryptocurrencies are not universally regulated. Furthermore, where they are quasi-regulated, they are not regulated the same way that Fiat currencies are regulated, monitored, “managed”. Taxation of cryptocurrencies is just one of many issues that they have yet to solve (The US taxes crypto gains the same way as property, so every spend of a Bitcoin technically needs to calculate when you bought it, when you sold it, what your capital gain was, for EACH transaction). There are pros and cons for crypto verses Fiat, but ultimately, the world and its systems have been built around rules and regulations that support the value of global currencies to provide real stability. The idea that a cryptocurrency, programmed with rules, can be a catchall for the multitude of combinations and permutations and circumstances that central banks, economists and other money-centric organisations actively work to balance out on a daily basis, is a tad naïve.
Trust – Facebook has none.
I dare say, the Libra announcement would have been considerably different if WeChat or AliPay had come up with this as a next step forward. WeChat also has over a billion users, and the majority of users already use WeChat as a mode of payment, so adoption would be virtually frictionless. These companies, to the best of our collective knowledge, do not have the same reputational pains that a lot of tech companies in the West have, Silicon Valley companies in particular. People already have either their partial or full salary paid into these Chinese wallets in some cases. That is a tremendous show of trust, particularly when it comes to lower income folk, who have razor-thin savings and could not afford a software update glitch or balance theft.
Facebook’s issues with Cambridge Analytica, Russian fake news that helped turn the White House - orange, and the massive overall intrusion into our personal lives that takes place directly due to the company’s short, medium and long term strategy to monetise absolutely everything about us - has led many to be confounded with the mere notion that anything Facebook should now be rewarded for that by having a significant seat at the table when it comes to knowing what we spend and how. To me, this is an impossibility. That ship has sailed. Nothing stops Libra from becoming the default ‘currency’ for the Facebook ecosystem, which could reasonably include WhatsApp and Instagram as well. It will undoubtedly at a minimum, be experimented with in that ‘closed loop’ environment. Stating that Libra will be managed by a foundation in my view is just a red herring. The main architects and still-current management of the project are all Facebook folks. There is no independence here to speak of. Libra will become a surrogate of Facebook’s world one way or another.
Countries - Central Banks – Regulators - Banks – To be truly mainstream as a currency, Facebook’s Libra would have to be simultaneously accepted and absorbed into the global financial system. This is simply put, an impossibility. Facebook is a for-profit company. They have a substantial number of people who use their service on a regular basis, over 1.3 billion daily active users. That does not however translate like-for-like into the world of money. The Dollar, Euro, Yen, Pound, are the bedrock of global trade, not just what we stuff into our back pockets or look to ‘replace’ with their digital avatars. Libra would literally need to be tradable to that extent to be considered a viable alternative, because the wider a currency is used, the more its value and valuable-ness is built - not otherwise.
The App world – Most of our customers have a very specific reason why they want their own, custom-branded wallet. It has everything to do with their own identity, and their own budding and growing ecosystems of users. They themselves have communities. In today’s world, many of them could have partnered with a GrabPay or WeChat Pay to enable payments, but again, it is the same issue that Facebook would face - Why would these companies work and spend towards customer acquisition and retention, and then hand over all that customer value in the form of payments to another, customer-facing payment company? Imagine a micro-insurance company that uses GrabPay, and three months later, realise that Grab has been selling a store-brand version of their insurance product to the same customer, at half the price. Many of our customers are already the go-to apps for their users, and these apps are well positioned to build their own ecosystems and ‘super-app’ status themselves. They simply don't need a GrabPay or WeChat pay, let alone a crypto play like Libra.
Do we even need Libra – To keep this point simple, there already exist strong, stable currencies in the world. The problem that needs solving is to find faster, cheaper and more flexible ways to transfer funds around the world. Allowing these currencies to further penetrate the mobile payments world, is key. They do not need to be replaced…
Under what circumstances could you see Libra being adopted by the financial world? I see none. I see absolute distrust as an insurmountable wall for Facebook to overcome. There is simply no reliance on the underlying entity that “owns” it.