Facebook is the quintessential tech disruptor – from rehauling the idea of networking, to revolutionising digital advertising, and even changing how people consume news. It is now foraying into FinTech, with the launch of its cryptocurrency, Libra.
Banking and Currency Alternative
The audacious attempt to initiate a global digital currency will be accompanied by a payment wallet of its own, Calibra, allowing peer-to-peer money transfers. Mark Zuckerberg estimates that about one billion people in the world do not have bank accounts but own a phone. Facebook’s advantage is its sheer user base, with , means it can cast a much wider net than any other FinTech company.
Libra, which will be backed by real assets (fiat currencies) unlike its counterparts, can be a powerful alternative to sovereign currencies in certain developing countries with struggling economies. Take the Venezuelan bolivar, for example. Lack of financial discipline and hyperinflation has rendered it almost worthless. If implemented correctly, Libra can offer increased reliability and the potential for saving an economy. In theory, it could replace government-backed monies, or even traditional banks for people like the Venezuelans.
Open Banking Source
Through Calibra, Facebook could collect large amounts of data on consumer spending habits (with user permissions). With integrations across its messaging services as well, the simplified communication will help companies target consumers for loans, credit, and international money transfers.
At present, the leading choice for personal remittances of an estimated $529 billion annually is Western Union. If WhatsApp (1.5 billion users) introduced a money transfer feature, it is obvious which one consumers would prefer. Simplifying P2P by way of Calibra and Libra could lead to the largest global open banking platform, that could disrupt traditional banking systems and push FinTech competition to the fringe.
Law and AML Compliance
Facebook has already drawn the ire of global regulators and governments with respect to its lax security policies. So it is safe to say that this endeavor will only succeed if security and data privacy are made priorities.
Just like Bitcoin or Ethereum, Libra transactions will be anonymous, meaning data of users will not be accessible. Additionally, the private cryptocurrency will have to adhere to global rules and regulations of AML compliance, CFT, and data privacy before being used. Even if it does get past regulations, wallets that use Libra’s blockchain technology will be subject to intense scrutiny, having to invest more in KYC and AML services.
Increased Cryptocurrency Adoption
With its ever-growing user base and impressive roster of launch partners including Visa, MasterCard, Uber, and Lyft, Libra could expand cryptocurrency adoption. With more and more people learning about them, other financial institutions and global banks might launch their own versions as well, leading to a robust system for digital currencies.