Top Reasons Why Libra is Revolutionary (№2 of Series)
Calibra Leverages Libra to Develop Global Payment Beyond Remittance
1. Libra, Calibra and Facebook
The №1 use case of Libra is Calibra, a wallet designed for global payments in the Libra ecosystem. Calibra is a subsidiary of Facebook, and it reveals Facebook’s ambitions under the big masterpiece of Libra, which is to expand Facebook’s dominating position of the global information network of 2.7 billion users to another domain: a global value network.
According to Facebook’s financial reports, in Q1 2019, the company earned US$14,912 million in advertising revenue which represented almost 99% of the its entire revenue in Q1. Such percentage has been high in the whole year of 2018 (see below figure). In the first quarter of 2019, mobile advertising revenue represented approximately 93% of the advertising revenue. This indicates two directions: 1) Facebook may have almost saturated its potential in advertising, and it’s time to add another channel to monetize its massive network of global users; and, 2) Facebook may continue to emphasize mobile applications as mobile is fully recognized and has proven itself as the absolute leading medium.
That’s where Calibra fits in. Calibra’s mission is to make money work for everyone. It will be a standalone app that will also integrate into Facebook platforms like WhatsApp and Messenger. From the limited information of Calibra’s website, Facebook is sending signals to its billions of users that money movement among people and even business providers in the globe, could be fun, social, simple, fast and low cost.
2.Existing Global Payment
When was the last time global payments have been experienced in the way Calibra describes: fun, social, simple, fast and low cost? I guess most people would answer never. That is why when it comes to global payments, remittance is the term we hear more often. Unlike domestic money transfer, a cross-border transfer is much more complicated. It’s not unusual for multiple banks and clearing houses to get involved, not to mention the hidden role that SWIFT plays to facilitate global transactions by providing the transaction information. Below is a chart provided by the World Economic Forum on its publication “The Future of Financial Infrastructure” in August 2016, about the existing global payments and the significant pain points. The long process and involvement from multiple cross-border parties determine that remittance is expensive and time-consuming.
Among all the parties, SWIFT bridges the gap between the worldwide banks by providing them the standardized message services of exchanging information relating to receiving or sending money. Thus, a SWIFT code is commonly required at a cross-border transaction when we do remittance. In 1973, SWIFT was founded by 239 banks from 15 countries. The global money transfer essentially reply on two fundamental parts: banks and SWIFT. Both of their business models determine that cost will be charged for each transaction processing which requires a long time to complete the transfer.
3. New Global Payment
Today, after 46 years of SWIFT’s establishment, many things have changed and they are the reason why reinventing global payments could be possible:
- Payment companies (e.g. WeChat, Alipay) have diversified business models and are more willing to cut down costs for payment transactions to make users happy and make revenue in other places;
- Payment companies have leading technologies and outstanding product teams (e.g. Venmo, Circle, Coinbase) which allow them to create innovative products for the next generation;
- The internet and mobile adoptions enable people to have services more conveniently and simply without the restrictions of time and space;
- People have witnessed how social payment changed life through WeChat Pay and Alipay in China, and Venmo in U.S., and people want to have that in the rest of the world domestically and internationally; and
- Bitcoin, the first generation of cryptocurrency, has shown the world the benefits of using blockchain technology as a way of value exchange.
This is why Libra at the very beginning of its whitepaper has a clear problem statement about the uncompetitive money system and finance infrastructure. Blockchain may be a solution to make a transformation. It’s like another SWIFT, but except this time, it’s not only banks but companies, NGOs, academic institutions as well as individuals can participate in its creation.
Libra is not the first cryptocurrency that aims to solve payment issues. Multiple crypto tokens, especially stable coins, have addressed this problem, but only partially. However, according to the partners ecosystem and information shown on the websites, even the leading stable coins USDT, USDC (by Circle and Coinbase), TrueUSD, and DAI have yet to make global payment the only or №1 priority. Trading and hedging is probably the most seen use case. Calibra’s showcase distinguished itself from others, by making payment as its only and core function for individuals and potentially business.
4. Looking Ahead of Market Value
All these lead to another question about Calibra. How big is the market for this new global payment? According to the World Bank’s statement, a total of US$ 613 billion was sent globally across borders in 2017. This number is an indicator of the big market of global payment with the provision that it’s only reflective of remittance behaviors. Because of the inconvenience, remittance usually happens whenever people have to wire money but not whenever they want to make the transfer.
When payment can be low (or even no) cost, fast, fun, and easy, the amount of the transaction could be much smaller and the frequency can be much higher. It just opens new markets and lots of new opportunities where we cannot see today.
For instance, according to the most recent investors’ presentation, Tencent’s WeChat Pay, the №1 payment platform in China handles 500 million transactions per day for over 1 billion users. For Calibra, the number of growth and areas in globe with its existing 2.7 billion user network where the payment can be influenced will be enormous and beyond our imagination. If Calibra and Libra can successfully launch, Facebook will no longer only be a social platform today. It can add payment and many other businesses on top. Many new commercial interactions and business opportunities for other companies including these who are partners for Libra in the globe will be seen.