You may not like the idea of Facebook’s Libra, but don’t ignore it…
Read length: 5–10 minutes
After Facebook’s big announcement that they’ll be spearheading a new cryptocurrency called Libra, the press and governments have been up in arms. From the expected consumer trust question around the risk of Facebook using your financial data for advertising, to bigger questions on whether the creation of currency is something only governments should have the power to do. It’s definitely got attention and has even been reported that the US Congress has asked them to “immediately cease implementation plans”.
But, unlike their editorial responsibilities, Facebook has thought about this one and you should keep it on your radar. Especially if you’re looking to make DTC payments easier and grow through developing markets in the future.
What is Libra?
Libra is a new cryptocurrency currency that aims to be your go-to payment system for online shopping. Think something halfway between PayPal and Bitcoin. They want to make paying online “faster, cheaper and more secure”.
It’s not your standard cryptocurrency though, as Facebook has created a different governance model. Without getting too techy, like bitcoin, Libra will use a secure ledger to register when the ownership of a coin is moved from one person to the next. The difference is that a currency like bitcoin is decentralized, meaning no business or government manages the ledger or its value. Whereas Libra is centralized, meaning its ledger and value is managed by the “Libra Association” a not-for-profit organisation set up to manage the currency.
The founders of the Libra Association are an impressive list of names from banking, tech and investment funds including Visa, Mastercard, eBay, Vodafone and Andreesen Horowitz, (a full list is on the site here) The founders have also all put $10m+ in to act as capital against the value of the coin, just like a bank.
Isn’t Bitcoins value like a yo-yo, will Libra be the same?
Yes, Bitcoins value is temperamental to say the least. That’s because as an asset free, decentralised currency it’s basically worth what people are willing to pay for it. While writing this Bitcoin is now twice the value it was 6 months ago.
This has always been a barrier for shops and businesses to accept bitcoin sales as you don’t know if £100 today is worth £150 or £50 next week.
Libra has solved this through their reserve (that money the founders have all provided). The Libra association will invest in lots of low volatility assets and currencies, allowing them to keep the coin value stable. Let’s say the UK Pound drops heavily against the Dollar, Libra will invest equally in both currencies so it stays stable. I’m simplifying, but you get the point. So, that £100 sale will still be worth pretty much £100 ongoing.
The way I like to think about it is that bitcoin is more of an asset you can buy or sell on the market, whereas Libra will act more like a real currency.
(If you do want to get into a bit more detail on Libra v Bitcoin the Verge did a great article Libra Explained)
How will it work and what are the benefits for consumers?
It’s pretty simple. Like a pre-pay card you can transfer local currency to your digital wallet, called Calibra and it will be converted to Libra coin. This can then be spent online and the long term plan is to make it usable in brick and mortar stores too.
But wait, we already have Paypal so why is this better?
I’m a big PayPal user. I love simple systems that already have all my details and speeds up online shopping. If I could extend Paypal to work in a platform like WhatsApp I would. When shopping in store though, I’d probably still be happy to use my bank or credit card. But that’s a very western view.
We may have access to credit cards and financing, but there are massive populations around the world that don’t. There are currently about 1.7 billion people globally who lack access to a bank account.
For years countries like Zimbabwe have been paying locally using text through their phone providers, so a currency you can share globally is attractive and why not trust your online provider with your money? Remember Facebook’s mission for universal connectivity provides over 60 countries with Free Basics, in some countries they’re so tied in they claim they don’t even use the internet!
Also, in China, a generation “have jumped from using cash to using phones without the middle steps of cheques and bank cards,”
Looking at money transfers, current services charge an average of 7% to send money abroad, taking $50 billion from users annually, often the poorest. Libra has stated that they will use micro-payment or prepayment to make the cost minimal and instant.
If it becomes truly global and accepted offline, imagine flying for business or on holiday and just using your phone to pay in the same currency you do in the UK. Just like the Uber app works in NY, Paris, London or Seoul, so could Libra.
You can see is why banks and governments are worried.
When will it launch? (And will it happen)
Facebook is going to have to go through lots of regulatory hoops and government scrutinisation, but they are stating launch in the first half of 2020. I expect the latter half is more likely.
That may seem far away, but how long does it take to get a roll-out done on your tech stack? I’ve worked with some businesses that have to plan a year out to make sure it fits in with other road mapped updates.
Why I shouldn’t ignore Libra?
It’s Facebook. Like them or not, they have the bit between their teeth and have committed to partners. They will make it happen in one form or another and with 2.38bn active users a month, people will use it.
They’ve solved the cryptocurrency value problem creating a “stablecoin”, so unlike bitcoin, 1 Libra coin today is worth the same tomorrow. This means low-risk adoption from all major on and offline merchants.
It will be truly global. With minimal transaction and transfer fees paving the way for developing markets to skip financial services and put their money on Libra. The brands that are ready to accept Libra could lead the competition in those markets.
What should I do next?
Step 1 is simply put it on your agenda and make sure it stays on it. Ask your eCommerce and Technology teams if they are fully aware of the opportunity, and tell them not to ignore it. Then track development and start investigating impact and cost to deliver a launch roadmap.
Then once it’s released, be ready with a test scenario that can be easily scaled. One product or brand, one market. If it performs well, you’ll be ready to expand quickly.
And please, don’t think about this as innovation budget it may be an innovation for facebook, but for businesses, this is just keeping up with the latest payment technology.
Let me know any other steps you plan to make.
Don’t ignore aims to bring senior marketers (or just those interested) a simple explanation of what not to ignore in the tech and marketing world. If you want to read more just Follow me on LinkedIn https://www.linkedin.com/in/mrmarkdavis
