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The World Gets Its Libra Look — And Is Divided On What It Sees

The world has gotten its first good look at Libra — Facebook’s long-anticipated move into cryptocurrency and global payments. That move includes new rails (the Libra Blockchain), the new currency (Libra), and the new Geneva-headquartered nonprofit (the Libra Association) that will act as its governing network structure and hold the Libra reserves. The move also includes the first application that will run on those rails, a digital wallet called Calibra, the product of a new Facebook subsidiary by the same name.

The 28 Founding Members of the Libra Association are impressive, to say the least. Some of the more notable members include Mastercard, Visa, PayPal, Stripe, PayU, Andreessen Horowitz, Union Square Capital, Coinbase, Xapo, eBay, Uber, Lyft, Farfetch, Mercado Pago, Spotify and Vodafone.

Members will be required to buy $10 million in Libra Tokens to confirm their membership and the voting rights associated with it. They can choose to pay additional increments of $10 million to enhance their standing in the association, though no member can gain more than 1 percent of the votes. Facebook has confirmed that it will have no more standing in the association than any other founding member after it finishes 2019.

It is a move with a mission that, as Karen Webster noted in her commentary this week, is undeniably bold. Facebook said it simply wants to give the 1.7 billion people in the world without access to a bank account the ability to have one at no, or a low, cost. The “internet of money” is the mantra, making it as easy to send money around the world as it is to send a picture or video across the internet, but more securely, Facebook explained.

“Freedom, justice and money — which is exactly what we’re trying to do here,” said David Marcus, head of the Libra project for Facebook, according to Reuters.

However, the problem with big, bold goals is that they are extremely difficult to execute. That is especially, Webster noted, when reaching those goals means getting buy-in to change everything in the payments ecosystem today: who runs it, moving from fiat currencies to the currency used to transact on it, the digital wallet that will store that new currency and the ecosystems in which it can be used. To start, that’s Facebook’s Messenger and WhatsApp.

It is particularly difficult when it includes asking central bankers and regulators to give up control of their domestic currencies to a global currency conceived by Facebook — the same Facebook that has made headlines and regulators roil over the last several years for its breaches of consumer trust and data privacy. That means there are all kinds of reasons to be dubious over Facebook’s plans, despite the 28 impressive names around the association table that have agreed, at least so far, to do nothing more than participate in shaping the operating rules of the network and currency itself.

Two-thirds of the unbanked are, well, unbanked because they live in wretched poverty, and have nothing to put in bank accounts. Libra can’t help solve for that problem. Yet, that may not be Libra’s real objective. So what is?

The Divided Opinions

The crypto community had a lot to say.

Digital currency and blockchain enthusiasts’ most common complaint was articulated by bitcoin booster and general crypto luminary Charlie Shrem. He said to forget the 1.7 billion unbanked — Facebook is really after disrupting and destroying bitcoin in specific, and blockchain innovation in general, with an ersatz offering of its own. Libra, he argued is really a wolf in sheep’s clothing.

“I think the ‘FacebookCoin’ is an attempt by Big Tech, banks and credit card companies to lure people away from bitcoin into ‘better, easier, crypto’, which is nothing more than a fiat coin being masqueraded as crypto,” Shrem said, according to CoinDesk. “Millions will be fooled.”

London-listed cryptocurrency and blockchain investment company KR1’s CEO George McDonaugh said Libra is actually antithetical to what bitcoin and cryptocurrency is all about. Crypto, after all, he noted, is about decentralization and user privacy.

“Let’s cut to the chase — Facebook and Libra’s supporting corporations (which include eBay, Visa, Uber and PayPal) are doing this for one reason, and that’s data. It will be spun as banking the unbanked, revolutionizing payments and connecting the world, but don’t be fooled. This move into the murky world of cryptocurrency is about tapping new wells of data, the modern day oil,” McDonaugh said, CoinDesk reported.

He continued, “No doubt there’ll be plenty of assertions over privacy protection and ‘decentralized’ hand-waving, but this is all about Facebook enriching its reservoirs of data, knowing who you are (for real), what you’re buying, who you’re paying and how much you have. This is why Facebook’s Libra will not compete with bitcoin.”

However, it is worth noting that while the announcement of Libra met quite a bit of suspicion, the crypto community wasn’t entirely negative.

Barry Silbert, an early bitcoin backer, as well as founder and CEO Digital Currency Group, said the launch of Facebook’s cryptocurrency was about to be a landmark moment in the history of digital currency.

“The launch of Facebook’s cryptocurrency will go down in history as the catalyst that propelled digital assets (including bitcoin) to mass global consumer adoption,” he wrote, CNBC reported. “Will be remembered as just as important — and transformative — as the launch of the Netscape browser. Buckle up.”

Blockchain Capital General Partner Spencer Bogart echoed that sentiment, noting that Facebook, because of its incredible scale, has a significant chance of “onboarding much of the world to digital assets.”

CementDAO Founder and CEO Edan Yago wrote for CoinDesk that Facebook, no matter the outcome of Libra, has pushed cryptocurrency into the mainstream conversation — and created room for more mass application.

“The world will not sit idly by and let Facebook own this new, phenomenal market opportunity. A thousand stablecoins are coming. Starbucks will let you buy your venti with ‘Starbucks.’ Verizon and AT&T will issue money as mobile and smart as the device already in your pocket,” he said.

The Analyst’s Weigh In

Some analysts were positively euphoric. RBC Capital Markets Analysts Mark Mahaney and Zachary Schwartzman seemed particularly enthusiastic.

“We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams,” they wrote in a note to investors.

Their argument is that Facebook’s placement and near-global ubiquity uniquely positions it to inject itself and its currency into global payments, commerce, applications and gaming at a scale, which will make it hard to compete.

Other analysts — such as Wedbush Securities Analyst Michael Pachter — weren’t quite convinced that Facebook is making a massive play for financial inclusion, so much as it is leveraging a giant opportunity to get more data. Others, though, see it as a way to create a closed ecosystem, a la WeChat, that it can monetize more easily.

“The move brings Facebook in line with the global digital payments industry. Tencent’s WeChat, the giant social network in China, already has a digital wallet,” said NPR‘s Aarti Shahani. “In India, there’s Paytm. In Kenya, there’s M-Pesa. A lot of the so-called emerging markets implemented this technology early on because their citizens don’t have bank accounts, but they do have mobile phones. Most Facebook users are overseas. The largest user base is India.”

The regulators had a different view.

Regulators Weigh In

Let’s just say it might have helped advance the Big Tech breakup narrative.

“This instrument for transactions will allow Facebook to collect millions and millions of data, which strengthens my conviction that there is a need to regulate the digital giants,” said French Minister of Finance Bruno Le Maire in an interview on Europe 1 radio.

Le Maire also noted that he has asked central bank heads in G7 countries to write a report on Libra by mid-July. Markus Ferber, a senior German lawmaker in the European parliament, said Libra should put “regulators on high alert.”

Stateside lawmakers share similar concerns. Virginia Senator Mark Warner expressed worry, given Facebook’s rocky relationship with consumer trust in the U.S., CNBC reported.

“The idea that we are going to turn over our financial data and information to that company, I think they have a big uphill effort to try to convince Americans that they ought to trust in Facebook’s proprietary interest in keeping your data secret,” he said.

Meanwhile, in the House of Representative, Maxine Waters, chair of the House Financial Services Committee, called upon Facebook to halt development of the product until Congress and regulators can review the issue, and called on company executives to testify before Congress.

“Facebook has data on billions of people, and has repeatedly shown a disregard for the protection and careful use of this data,” she said in a statement. “With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion, and extending its reach into the lives of its users.”

The Silence Is Deafening

What hasn’t been heard are any comments from the 28 members of the association, all of which now have a seat at the table, and seem to have their work cut out for them in shaping the future. That will start with being clear on what Libra really exists to do, and how it will be monetized.

It certainly does not appear to be about giving bank accounts to the 1.7 billion unbanked, according to the World Bank, since two-thirds of them don’t have any money to put into one. Nor does it seem to be about giving people better and cheaper options to send money cross-border, since they do that already in fiat currencies (and often in cold, hard cash) — fast, cheap and using regulated rails.

It could be to ignite a closed ecosystem that it can monetize using the Libra currency, but it needs a lot of liquidity in that ecosystem to ignite. In addition, it could be to monetize consumer data — not in the way people are talking about it today, but by paying consumers for their data, in Libra, into their Libra accounts. Privacy concerns disappear and consumers get a built-in and funded Libra account to spend inside of Facebook.

Then again, it’s only Day Two. So far, no money has exchanged hands. For as much as the world learned yesterday (June 18), there is still much that remains to be disclosed.

We’ll keep readers posted as the information comes forward.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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