While Facebook has taken some PR lumps over its Libra cryptocurrency concept, it’s not as if the company was a payments newbie.
Facebook has a longstanding interest in payments, and has already made a considerable amount of money from its payments activities. Consider that the social network produced $269 million from “payments and other fees” in the third quarter of 2019, a respectable haul. However, Facebook’s payments revenue has remained relatively flat for the last several years. And payments income continues to be dwarfed by advertising revenue, which reached $17.6 billion in the same period.
Even as the company worked at Libra, it was busy on other fronts. The late 2019 announcement of the gradual rollout of Facebook Pay appears to be the company’s effort to collect all of its payments services under one umbrella. They have been part of Facebook Messenger, WhatsApp and Facebook itself, where payments often take the form of games payments. This seems like a natural progression, and also prepares Facebook Pay for quick deployment in future services, inside or outside the walls of Facebook.
Payments Development Continues to Be a Facebook Priority
The Facebook Pay announcement closely followed the high-profile departure from the Libra Association of major payments companies such as Mastercard, PayPal, Stripe and Visa. From its announcement in June 2019 the Libra endeavor was met with hostility on several fronts.
Most seriously, the Libra Association ran into difficulties with regulators and the central banks of several countries. For example, both the People’s Bank of China and the European Central Bank indicated they would respond to the “challenge” of Libra, by moving forward with their own stablecoins — digital currencies pegged to fiat currency. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, added to this, calling a U.S. stablecoin “inevitable.”
This resistance comes at a time when Facebook has been mired in a negative news cycle relating to the current stormy political climate. Mark Zuckerberg and company seem to be having difficulty getting clear of this and related politics. This atmosphere is certainly responsible for some of the negative reactions to the initial Libra announcement in the summer of 2019.
Reactions to Facebook Pay were much more muted, probably because Libra’s scope is more ambitious than that of Facebook Pay, which rides traditional payment rails. It remains to be seen if the two become linked in the future.
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Calibra Head Keeps on Keeping the Faith
At a recent industry gathering, I conducted an on-stage discussion David Marcus, Head of Calibra, the Facebook subsidiary responsible for managing the Libra effort. Marcus previously served as Head of Messenger, Facebook’s P2P app, and prior to that served as PayPal’s President.
Marcus took audience questions and they weren’t softballs. Marcus addressed all the doubts and remained optimistic that the Libra Association, down to 21 members from 28 at the time, would still emerge with a viable product.
Regarding the mission of Calibra, which is also the name of the wallet with which to use the Libra currency, Marcus emphasized that the goal was financial inclusion on a global scale. Marcus noted that 1.7 billion people are currently completely outside the current financial services system and that 1.5 billion additional people are underserved by it. Marcus said that Facebook officials cannot believe that three decades after the invention of the web there is still option for these people and others to move money inexpensively.
A major criticism of Libra is that it represents an attempt to usurp the authority of central banks by instituting a one-world currency overseen by Zuckerberg. While concerns about Facebook’s data management and influence on politics are valid, Marcus indicated that the one-world-currency fear about Libra is overblown. It appears to tie into traditional bankers’ longstanding distrust of bitcoin and cryptocurrency generally.
Marcus pointed out that Libra will be traded on a blockchain with several sovereign nodes, rather than being under the control of Facebook. “If you really want to change the way money moves around, there’s no better way of doing it [than blockchain],” he said. “You can’t have one single company control a network like this.”
Libra will serve as a tool in certain situations, according to Marcus. “You’re going to get in and out of the currency as you need, to move money around the world,” he explained. And the digital currency will be used primarily by people who lack access to traditional banking channels. Currently the financially underserved pay steep fees to transfer much-needed funds to friends and family across international borders. Marcus mentioned fees of 7% occurring on platforms like WhatsApp and Messenger, whose millions of users give Facebook extraordinary visibility into money movement patterns.
So Far Banks Still Aren’t Coming Around to Libra
Cryptocurrency has long been portrayed as a disruptor in the remittance space, but efforts up until now have either fallen short or remain in formative stages. While remaining optimistic in the face of wide-ranging and forceful criticism, Marcus acknowledged he and Libra will be in for a long ride.
A key question for many in the financial services space is why banks have not signed onto Libra. Marcus again saw a sunny future here.
“I think that you will see banks join Libra,” he told me. “You will see all kinds of different players in the financial services ecosystem join. We’ve been asked and criticized for not having banks at the table from the get-go and I just want to clarify that this is not our decision. We did have conversations with banks.”
There was some discrepancy about this upon Libra’s initial announcement, with some very large banks saying they had not been contacted about Libra. In any case Facebook is clearly courting banks now, after losing the major payment networks.
In public the banks continue to keep their distance. For example, Vanessa Colella, Chief Innovation Officer at Citibank, told CNN Money/Switzerland that the bank would not be “jumping on” Libra in the immediate future. “It’s never about a single technology,” said Colella. “It’s about how an ecosystem will mature.”
Marcus noted that as Libra solidifies its regulatory standing —and perhaps makes peace with at least some of the central banks — that financial institutions’ attitude will change.
“Banks want to have more regulatory clarity before joining,” Marcus said. “I can almost certainly guarantee that you will see banks in the Libra Association soon.”