Facebook, once viewed simply as a social networking platform, has morphed into one of the largest and most complex companies in the world. Now the company wants to add a new cryptocurrency known as Libra to its sprawling web of offshoot enterprises.
According to Libra’s website, the currency—set to launch in early 2020—grew out of a desire to reach the world’s 1.7 billion people the company says are underbanked. Their mission is to “enable a simple global currency and financial infrastructure that empowers billions of people.” Facebook also plans to build a new digital wallet and subsidiary called Calibra, which will store and exchange the currency.
Unlike other cryptocurrencies, Facebook’s Libra will be backed by real assets, which in theory could make it more stable than other cryptocurrencies such as Bitcoin and Ethereum.
“If you buy $50 of Libra, your $50 makes its way to the Libra Reserve,” David Marcus, leader of Facebook’s Calibra division, explained to CNBC. “It’s designed to be stable and confer values on Libra that makes it more like a traditional currency than any of the digital currencies are now. This is the way paper money was created.”
And while Facebook is the primary creator of the network, a consortium of 27 other influential companies—including Visa, Mastercard, Stripe, eBay, PayPal and Uber—have helped move the project forward.
The question of course is, “what does all this mean for credit unions?”
“Ultimately, everything is transforming in terms of how we operate,” Arun Kallikadavil, CO-OP Financial Services head of data strategy and delivery, said in a recent blog post. “If you look at the new generation of consumers, they’re moving more and more towards digital payments as their primary avenue to move money. It’s all about convenience: They don’t want to log into multiple places, have multiple accounts to manage… Once we see the intersection of where blockchain and payments is happening, we can see where our credit union ecosystem might fit in.”
As New York Credit Union Association SVP/General Counsel Henry Meier recently pointed out, it’s not surprising that Facebook wants to create a new cryptocurrency. But the fact that Facebook has partnered with companies that specialize in facilitating transactions proves how serious they are about bringing the new currency to the masses.
Does this represent a threat to credit unions? “Yes it does,” says Meier. “The threat is no different than any other multitude of other challenges confronted by the industry as technology once again revolutionizes the way banking is done. What really is going on here is not some idealistic quest to create a world without cash, but rather an aggressive and smart business move to take a larger chunk of the money to be made off facilitating business transactions.”
Whether or not Libra sees wide adoption will depend on a multitude of factors, but none may be more difficult to overcome than the trust factor.
Facebook has made headlines in recent years over its use of user data and algorithms, which has only eroded trust in the platform. Both Facebook and Libra have faced skepticism from lawmakers on Capitol Hill, who are wary of the tech giant’s growing influence.
But there could be ways to re-build that public trust.
“For example, Libra and Calibra could approach governments that pay social benefits to people in developing countries in cash and ask them to fund Calibra accounts instead of using the Libra currency,” Karen Webster, the founder of the PYMNTS website, wrote in a recent article. “The World Bank report says that social benefits paid into a digital account would bring 100 million more people globally into financial inclusion.”
If Libra and Calibra succeed in that regard, it seems possible that Facebook could completely disrupt the financial system. Still, the company would have an extraordinary trove of data on billions of people from around the world and would have to show it can be responsible with that data.
“Facebook has broken its promises in the past, and has time after time found ways to skirt rules and regulations in order to profit from the data of its users,” Nicole Lindsey, senior correspondent at CPO Magazine wrote in an article. “Is it really naive to think that Facebook is not planning to do the same with its new Libra cryptocurrency?”
While the new cryptocurrency has its fair share of skeptics, the loudest critic also happens to be, perhaps, the world’s most powerful man: President Donald Trump.
In a series of tweets, Trump blasted Libra and the idea of cryptocurrencies: “I am not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated crypto assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability.”