By now you’ve probably heard about Libra, Facebook’s idea for a new cryptocurrency. At first glance, Libra has a lot of promise, along with many potential hurdles. We wanted to briefly summarize the Libra announcement for you, to better help you digest the news and consider what Libra could mean for digital payments in the not-too-distant future.
Some background
In recent years, banks worldwide have faced increasing competition from smaller and more nimble fintech companies. Because regulations take time to catch up with new technologies, these fintechs were not always held to the same lofty compliance standards as the banks, arguably giving them unfair competitive advantages. The banks have, of course, pointed this out. In response, new regulatory licensing restrictions and KYC/AML oversights have been proposed and, in some cases, implemented. This has helped slow the potential introduction of new payment networks that might otherwise have already replaced older platforms such as SWIFT and Visa.
It is no surprise then, to see fintech companies join together (with Facebook) to leverage economies of scale in order to meet compliance requirements and create a product that is more efficient and less expensive to a global market than our current payment system. Facebook, with its 2 billion users, could bring mass adoption to the crypto world, potentially serving billions of unbanked or underbanked people around the globe, while lowering the cost of payments for everyone else.
Haven’t we seen this before though?
Similar efforts at reforming our global payments system have been tried before; for example MCX merchant customer exchange. MCX was a consortium led by Walmart which included a network of large retailers with over a trillion US dollars in annual sales. It included as one of its primary goals the desire to avoid the interchange fee for credit card transactions by leveraging debit accounts via the ACH system.
Other similar attempts to bypass traditional payment systems have tried to leverage blockchain technology but suffered from a lack of critical mass of users. Facebook has no such problem. Its massive user base, which includes the Messenger, WhatsApp and Instagram platforms, could provide Libra wallets to all users, instantly introducing a mass audience to crypto currency. That said, Facebook seems to understand that consumers have to trust the platform where their money is stored and transacted, and that trust will be difficult to earn given Facebook’s many privacy-related missteps. That’s why the consortium backing Libra includes the likes of Visa and Mastercard, helping Facebook add credibility to the notion that consumers’ funds and personal data will be safe.
Still a long way to go
Libra will face plenty of regulatory challenges before it can begin to reach its intended target audience in the developing world. It will also face lots of competition if regulatory hurdles can be surmounted. Once in place, however, Libra could potentially provide access to new markets where consumers can purchase digital goods more easily and with some degree of anonymity.
At Segpay we are always looking at ways to add value for our merchants and we will be watching developments in this area closely, with an eye on how Libra might be used by consumers to make digital purchases, and as a way to pay out merchants and their affiliates, models and other contractors who are located in countries with less stable local currencies. Stay tuned.
