Facebook’s reveal its Libra cryptocurrency and its intentions to reach millions of unbanked customers makes it the latest company to add the promise of usurping the role of banks into its business model at a time when public scrutiny is high.
It’s a strange time for Facebook to make a play in financial services. Consumer faith in the social media company is arguably at a nadir, governmental antitrust inquiries are gaining momentum and CEO Mark Zuckerberg is a frequent target of both sides of the political spectrum.
Facebook’s source for the 1.7 billion figure is the World Bank’s Global Findex Database 2017. Findex also believes that 1 billion of these have mobile phones and 500 million have internet access.
However, Findex also says that over half of the 1.7 billion come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan.
Libra may have good intentions. It needs to answer why this isn’t just a rich country solution being pushed on poor country problems. It’s like when well-meaning philanthropists donate solar panels without engineers to maintain them, or livestock which are ill-suited to the local climate, or irrigation pumps where there is no power grid.
Banks face a real threat of displacement. Many bankers privately acknowledge that the mobile banking experience — and digital banking in general — still needs improvement. Customers don’t understand how they can order something instantly online, but still have to wait potentially days to find out if they qualify for a loan. Fintechs have been making substantial inroads in improving the customer experience, gaining momentum along the way.
“Monetary policy would be totally out the window,” says Naeem Aslam, chief market strategist for ThinkMarkets in London. “It’s a major challenge. The U.S. would regulate Libra big time and this comes at a time when Facebook is already being scrutinized by regulators in Europe and in the U.S.”
Facebook said it will shape the project to abide by government rules. Libra isn’t meant to defy government regulators since the value of the cryptocurrency hinges on the value of sovereign currencies it is backed by.
Libra will initially be controlled by some of the world’s largest companies, who will profit directly from the use of this currency. It will likely be integrated into existing financial structures via VISA, Mastercard and PayPal.
It’s clear Facebook is positing Libra as a claim to the future. But it may not find much success with it until it can shake off its past.