Facebook edges towards digital currency with rebranded wallet

Facebook has renamed its digital wallet Novi as it takes another incremental step forward with its Libra digital currency.

Despite there being much criticism and scepticism surrounding the ability of Facebook (or whether it should be allowed) to run a digital currency, the team has been taking tentative steps towards the launch.

Announced to much fanfare in 2019, Facebook lead a coalition of companies in an attempt to create a new digital currency which would be anchored to commodities to prevent volatility. It certainly seemed like a positive idea, but Facebook’s track record on privacy and data protection tarnished ambitions. Partners dropped out, regulators cast doubt on the operations and ambitions were scaled back.

Against the odds, the Libra digital currency survived, and the team persevered in a much more low-profile manner.

In April this year, the Libra Association announced it had entered into the first stage payment system licensing process, but the digital currency would be pegged to local currencies. It adds more stability but removes flexibility for the team. The creation of a new digital wallet is the next step in making the currency a commercial reality.

“Today, we’re excited to introduce Novi – the new name and brand for the digital wallet that will help people send and hold Libra digital currencies,” said David Marcus, Head of Novi at Facebook.

“While we’ve changed our name from Calibra, we haven’t changed our long-term commitment to helping people around the world access affordable financial services. Whether you’re sending money home to support the family members who supported you, or you’re receiving money from your friends no matter where they are, the Novi wallet will make money work better for everyone.”

Some might wonder why Facebook is interested in digital currencies, and while there are of course many reasons, there are two which we think are most important.

Firstly, why not?

Facebook is a company which likes making money, and when there is an opportunity to make money, why shouldn’t it try. Entering into the financial services market would diversify revenues to create a healthier business. Every organisation wants to branch out into new areas, these are capitalist organisations after all.

Secondly, it adds more opportunity for the social media platform.

With Western markets largely reaching saturation point for advertising on Facebook’s core social media platform, new revenues will have to be sought from new regions. Some of those were there is potential lack traditional banking infrastructure. If they have access to digital infrastructure however, the introduction of digital currency means Facebook can make money off these users without traditional banking facilities.

The Libra mission is gradually making progress, and while it might not be the biggest of celebrations from Facebook, perhaps that is the best strategy. Fanfare brought unwelcome attention last year, so maybe it is a better idea to quietly go about business and make a fuss when the ‘point of no return’ has been passed.

Libra Association distances itself from global digital currency

The Libra Association has entered into the first phase of the payment system licensing process, but its global plans have been replaced with several, localised stablecoins.

In what appears to be a decision to appease financial regulators, many of whom were concerned with the creation of a single digital currency via a largely unregulated sector, the Libra Association will now create several different stablecoins which are tied to currencies in different markets.

For example, one could be created in North America where the value of the coin is pinned against the US Dollar, while another could be created in Europe and tied to the Euro or the Pound Sterling. It dilutes the idea of a globalised digital currency, the vision of Facebook, and lessens the flexibility of the Association as there are more moving parts, but it will keep regulators happy.

There are still plans to launch a multi-currency Libra coin, which would perhaps be tied to a globalised commodity to stabilise pricing (oil or gold for instance), however the current position is certainly a step-down from the original idea.

The original concept, as envisioned by Facebook, was to create a single digital currency which would be specialised for digital communities, such as social media platforms. Not only would it tie more people into online marketplaces, but it would enable the likes of Facebook to reach out to customers who exist outside of traditional finance infrastructure.

Facebook’s core business model is relatively simple; attract users to the platform and serve ads. As users in some markets will have reached saturation point for the number of ads which can be served without negatively impacting experience, to continue financial growth in the long-term, new users would have to be added to the platform.

This commercial ambition to fuel further advertising campaigns explains why Facebook is interesting in enabling those who do not have bank accounts, but also explains why it is a driving force for the Telecom Infra Project (TIP). This is a community which is attempting to commoditise the development of connectivity infrastructure, therefore lowering the cost of network deployment. Both initiatives would bring more communities online, and subsequently, offering more eyeballs on social media sites.

This is not the end of the global digital currency project, though it is a dilution of the vision, which should not be particularly surprising. Although there are many wonderful promises in the blockchain-based payment system concept, this is a potentially revolutionary step for a very traditional industry, challenging the idea of monetary sovereignty. Completing this mission in one, giant step was always going to be somewhat of a challenge.

Vodafone snubs Libra in favour of M-Pesa

Vodafone has withdrawn from Facebook’s digital currency initiative Libra, as regulators and bureaucrats circle overhead.

While Facebook might have become accustomed to sitting in the regulatory spotlight, it seems other companies are not as accepting of the attention. In an increasing tsunami of regulatory scrutiny, Vodafone has become the latest company to withdraw from the Libra initiative, joining the likes of Paypal and Mastercard.

“Vodafone Group has decided to withdraw from the Libra Association,” a Vodafone spokesperson said.

“We have said from the outset that Vodafone’s desire is to make a genuine contribution to extending financial inclusion. We remain fully committed to that goal and feel that we can make the most contribution by focusing our efforts on M-Pesa. We will continue to monitor the development of the Libra Association and do not rule out the possibility of future co-operation.”

After work on Libra initially started in 2017, Facebook plans to launch the digital currency this year. The plan is to peg the Libra token to the financial performance of commoditised assets in an attempt to avoid the volatility of other digital currencies. The likes of Bitcoin and Ethereum have dented confidence in the currencies to date, as while the idea is sound, the 2018 cryptocurrency crash, where the value of Bitcoin dropped 65%, shows the dangers.

The main issue with digital currencies is that this is a segment which is largely unregulated, leading to the challenge which is being faced by Libra today. The European Commission and European Parliament has said no to the likes of Libra until rules have been written, while other regulatory bodies have expressed similar disapproval.

PayPal, Mastercard, Mercado Pago, eBay, Stripe, Booking Holdings and Visa are some of the names to have withdrawn support, seemingly due to the regulatory pressure. With support dwindling and regulatory expectations an unknown for the moment, it remains to be seen whether Libra will continue on its current launch trajectory.

Although Vodafone has left the door open for the future, it will drive its efforts towards M-Pesa, the highly success digital currency which is setting the tone in Africa.

Founded by Vodafone in 2007, M-Pesa is a mobile phone-based money transfer, financing and microfinancing service. Initially launched for Vodacom and Safaricom in Kenya and Tanzania, the initiative has spread across several markets in Africa, to India, the Middle East and Eastern Europe. There is momentum for the M-Pesa initiative, so it hardly comes as a surprise Vodafone has dropped the controversial Libra.

Many would view M-Pesa as an underexploited asset for the Vodafone Group, though this is likely to change over the coming months. The team plan on expanding the service in the seven African markets it currently operates in, and even plans to launch in Ethiopia, a market where it does not currently manage a mobile network.

M-Pesa can already be used to pay salaries, settle invoices and pay for bus tickets today, but Vodafone is aiming to fill the void of traditional banking services, a major issue across much of the African continent.

The ‘unbanked’ challenge in Africa is not necessarily new news, the World Bank Global Findex suggest 62% of sub-Saharan Africans do not have a bank account, and digital currencies could fill the void. There is of course competition to be wary of, Orange Money or MTN Mobile Money for example, but M-Pesa has credibility in the market few could compete with.

With new infrastructure solutions gaining traction, OpenRAN, and a wave of new smart feature phones being released, the digital world is becoming increasingly accessible. M-Pesa is in an excellent position and Vodafone has a genuine opportunity to be a trailblazer for diversification into financial services alongside Orange. Perhaps it should come as little surprise the telco wants to distance itself from the increasingly under-fire Libra initiative.

Facebook gets big name backers for crypto project – report

Facebook has reportedly enlisted the support of a dozen organizations to underpin its cryptocurrency project and help keep the social media giant honest.

The majority of the blockchain project is being kept firmly under wraps, though the Wall Street Journal is reporting numerous technology heavyweights have been convinced to support the efforts. The likes of Uber, Visa, PayPal and Booking.com will allegedly each contribute $10 million to the project and then form a governance body which will oversee the cryptocurrency.

For the last year, Facebook has been working on the blockchain project to create its own digital currency. The digital currency will certainly help encourage more transactions on the social media platform, as well as enable Facebook to reach out to potential customers who do not have traditional bank accounts. Facebook has also claimed the creation of such an asset helps it to pivot to an organization which is more defined by privacy.

While the financial contributions towards the project and the governing body would be welcomed by Facebook, the support of these respected brands also tackles another challenge the social media firm is facing; trust and credibility.

Thanks to a few high-profile scandals and renewed enthusiasm across the world to tackle the data privacy violations from Silicon Valley, Facebook is lacking credibility. Mark Zuckerberg has been exposed as somewhat of an emotionless robot during investigations and testimonies, while fresh evidence keeps emerging suggesting the company does not care about the privacy right of its users.

Trust in Facebook is at a low-point at a time when it needs it most. Asking people to trust the firm with their digital profiles is one thing, but then suggesting they trust Facebook to be reliable and responsible with their money is a completely different question.

In bringing on brands which the consumer trusts with money, Facebook is crafting a PR win. The consumer trust in these brands might rub off on the social media giant, while it can also point to the fact its control and influence over the digital currency will be diluted through the presence of an oversight committee. If it turns out to be true, it is a clever move from Facebook.