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.