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.

Libra attempts to placate everyone else

Facebook’s Libra cryptocurrency has received almost universal push-back since its announcement, so now it’s looking for ways to placate its critics.

To say Libra has had a difficult start would be an understatement. Financial regulators in the US and Europe almost immediately sounded the alarm about the prospect of a new cryptocurrency controlled by one of the world’s dominant digital platforms. They were joined by many other concerned voices in both the public and private sectors and by last week it had lost its biggest allies in the electronic payments world.

This was far from an ideal background to the first formal meeting of the Libra Association, which gathered in Geneva last week, but on the plus side at least it sorted the wheat from the chaff among its initial backers. In the event 21 founding members decided to stick around and sign the Libra Association charter, which is definitely better than nothing.

In a subsequent banking seminar Libra project lead David Marcus told the assembled bankers that Libra was open to looking at a bunch of different options for what form it would take, suggesting they might make it a stablecoin pegged to a bunch of existing fiat currencies, rather than a true cryptocurrency like Bitcoin, that would be subject to similar volatility in value.

That’s being positioned as some kind of major concession to meet regulators half way, but from day one Libra was positioned as a stablecoin, so it’s not obvious how much has changed. The transnational Financial Action Task Force recently has a meeting about stablecoin an seems to be pretty nervous about even that, so it looks like Libra has a lot of obstacles to overcome before it can expect to start winning round its many critics.

Libra partners stampede for the exit

Visa and Mastercard are among a group of partners in Facebook’s Libra cryptocurrency venture to decide the whole thing is too risky.

It has been widely reported that internet payment platform Stripe and consumer trading site eBay have also bailed on the project, following PayPal’s decision to step away last week. The general theme of the reasons they give for pulling out is that they still like the concept, but the regulatory heat they’ve all been getting the project was unveiled is just too rich for their blood.

A couple of other factors, on top of the precedent set by PayPal, seem to have influenced the timing of the decision. The Verge reports that Visa, Mastercard and Stripe all got letters from a couple of US Senators last week, warning them of severe regulatory con sequences if they continue with Libra. In addition there’s a Libra meeting today, in which partners are supposed to formalise their commitment to the project, they were compelled to make a choice one way or the other in advance of it.

“Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company,” said the most ominous part of the letters. “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

Having the two dominant global financial services providers pull out is obviously pretty bad news for Libra. It now faces the task of convincing them the threatened regulatory Armageddon won’t come to pass, which won’t be easy. David Marcus, one of the founders of the project, attempted damage limitation on Twitter, but all eyes will be on the outcome of today’s meeting.

 

Facebook’s Libra cryptocurrency coalition starts to crumble

Internet financial services giant PayPal is the first member of the Libra coalition to jump ship and probably won’t be the last.

When Facebook announced its audacious cryptocurrency ambitions earlier this year it derived a lot of its legitimacy from persuading a bunch of major financial services providers to formally back the project. Within days, however, regulatory authorities around the world expressed major concerns about the project and indicated they were unlikely to let it go ahead. Stories later emerged of some of the partners getting nervous about the amount of regulatory heat the project was getting.

Now this first of them has formally bailed on the whole thing, with PayPal notifying US media that it has decided to forgo further participation in the Libra Association before muttering about focusing on the day job. It also slightly hedged its position by saying it still thinks Libra is a great idea and it still wants to be friends with Facebook.

If the Libra Association’s response is anything to go by, PayPal’s hopes that Facebook won’t take this personally seem forlorn. The statement it provided to media started by opining that it takes guts to be involved in such an ambitious project and concluded by indicating that it’s pleased to be rid of any wimpy companies that can’t handle a little bit of adversity as early as possible.

That’s a good dig, but Libra should be careful what it wishes for. The coalition is a very loose one, with the members only having gone so far as to back the idea in principle, without committing to anything more substantial, so it’s very easy to bail out at this stage. Having said that, what did the participants expect when they announced their intention to create a new global currency? Of course there was going to be resistance and PayPal looks, at the very least, naïve for losing its nerve so quickly.

France rediscovers the importance of sovereignty in response to Facebook’s cryptocurrency

The French Finance Minister has said he will block Facebook’s plans to launch a global cryptocurrency, citing its threat to monetary sovereignty.

Followers of the Brexit debate in Europe may be surprised to hear France suddenly leaping to the defence of national sovereignty since it’s among the keenest for a federalised European Union, in which nation states are entirely subservient to a trans-continental authority. But it looks like there is at least some residual national pride left among French politicians, it just takes the ambitions of US tech giants to awaken it.

Speaking at an OECD conference on virtual currencies, Bruno Le Maire said “I want to be absolutely clear: in these conditions, we cannot authorise the development of Libra on European soil,” according to AFP. “The monetary sovereignty of countries is at stake from a possible privatisation of money … by a sole actor with more than 2 billion users on the planet.”

Facebook announced its masterplan to revolutionise the global currency system back in June and was immediately met with startled resistance by various governments, including the US, which had assumed currency was their thing. Plenty of other people also expressed alarm at the prospect of a company with many question marks hanging over it suddenly deciding to reinvent money, and it was never likely that a continent that had only recently invented its own currency would tolerate the imposition of another.

It’s hard to see how Facebook will be able to persuade national governments to accept this threat to their currencies, even if they are supranational ones. The fact that France is being especially vocal on the matter is a great illustration of how subjective the matter of sovereignty is. When your opponents want greater independence they’re parochial, isolationist and xenophobic, but when your own interests are threatened, sovereignty becomes a matter of utmost importance.

Libra backers getting twitchy as regulators get probey

Like cockroaches scattering from the light, bankers are reportedly high-tailing it away from Facebook’s venture into cryptocurrency.

Some might have been excited by the prospect of working with one of the worlds’ most recognisable companies in an exciting new sector, blending traditional banking with the innovation of technology, but it now appears the Facebook brand is toxic. So toxic, not even bankers will get involved.

According to the Financial Times, three of the early backers of Facebook’s potential cryptocurrency are attempting to put daylight between themselves and the social media giant. Regulatory scrutiny and public criticism seems to be hitting levels which are intolerable for an industry which is not usually afraid to get its hands dirty in the pursuit of profit.

“I think it’s going to be difficult for partners who want to be seen as in compliance [with financial regulators] to be out there supporting [Facebook and Libra],” one of the backers said anonymously.

Another suggested more conversations should have been had with the relevant authorities and regulators before Facebook pushed forward. The social media giant has seemingly attempted to enter the financial world without thinking the strategy through or understanding there might be reservations with a company where the recent record for data protection and privacy is somewhat tarnished (putting it kindly).

This appears to be one of the problems which Facebook is facing. Because it allegedly did not have conversations with financial regulators prior to making an announcement, it has been facing backlash ever since.

Looking at the regulatory scrutiny being placed on the initiative, the list is almost growing by the day.

The UK’s Information Commissioner’s Office joined the list earlier in August, asking how customers’ personal data will be processed in line with data protection laws. Switzerland’s data privacy regulator asked for information from Facebook after it was told by the social media giant it had been chosen as the body to keep a steady eye on Libra compliance. Others to request information include regulators from Australia, the USA, Canada, Burkina Faso and Albania.

Earlier this week, Bloomberg suggested the European Commission was also weighing into the debate. The antitrust team are allegedly concerned the Libra currency could shut out rivals and create competition restrictions regarding the use of data. This investigation will also look into the integration of Libra into Facebook’s WhatsApp and Messenger services.

Like many other regulators and governments around the world, the financial bodies here want reassurances Facebook is able to act responsibly and in accordance with the law. Unfortunately, as there are few laws to govern the existing cryptocurrency segment, this might be harder than most would assume.

Facebook has a tarnished reputation at the moment, and the number of people who are looking sceptically at CEO Mark Zuckerberg is increasing. As Facebook looks to enter one of the most sensitive and trusted industries around, this is not an ideal position.

49% of US and UK would not trust Facebook for cryptocurrency

Not many people understand the complexities of cryptocurrency and an alarming number of people don’t trust Facebook; it seems combining the two is not a well-received idea.

New research from messaging app Viber has suggested 49% of consumers in the UK and US would not trust the social media giant when it comes to cryptocurrency. Facebook might want to get a foothold in this embryonic segment of the technology industry, however if consumers have lost trust in the firm, you have to wonder whether this will kill the potential of cryptocurrency through association.

There are two interesting areas concerning Facebook’s drive towards cryptocurrency. Firstly, many people will start asking what cryptocurrency actually is and what it does. And secondly, when talking about money, many will start to question whether Facebook should be considered a trusted partner with its track record.

Starting with the definition of cryptocurrency, we will not pretend to be an expert on the segment and few in the general public will have a concrete grasp either. This lack of understanding creates uneasiness and a lack of trust, while the fact it is largely unregulated simply compounds this sense of nervousness.

This environment of confusion also seems to filter upwards towards governments and regulators; no-one has seemed to want to take ownership and when it was suggested the Swiss would take the lead, the Swiss regulator seemed very confused.

We’ve already seen the complications the world faces when a void in the regulatory landscape is formed and it does seem cryptocurrency is heading the same direction. Talking about the issues which arise during a regulatory void, this leads us onto the second interesting point brought forward in this research.

In the UK, 49% of consumers has suggested they would not trust Facebook at all when it comes to keeping information secure through its new cryptocurrency service Libra. Only 4% said they would trust Facebook, while 28% have not made their mind up. The numbers were remarkably similar for consumers in the US, however even less, 2.5%, explicitly stated they would trust Facebook.

Over the last 12-18 months, Facebook has destroyed any credibility the consumer had in it and has done little to earn it back. Cambridge Analytica has a disaster for Facebook though Facebook’s response to investigations and leaked memos since have further fuelled the distaste felt by the consumer towards the social media giant. Largely, the fallout from this saga is in the past, but the damage to Facebook’s reputation has been dealt.

Dealing with personal information is one thing but managing transactions and handling financial data is a completely different ask. Facebook is asking for a lot of trust and credit with the launch of Libra. As mentioned before, if Facebook is attempting to be the poster-boy to take the concept of cryptocurrency to the masses, let’s hope its reputation does not pollute a potentially very exciting segment.

Switzerland surprised to hear it will be regulating Facebook’s cryptocurrency

In a testimony before the US Senate Facebook indicated its Libra cryptocurrency will run from Switzerland, but it forgot to ask the Swiss if that was OK.

David Marcus, who is heading up Libra on Facebook’s behalf, testified before the US Senate Banking Committee in response to profound alarm from US lawmakers at the prospect of the social media giant developing its own currency. According to CNBC he said the data and privacy regulation of the currency will be overseen by a Swiss agency, as that’s where Libra will be based, but they say that’s the first they’ve heard of it.

In his testimony, which you can watch in full here if that’s your thing, Marcus said the Swiss Federal Data Protection and Information Commissioner (FDPIC) will keep an eye on the data protection side of things, which must have only offered partial reassurance to US senators worried their citizens were vulnerable to having their data exploited yet again.

Imagine their horror, then, when they read the CNBC report and learned that Facebook and its Libra pals haven’t even made contact with the FDPIC yet. This failing, later confirmed by Facebook itself, it just the latest slip-up in what has been a frankly shambolic launch. You’d think Facebook would have dotted every ‘i’ and crossed every ‘t’ before unveiling a grand plan to revolutionise the global banking system and its failure to even check in with one of the proposed regulators it just embarrassing.

As TechCrunch notes, the data privacy side of all this is arguably the greatest concern as there will apparently be little control over developers that use the platform. Given the negative consequences of a fairly minor misuse of Facebook user data by Cambridge Analytica it’s baffling to see Facebook be so cavalier about this. The likelihood of Libra ever being set free is, on balance, increasingly small.