Libra: Facebook’s Foray Into Finance

Kenton Reynolds, Writer
@uxconnections

The beginning of Facebook’s foray into the world of finance could come to fruition very soon

I first heard rumours of Mark Zuckerberg’s next society shifting idea of a cryptocurrency known as Libra back in 2016. Zuckerberg took a flight to Nairobi, Kenya after a period staying in Nigeria where he had been operating the Zuckerberg Chan Initiative. This was not a coincidental trip or one of recreation, he was investigating mobile money; an industry where Kenya is the world leader.

Though mobile payments have recently become commonplace in the UK, with Google Pay and Apple Pay, the concept is old news elsewhere. M-Pesa introduced Kenya to mobile money back in 2007 where the concept is now part of day to day life for many, the service has grown to the point where 48.76% of GDP is processed through M-Pesa. The service requires nothing other than a mobile phone and SIM card; M-Pesa doesn’t need an app like WeChat and doesn’t track your spending like Google Pay. A payment is just like sending a text.

The system was created with accessibility in mind – which may be a comparison that Zuckerberg has drawn between M-Pesa and Libra. Safaricom created M-Pesa as a way to manage microloans in Kenya where the average rural Kenyan lived several kilometers away from the nearest bank whilst 54% of the population had access to a mobile phone. M-Pesa created a way for people to pay bills or make loan repayments as well as spend money at a shop or send money to friends. All this came with no physical contact required.

The service has been associated with plenty of success stories too. In 2008, the election in Kenya lead to riots with devastating damages around the country and villages being harried. M-Pesa allowed for money to be sent to those effected quickly and easily so that they could afford food, water and shelter. The following year, Afghan National Police test ran the M-Pesa system and when the 53 officers checked their phones for payments, they saw they had received a 30% pay rise. Superiors had been skimming money from those below them. M-Pesa cleansed the system of corruption, making it hard to swipe the money as transactions are logged and tracked. With a portfolio packed with success stories and effectiveness, there is no wonder why Zuckerberg wanted to find out more about M-Pesa.

Libra intends to act as a “global currency and financial infrastructure”, aiming to be accessed by the 1.7 billion people around the world with no bank account as well as those already using mobile payments. Similarly to M-Pesa, Libra will be about reaching those who are unable to bank without being in a bricks and mortar branch. It will run through Facebook’s version of Blockchain which is the platform that provides Bitcoin making Libra a true cryptocurrency rather than a mobile payment service. Unlike Bitcoin however, Libra will be pegged against real assets in order to prevent the extreme fluctuations that has caused. Zuckerberg will be using a Bitcoin-like service to reach the success that M-Pesa has achieved by using the massive, unprecedented customer base that Facebook already has.

Unfortunately, the launch of Libra – which was set to take place in early 2020 – was set back and the release date is now expected to be in 2021. Many believe this is as a result of the complex issues that Facebook will face in the creation of Libra. They are establishing a Blockchain system for billions of users; a feat that is unheard of. In addition to technical difficulties, Facebook is already under pressure due to questions being asked around their privacy policies and this pressure will grow insurmountably when the idea of Facebook controlling finance arises. As a result, Libra is being delayed.

The value of the currency with Libra is yet another unknown. It is thought that the currency will be tied to several different stable currencies to create stability which will probably lead to the value of one coin being similar to that of the Stirling Pound, Euro or US dollar. This means that you won’t be buying into Libra to make money when the value skyrockets, so why would you buy it?

The answer at the minute: we don’t know. Some believe that the target market for Libra won’t be day to day payments but rather cash transfers to relatives abroad. 31% of the world have no access to a traditional bank and if you want to send money to those with no access to a bank, the options aren’t great. The current fee for these international transfers is 7% which is pretty huge. This could definitely be something that Zuckerberg is attempting to tap into with Libra.

Another option is that Facebook and other founding members of Libra will encourage the use of Libra with discounts or a similar system to the credit/reward cards that many businesses offer. These members include giants like Spotify, Ebay and Uber alongside many more; all of which could easily implement the use of Libra. On Facebook, you may find that using Libra will make the marketplace much safer and more secure too. Businesses may use Libra in order to secure and retain customers, using their currency forces you to spend it with them or their partners. Creating an almost-hegemonistic situation, this could lead to the big companies gaining your business and then retaining your custom within the other giants.

This is only speculation however – that’s all that can occur currently. The project is certainly being kept under wraps and Facebook are giving as few clues as possible. For all we know Libra could be the next evolution in global finance, creating streamlined, safe and simple banking or it could be the next step fir Facebook in tightening their grip on the world’s consciousness. One thing is for sure, Libra will change the face of Facebook.