Has Facebook (FB) found its next growth catalyst? Early indicators suggests that the company’s new Libra cryptocurrency not only could disrupt the payment industry, Facebook can generate tons of new revenue by offering banking services as well.
The social media giant on Tuesday released details of Libra, a cryptocurrency that will launch in 2020. Unlike, say, Bitcoin, the value of the Libra will be tied to a basket of existing currencies such as the Dollar, Euro, Yen, and so on. Also unveiled Tuesday was The Libra Association, which is a non-profit group that will govern the cryptocurrency.
Facebook’s subsidiary, Calibra, will provide financial services relying on Libra. Services include a digital wallet service that will be available via WhatsApp and Facebook Messenger - in addition to a standalone app.
On the news, Facebook stock rallied as much at 3% Tuesday, reaching $194.53 only to then fall into negative territory into the close. Three of its 28 Libra Association members, Visa (V), Mastercard (MA) and PayPal (PYPL), also showed uninspiring trade activity into the close. Were investors simply unimpressed by this launch or was this your typical “sell the news” type of event? After all, Facebook shares had rallied almost 20% in the past three weeks.
Still, the market would be wise to be less dismissive so soon, according to Steven Eliscu, Executive Vice President of Corporate Development at DMG Blockchain. “The launch of [Libra] may nonetheless be looked upon as an 'iPhone moment,' just as when Steve Jobs showed us in early 2007 a prototype of the smartphone as we know it today -- an event which transformed the technology industry," Eliscu said following the launch.
His reference to Apple’s (AAPL) iPhone is an important one because not only did it change the phone hardware industry, it also ushered a mobile payments era where transactions from person-to-person (P2P) because catapulted the likes of Square (SQ), Venmo, while elevating PayPal.
In the case of cryptocurrencies, Eliscu sees Libra as a “reinforcement of the long-held idea in the Bitcoin community that a financial services system built on the blockchain will supplant legacy bank-based systems."
So how will Libra work? Facebook disclosed that it won’t control the currency as no member of the Libra Association can have more than a 1% voting share. In terms of privacy, the company also said no Libra transactions will be tracked for the purposed of monetization or ad targeting. Only during instances such as an investigation of fraud will Libra transaction data be accessed by the association.
The company said that users will only need a government-issued photo ID to set up a Libra account. A Facebook account is not required. According to Kevin Weil, Calibra's VP of product, there will be no fees for P2P payments. This feature could make the platform immediately attractive relative to competitors, especially for international transaction and money transfers. For potential future revenue, there’s also the chance that Facebook could one day offer Libra-based credit services via Calibra.
As for the 28 founding members of the governing body (The Libra Association), some prominent names include Uber (UBER), Lyft (LYFT), eBay (EBAY), Stripe, Coinbase, Booking.com (BKNG), Spotify (SPOT), Vodafone (VOD), and several other prominent tech and telecom giants. Only time will tell of Libra is a game-changer, but if it changes Facebook’s growth trajectory for the better, it would have been worth it.