To start off with some clarity, let’s get two terms right:
Calibra: Facebook’s subsidiary that will develop the digital wallet (also called Calibra) and provide financial services to people.
Libra: The name of the new global currency, or cryptocurrency that will be in circulation. It is a stablecoin powered by blockchain technology; which will be backed by a real world currency. For e.g., for $1 in the US, you’ll get 1 Libra in your digital wallet.
Sharing its plans for Calibra, Facebook announced that the first task of the subsidiary will be the launch of a digital wallet for Libra. The wallet will be integrated through Facebook’s messaging platforms, Messenger and WhatsApp; however it will also allow users to use the service through the standalone app.
Check out the video "Facebook's Libra cryptocurrency explained" by TechCrunch
To address privacy and data concerns, Facebook has kept the operations of the currency and social media separate. It appointed the non profit Libra Association to manage and oversee Libra’s operations. It’s board is made of 28 members, and Facebook does have a vote at the table. Although not enough to control Libra’s operations any more than the others, unlike Facebook.
The 28 founding members of the association and their industries, previously reported by The Block’s Frank Chaparro, include:
Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
Telecommunications: Iliad, Vodafone Group
Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
Nonprofit and multilateral organisations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
The intention of Libra seems much like Paypal, to enable easy and quick cross-border payments. However, Paypal hasn’t innovated to go beyond what it has offered in ages. It has built its platform to be integrated on multiple websites, to enable people to pay for more services, but it hasn’t done much to add to the service it provides.
In a world where apps are becoming bigger and offering more and more services to consumers, Facebook has a better chance to get more people using Calibra to transact with Libra.
The move to integrate the service with messaging platforms comes in line with the future predictions of Zuckerberg and his former executive who developed Messenger, Anand Chandrasekaran.
Launch of Calibra and Libra currency will help financial services read to those for whom banking and FinTech are still out of reach. “Almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women,” Facebook wrote in their press release.
The cost of that exclusion is high — approximately 70% of small businesses in developing countries lack access to credit and $25 billion is lost by migrants every year through remittance fees.
There is definitely an untapped market in the financial services sphere, which includes people who do have access to Facebook. This could benefit a lot of people in the developing nations, while strengthening Facebook’s valuation and revenue streams.
Facebook has to overcome one major issue: reinstate people’s trust in its handling of privacy and data. This could be a major deterrent and we will see Facebook take steps to build its reputation on this front before the launch of Calibra.
Facebook emphasises that from the very beginning of Calibra’s launch it will have strong protections in place to keep people’s money and information safe. It further clarifies that the spending information will not be used for Facebook ad targeting.
“We’ll be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behaviour. We’ll also offer dedicated live support to help if you lose your phone or your password — and if someone fraudulently gains access to your account and you lose some Libra as a result, we’ll offer you a refund.”Facebook
Here’s a sneak peek at what the experience of using Calibra will be like:
This is how it will work:
From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost. And, in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass.Facebook
Each time someone cashes in a dollar or their respective local currency, that money goes into the Libra Reserve and an equivalent value of Libra is minted and doled out to that person. If someone cashes out from the Libra Association, the Libra they give back are destroyed/burned and they receive the equivalent value in their local currency back. That means there’s always 100% of the value of the Libra in circulation, collateralized with real-world assets in the Libra Reserve.TechCrunch
Libra is built upon three pillars which will enable it to succeed: Convenience, security and stability. The app aims to make all transactions easier and centralised through one app, which removes the need for having multiple payment apps on the phone. The financial and account information are intended to be kept safe with 24/7/365 customer support. Most of all, it will work because it is stable, as it is tied to real world fiat currency, and people can easily use it to make international transfers and a multitude of payment. However, this also opens the doors to money laundering.
Given that Facebook's major audience for this app are people in developing countries like India, where cryptocurrency exchanges and even TransferWise is banned owing to laundering fears, will Facebook’s Calibra gain access?