A New Financial Ecosystem: Why Facebook’s Libra is a big thing

As you might have heard, Facebook is launching a new subsidiary called Calibra. In fact, it is much more than a new subsidiary: it is a power alliance of industry players that will transform the digital (financial) industry in ways we haven’t seen before. It’s goal is “to provide financial services that will enable people to access and participate in the Libra network”*
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With Calibra you will be able to send Libra (=its currency) to nearly everyone who owns a smartphone. Thinking two steps ahead this will be the western version of WeChat: you can pay your bills with one click, buy your next local coffee with a scan of your personalised code or order (and pay) your ride-hailing trip directly from your smartphone without leaving one core app. And – of course – send your Christmas “gift voucher” to your siblings via your wallet as you were late with your Christmas shopping.
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Let me deep-dive a little bit why Facebook’s Libra is a big thing:

Platform Cooperation: new form of (power) alliance

Interestingly, Calibra (and its Libra network) is not owned by facebook. It is a NPO with founding members from industries ranging from payments, technology & marketplaces, TelCo’s, academic institutions to VC. You have got in/direct competitors aligning on a bigger goal: to transform the financial system. In fact, creating a new financial ecosystem.
As recently as 3 years ago no one would have thought that Visa is joining a project for a new cryptocurrency. Or that Uber and Lyft are joining an initiative for a new cryptocurrency.
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It is a smart move as Calibra is leveraging across industries to increase its adoption once it is launched. You have an alliance of the mighty: established brand’s with existing customer relationships, profound market understanding, established technology partner and players with both experience in software and blockchain technology. Instead of patenting or monopolizing the development of this powerful cryptocurrency Facebook came to the realisation that (a) markets are always more innovative than individual companies and (b) by collaborating with other players it will not be hit as hard by government scrutiny than when it would be “owned” by Facebook.
So Facebook partners up with players in the payments (MasterCard, PayPal, Visa..), Technology & Marketplaces (Booking Holdings, Ebay, Lyft, Uber, Spotify…), Telecommunications (Vodafone, Iliad), Blockchain (Coinbase, Xapo) Venture Capital (a16z, USV, Thrive Capital) and NPOs & Academic Institutions (Creative Destruction Labs, Kiva…)

Real Alternative Currency in a new financial (eco)system

Libra as a means of payment will be a real alternative to fiat money (=U$, S$, EUR etc) and other cryptos (=bitcoin, Ethereum etc). It will be a “real alternative” because (a) you will be able to use it for your everyday needs and (b) it is backed by a collection of low-volatility assets. Latter will ensure that it’s value will be stable (which most cryptos can’t claim). This is one of the current challenges of cryptos as a reliable alternative to fiat money: it cannot be used as a stable storage of value as its value is changing too drastically. The basket-linked approach of Libra makes is a true stablecoin as it is linked to the developments of the “real” world economy.

Access for the unbanked

Calibra is highlighting the social benefits of this new currency: they want to help the unbanked to be part of an inclusive financial system. This social impact aspect of the new ecosystem will help the billions of unbanked to get access to a financial system they previously they did not have access to (due to risk profile or not available credit history). So their new digital wallet make it possible to send money not only frictionless but also at a fraction of the current cost. This will have a big impact on the financial remittances industry which will save consumers millions (if not billions) of dollars.
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Something that Libra is not talking about: Their data is GOLD

The inherent power of Libra gets clear if you analyse it from a data-point of view. Calibre will have access to a range of behaviour and purchasing data never seen before: the consortium will be much more powerful than any government can think of. This consortium will have more information about YOU than any other institution. Just imagine if your social behaviour (Facebook) data is linked with your movements (Lyft, Uber) your purchasing behaviour (from social seller that will predominantly use Libra to marketplaces) up to your payment behaviour (of government to telco bills). Obviously, Libra is stating that all information is “secure” and “privacy” is a key topic. But remember that one thing will be for sure: each data point will be traceable. Also if it is encrypted: the chain of information will be always stored in the blockchain. Facebook claims that these data points will be never connected or de-crypted. But what if you create a super App (e.g. Calibra app) that combines exactly these applications so instead of using 10x different apps you use (for convenience) one super app that connects all of these data points. And from there you can create a scoring mechanism based on your behaviour. Sounds familiar?
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Disruption on several fronts – with some open questions

To summarise it, Calibra is not only a massive opportunity but poses a real threat to several stakeholders – especially for governments and established industry players in banking/finance:

Libra will be run by one of the most effective and digital American-led power alliance. So it will be an ecosystem for the “West”. It is clear from the mechanics and partnerships that Calibra is a copycat from WeChat. How paradoxically that US companies shout about the Copycats from overseas but in effect are replicating an existing ecosystem model from China 😃 How will European companies (re)act to this? Will they join the consortium or create its own ecosystem?

Governments will not be able to directly influence the value of libra. So it takes away one key aspect of their monetary power: printing money to stimulate the economy. Libra will be a de-centralized consortium so – in theory – no single player can influence its value. How will policy maker adapt to this new financial ecosystem? According to Facebook’s Cryptocurrency lead each wallet will have to fulfil local requirements. But I guess the bigger question policy makers will have to ask themselves: how do they include this new financial ecosystem in their policy making as they have limited means to influence and/or control the mechanics?

Established players in finance/banking to insurance companies will see a dramatic change of consumer behaviour. And if they don’t start to include Calibre with its Libra in their digital strategy initiatives they will fall (further) behind. Because it is clear from the set-up that no individual bank can replicate something like Calibra by themselves. So how will traditional banks include it in their digital strategy?

Interesting times ahead and a new wave of opportunities for new ventures who can ride on this new ecosystem.

 

*https://calibra.com/, 06. July 2019
All images copyright by https://libra.org and https://calibra.com/

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