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Will banks ever learn? Token.io comments on Facebook's Libra

Yesterday, Facebook announced Libra, a stablecoin to be used for payment in WhatsApp and Facebook Messenger. Libra is a stablecoin pegged to a basket of fiat currencies to minimize fluctuation of its value.

TechCrunch writes: “Facebook has finally revealed the details of its cryptocurrency, Libra, which will let you buy things or send money to people with nearly zero fees.”

Further, “Facebook wants to make Libra the evolution of PayPal. It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers and more long-lasting through decentralization.”

The big five, Facebook, Amazon, Apple, Microsoft and Google (FAAMG) are continuing to chip away at the banks.

 Over the last couple of years I’ve been telling banks they must stop worrying about the competition from peer banks. The real threat is from the large tech companies.

Customers want an instant, low-cost international payments service. Who do you go to (or, perhaps, who did you go to) when you need to make a payment? That’s right - your bank. Does your bank provide such a service? No. As a result, there is a gap between supply and demand. When incumbents don’t fill the gap, someone else does. Always. This is what leads to disruption. In most cases it’s not the technology itself that disrupts, but new business models.

This time is no different. Several stablecoin initiatives have recently been launched (or are in the works) that fill the gap for an instant, low-cost international payment without the involvement of banks.

Banks must realize who their real competitors are and form new alliances to address these new threats.

Instant, low-cost international payments is a perfect catalyst for this. Banks should adopt a federated stablecoin that enables instant, low-cost international payments to compete with Libra and other initiatives. This stablecoin must be bank-grade, meaning it is secure, safe, fungible between multiple issuers and with clear sight of source of funds to support robust AML and sanctions screening.

 

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 June, 2019, 13:10Be the first to give this comment the thumbs up 0 likes

Banks vacated / never seriously participated in P2P cross border payments ages ago; Xoom, Western Union and other nonbanks have owned a significant portion of this market for decades.

Banks still own significant market share in B2B cross border payments. For the last 10 years, I've been searching for a nonbank alternative for B2B cross border payments in the USA-to-India corridor. I haven't found a single one - not even the new Blockchain-based ones. In other words, there are no / very few nonbank alternatives for this market.

According to initial reports, Libra will only focus on P2P where banks have limited presence and not on B2B where banks do have a dominant present. TBH, I'm not sure how Libra threatens banks. IMO, Libra is a bigger threat for nonbanks like Xoom and Western Union.