Libra: the African blueprint and a long-term strategic play?

Many might rightly argue that Libra is a strategic move by Facebook to help shore up its long-term survival and relevance. Mark Zuckerberg's affinity with micropayments can be traced back to Africa, where he sees great value in people buying things on their mobile phone. He has long wanted to use his two messenger platforms - WhatsApp and FB messenger – as payment platforms to send and receive money. With Libra coin, he now has a potential opportunity to do this.

Looking at the micropayment market in Africa, it generally serves a low socio-economic demographic who do not own a bank account. In Africa people regularly use their mobile phones to pay for things through a messenger type service - even taking out payday loans to finance these activities. The technology serves a mass audience and is convenient.

Mark Zuckerberg most likely sees the African model as an opportunity to expand Facebooks global footprint. He will look to adopt microservices by integrating it into one combined Facebook platform to eventually offer new products and services. At the heart of this vision will be Project Libra. At the very least, one would expect Zuckerberg to use the African model as a blueprint for project Libra.

Ultimately, Zuckerberg may even be looking to build this model into one which challenges large traditional financial and retail institutions.

Libra in numbers

• 95% - the percentage of all Facebook's revenue derived from advertising
• $1 bill - the amount Facebook could earn from the 100 companies it aims to include in its project
• $10-15 mill - the rumoured cost to buy in as a founding member (master node)
• 37 – the number of founding members including Uber, Visa, Mastercard, eBay
• 0 – the number of Wall St banks involved

A microservices platform to rival WeChat?

Some now suggest that what Mark Zuckerberg really wants to do is build a global platform to rival WeChat. At the moment, WeChat allows you to send and receive money, chat through text, receive tailored news, buy movie tickets, top-up your mobile phone credit, order a taxi, repay credit cards, buy train tickets, book a flight, tip a waiter, pay utilities, invest in wealth products, donate to charity, send a gift and book a doctor appointment. All possible through what is essentially a mobile phone application.

Facebook is still a long way off this vision. There is no denying that WeChat, along with Ali Baba are the two rival digital giants and if Facebook were to become the 'WeChat of the West' then Libra could well be the catalyst for Zuckerberg's long-term strategic vision. Looking beyond WeChat, it's very likely that Mark Zuckerberg's greater vision is to combine Facebook, Instagram and WhatsApp into one giant, global payments and retail platform.

Remember, microservices was heralded almost 20 years ago as the game changer that would make our lives easier. Put simply, microservices represents the automation of how we pay for smaller valued things online. For example, imagine paying for all your news subscription services or premium online content with one monthly subscription fee of £5? Debited, seamlessly from your online wallet.

Apple's recent announcement that it will be offering a range of magazines and news publications through 'Apple News+', for $9.99 per month[1] is an attempt to capture some of the microservices market. In the near term, microservices will continue to grow and define how we interact and pay for small things online.

But why choose a Stable Coin built using blockchain technology and not a traditional payment processing platform?

This is a very good question and one with no clear answer. On the one hand, Facebook will be looking at the benefits stable coins and cryptocurrencies can provide. Cryptocurrencies are the first commercial use of blockchain technology. On the other hand, it could quite easily be argued that Facebook is foolishly overplaying its hand by diving straight into the blockchain space it doesn't understand and without any payment’s expertise or first-hand experience.

If one was to focus on the Libra stable coin as a payment utility, then it could be argued that users of Facebook’s future platform would benefit from a reduction in transaction fees and even better a complete removal of FX fees. Afterall, even if I chose to convert fiat currency today, regardless of which third-party service provider I choose, I will always incur FX fees.

Under the model being proposed by Facebook, you would have no need to convert into different fiat currencies or use fiat at all. The real benefit of using a stable coin could be something far greater than lowering transaction costs. It may well be that Libra coin provides Facebook with a unique opportunity to move to a fee-paying data model where Facebook pays users for their data – paid in Libra coin. And in doing so, costing Facebook very little to transition to a fee-paying data model. And at the same time, liberating it from the regulatory burden that personal data issues create.

If you appreciate that Facebook’s current business model generates 95 percent of its revenue from advertising, then it makes sense to compensate the supply side in order to secure that network of data (and even possibly circumvent the burdensome and complex regulatory requirements, which leads to many of Facebooks data breaches). This is an interesting line of thought and one definitely worth exploring in the future.

Libra - a panacea to horizontal and vertical integration?

It goes without saying that if Facebook begins paying users to harvest their data (and continues to sell this data onto third parties such as advertisers), then there is also a reasonable incentive for users to start using Libra to buy goods and services (microservices), through a Facebook retail platform. Why? Because there is also an equal and opposite, disincentive not to let Libra coins sit idly in your Facebook digital wallet; a wallet which holds a coin with little or no intrinsic value. And a value which is only realised - when you exchange it for something else – a product or service. Remember, that Libra coin will be pegged to a basket of fiat currencies in order to mitigate price volatility.

By creating this potentially virtuous circle of value dependency, Libra could ultimately be guaranteeing its own success. For example, users who opt into a fee-paying model would be allowing Facebook to on-sell their data. Users could then build up a stack of coins, becoming dependent on buying things through a Facebook retail platform – the only way they can realise the value of their Libra coins. Once users get familiar with the process and gain trust in the transactional relationship, then arguably the Libra 'network effect' (often promoted by Silicon Valley venture capitalists as the panacea to success for all tech start-ups) will take hold leading to scale could be achieved quickly.

The Data Dichotomy

So, on the one hand Facebook, either rightly or wrongly, is viewed as the modern day Orwellian 'Big Brother', which tracks your online behaviour, can't be trusted to protect your personal information, and randomly shares your data with third parties to the ‘highest bidder’. On the other hand, there is an emerging paradigm that if Facebook were to adopt a fee-paying model, facilitated by Libra coin, then many of the data privacy issues and regulatory breaches that encumbers it today, would dissipate.

Will it work?

Many argue that for the Libra project to even get off the ground it will need to win support from global governments including US Congress and the Senate. Straight after the Libra announcement, Sherrod Brown, a leading Democrat took to Twitter to deplore Facebook, saying it was already too powerful to run such a massive crypto project[2]. Similar sentiments were echoed by politicians in France and Germany[3].

Assuming the Libra project does win the political capital it requires, then there will still be questions raised about whether it can be trusted, whether it has the skills and expertise to deliver such a mammoth project; and/or whether it needs to be split up. Ultimately, Facebook will need to prove that it can drive merchants and consumers to its platform by providing enough incentive to do so. Otherwise it may end up being the whitest of white elephants.

A world 10, 20 or 50 years from now...

Facebook may also be imagining a world possible 10, 20 or even 50 years from now, where money bypasses the financial system altogether. After all, it was one of Satoshi Nakamoto's stated aims in his Bitcoin whitepaper, way back in 2009, to "allow online payments [...] without going through a financial institution."[4] Of course, by removing the need for a financial intermediary to guarantee a transaction we go to the very heart of what makes most cryptocurrencies tick - the blockchain technology which underpins it.

Besides banning cryptocurrencies outright, there may be little governments can do to stop the acceleration towards mainstream adoption of cryptocurrencies. Some argue, that if salaries start getting paid in crypto, if merchants start accepting crypto en masse, and if the infrastructure that supports the surrounding ecosystem (e.g. fiat onramps, digital custody solutions) is robust enough and provides a reasonable level of trust to guarantee the safekeeping of digital assets, then the march towards mass adoption of cryptocurrencies is inevitable.

Unless you need to convert to fiat currency there will be no need to transact in a financial system regulated by government and its mandated bodies. There is also a prevailing counterargument that by banning cryptocurrencies you will just create an unregulated, black market which is counter-intuitive to development and innovation.

The monetary system as we know it today has the potential to change forever, but what role will Facebook play and what problem is Libra actually going to solve?

My verdict

With some of the biggest brand names supporting the project, including Uber, Visa, Mastercard, eBay and Paypal, it is probably safe to say that Facebook has almost an endless pool of resources to throw at whatever problem crops up along the way. Regulatory concerns should dissipate once politicians and regulators get a better grip on how Libra will impact stakeholders - merchants, users and nodes; but a large threat will remain to break up a Facebook behemoth - perceived by many politicians around the world as becoming too powerful.

Furthermore, Facebook's entry into crypto means that they could well be positioning to switch to a fee-paying data model. Meaning that Facebook users who 'opt-in' to have their data harvested could soon be receiving Libra Tokens as compensation for receiving targeted advertising and bespoke marketing. If this is to be the case, then Facebook would essentially be creating a token economy funded by merchants and nodes. Leaving users who amass these tokens free to spend on their platform. At the same time, easing regulatory concerns around data privacy and confidentiality.

But whether Facebook evolves enough to threaten a microservices landscape dominated by participants such as China's WeChat, remains to be seen – but at least for now, we can assume that Facebook’s entry into the crypto market is a long-term strategic play to capitalise on market opportunities and potentially tame crypto’s notorious wild west.

[1] https://www.apple.com/uk/newsroom/2019/03/apple-launches-apple-news-plus-an-immersive-magazine-and-news-reading-experience/

[2] https://twitter.com/SenSherrodBrown/status/1141039013916303361

[3] https://www.cnbc.com/2019/06/19/facebook-libra-cryptocurrency-faces-political-pushback-in-europe.html

[4] https://bitcoin