Cryptocurrency has been the rage in the tech scene in the last couple of years.
When tech giant Facebook announced that it will be launching its own cryptocurrency in 2020, interest in the crypto scene heated up again.
Facebook has since announced that its crypto will be called Libra, and here’s what the digital currency will potentially do:
- Users can send funds in Libra currency through Facebook, WhatsApp and Messenger
- Users can also make online purchases with lower fees than those offered by standard banks and credit card services
Blockchain-based Libra is not pegged to a single currency and is instead backed by assets.
Real-world currency will go into a reserve backing the digital money, the value of which will mirror stable currencies such as the US dollar and the euro.
So yes, the value of one Libra in any local currency may fluctuate, but it ensures low volatility and is not subjected to roller-coaster valuations seen in earlier cryptocurrencies like Bitcoin.
Libra maintains its own value, which means that it should cash out to about the same amount of whatever respective local currency you use.
The first product Calibra will introduce is a digital wallet for Libra, which will be available in Messenger, WhatsApp and as a standalone app.
According to Libra’s whitepaper, 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.”
All Stars Need To Align For Libra To Work In Singapore
The Monetary Authority of Singapore (MAS) recently held talks with Facebook, and is currently studying the potential regulations of Libra.
Three areas that surfaced during the discussion was regulation, privacy and safety.
Privacy in particular is a huge concern, especially since Facebook has a history of data privacy scandals.
In an interview with Business Insider, Kevin Weil, Facebook’s VP of blockchain product, said that convincing some users will “take time, no question about it, and it’ll be much more actions than words.”
To address this concern, Facebook has created a new subsidiary called Calibra to handle Libra transactions.
It will keep financial information strictly separate from social data at Facebook and won’t be used for ads targeting, said Facebook.
Thing is, Facebook’s business model since the beginning is to mine and monetise data so I don’t see a reason to assume this has changed.
One assurance however, is that while Facebook owns Libra, it does not fully control it.
Instead, it has formed an independent, non-profit Libra Association with 27 other partners to oversee it.
The governance of Libra is all managed by the Libra Association. Think of them as the MAS equivalent of this world’s world currency – except that they’re made of a conglomerate of private businesses, organisations, and institutions.
– Kenneth Fong, editor of Seedly
These partners — except for non-profit organisations — has invested at least US$10 million each to support the development of Libra. Some of the big names include Mastercard, Visa, eBay, PayPal, Spotify, Uber and Lyft.
If Libra ever takes off, I guess we can expect to see a lot of changes in the way we pay for services rendered by these companies.
For instance, partners like Spotify and Uber might pass on savings from Libra’s lower transaction fees to users, making it a cheaper payment option.
Since Libra is a “stable-coin” and supported by established government-backed currencies and securities, obtaining regulatory consensus will also be a huge hurdle.
MAS managing director Ravi Menon said at a media briefing last week (July 27) that “the key challenge is to figure out the nature of Libra”.
He added that MAS needs to understand further about how it works before deciding how to categorise it in terms of regulation.
It would not just require MAS’ approval, but all the regulators in ASEAN have to also be on board with it for the currency to circulate.
Libra Doesn’t Serve A ‘New’ Purpose In Singapore
So how viable is Libra in Singapore?
Singapore aims to be a smart nation and in line with that vision, it has been pushing for a cashless society.
We already have an array of digital payment services such as GrabPay, DBS PayLah! and Singtel Dash, among many others, so the space is very competitive right now.
If Facebook intends to edge out the rest with its hope to serve the “unbanked” population, it adds little value to the existing e-payments landscape here.
According to Singapore Business Review, only 2% of Singaporeans don’t have a bank account so it’s a very small (and unnecessary) gap to fill.
As Facebook unveiled its plans for Libra, it said:
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.
– Libra whitepaper
If Facebook considers this as a ‘future plan’, I’m so sorry to burst their bubble but they’re late in the game. These services already exist.
In Singapore, we can easily pay for our utility, electricity, phone as well as other bills via apps like SAM, AXS and SP Utilities.
Buying coffee with a scan of a code? There’s GrabPay, for one.
Riding local public transport without cash or EZ-Link? The fairly-new SimplyGo initiative lets commuters pay for public transport using credit card or smartphone.
So honestly, Facebook isn’t exactly offering anything new but it’s definitely promising.
The prospect of offering cheap payments is very attractive, especially since cross-border payment in Singapore is typically “expensive, inefficient and sometimes risky,” as described by Menon.
Libra sidesteps the traditional financial system, and makes it easy to make payments and send cash across borders without the kind of fees the financial industry is notorious for.
Moreover, Facebook has a knack for making things really simple to use — and this is exciting for someone who has zero clue about cyptocurrency (I bet many others are like me).
Adoption will also be easier, taking into account Facebook’s existing 2.38 billion user base.
To put things in clearer perspective, Seedly reported that WeChat Pay has 900 million active users and there’s a growing number of businesses in Singapore that are already integrating this payment method.
If 900 million people are using WeChat Pay, what are the chances of 2.38 billion people switching to Libra? Pretty high.
Facebook said it isn’t trying to monetise Libra for now, but introducing new people to digital finance could encourage them to create Facebook pages or buy ads on the social network, indirectly boosting the company’s finances.
It will only consider monetising it later, and maybe build more “sophisticated financial products” like loans.
At the end of the day, there’s definitely a long-term value for Facebook. But as a consumer, what are your thoughts on Libra?
Do you think it will be game-changing, and do you think you’ll adopt Libra when it goes live next year?
Image Credit: Reuters