Facebook is unveiling an ambitious plan to create a new digital currency and financial system to transform the way money moves around the world, and not just on its own apps.
It's leading a consortium to create an open-source digital currency called Libra, set to launch in the first half of next year. The goal is for developers to create services for consumers to send money around the world easily and for free — with the same convenience as sending a photo or a message.
The Libra currency, as described in this white paper, will not be run by Facebook, but rather by a nonprofit association supported by a range of companies and organizations. But Facebook does have a plan to profit from it with a new subsidiary, Calibra, which is building a digital wallet of the same name for storing and exchanging the currency.
The financial information from your digital wallet will not be used for ad targeting on Facebook's platforms because the two divisions will be kept totally separate, the company said.
"We've seen internet change the game for everything that could be digitized, except for money," said David Marcus, the leader of Facebook's Calibra division.
"The numbers really speak for themselves. There's 1.7 billion people around the world that are unbanked, the same number are underserved by financial services," said Marcus, who before taking over Facebook's blockchain initiatives ran its Messenger division and was previously president of PayPal. "Now, anyone with a cheap smartphone has access to all the info they want in the world for free with a basic data plan. Why doesn't money work the same way?"
The announcement comes after Facebook has faced a slew of privacy issues, raising real questions about whether people will trust the social platform with their financial information. Marcus says that's why it's so important that Facebook not be in control of the currency.
"It may sound super controversial but there's no better way to demonstrate the evolution of our thinking, what we know we should control and what we should not and can not control," Marcus said. "A network that enables billions of people to move money around the world should not be something we can or should control."
What is Libra?
The new digital currency is set to launch in the first half of 2020. It will be run by a nonprofit, the Libra Association, based in Geneva, Switzerland. Its goal is to be broadly accessible, stable and secure.
Unlike bitcoin and other cryptocurrencies, which can be hugely volatile and speculative, Libra will be backed by relatively stable government-backed money.
"If you buy $50 of Libra, your $50 makes its way to the Libra Reserve," said Marcus. "It's designed to be stable and confer values on Libra that makes it more like a traditional currency than any of the digital currencies are now. This is the way paper money was created."
The fact that the Libra blockchain is open-source means that anyone can build a service or app that uses the currency. The wallets that are developed to use the service will be interoperable, so you'll be able to send money from Facebook's Calibra wallet to any other system that accepts Libra.
Consumers will not interact with the Libra Association, but will only interact with Libra through a digital wallet or an operator. For people who don't have the ability to digitally purchase Libra with a credit card or digitally linked account, Marcus says he expects companies in emerging markets to create locations where people can exchange Libra for cash.
Who's involved in this digital currency?
Facebook is joined by 27 other companies and organizations that are founding members. The goal is to have at least 100 companies and organizations on board for its launch next year. Each member of the association will manage one of the "nodes," or locations where transactions involving Libra are validated.
Partners include companies in the payments space: Visa, Stripe and PayPal, which will be able to help merchants accept Libra. Some tech companies are also on board, including eBay, Lyft, Uber, Spotify, and Latin American payments platform Mercado Pago, which could drive adoption of acceptance of the currency. Two European telecom companies are also involved, Iliad and Vodafone.
Venture capital investment companies involved have experience with digital payments: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, and Union Square Ventures. Nonprofit and academic organizations on board are focused on helping people who don't have access to banking: Creative Destruction Lab, Kiva, Mercy Corps, and Women's World Banking. And four blockchain companies are involved: Anchorage, Bison Trails, Coinbase and Xapo Holdings.
"The idea is that [Libra] has mass adoption — lots of trusted companies that want to join the journey, so there's a chance of this becoming mainstream," Marcus said.
This list of founding members invested a minimum of $10 million to fund the operating costs of the nonprofit association as well as to launch an incentive program to jumpstart the underlying Libra blockchain and to drive adoption of the currency.
Facebook's Calibra digital wallet
Facebook's Calibra is a digital wallet that will be accessible as a stand-alone app and integrated into Messenger and WhatsApp. Facebook says it's designed to enable anyone to securely store money for free on their phone and to allow people to securely send and receive Libra around the world, with no fees for consumers, although Facebook is considering "very low" fees for merchants.
Down the line, Marcus anticipates Facebook will offer other financial services, such as loans, from which it could profit: "If the network is successful, it will be a big opportunity for us to provide lending to all these consumers," he said.
Facebook's larger goal is to get people to spend more time on its platforms. This launch will enable the 2.7 billion people who use its various apps every month to more easily make purchases from the 90 million businesses on its platform. The easier it is for these businesses to drive sales on Facebook, the more likely they are to buy ads.
Although Calibra is fully owned by Facebook, it's operating as a subsidiary kept separate from Facebook's advertising businesses, so it can be regulated appropriately.
One key use case for Calibra is remittances. Facebook says that every year $25 billion is lost by migrants on fees from the likes of Western Union. Marcus says the current process is antiquated: Immigrants send a photo of their receipt from Western Union to family members via WhatsApp so they can collect the money, minus a fee. Calibra would cut Western Union and other money-transfer services out of the equation.
A key for Calibra's adoption is making it easy to understand exchange rate and transfer money in and out of the currency, says Kevin Weil,Calibra's VP of Product who formerly oversaw Instagram Stories, Facebook's successful attempt to battle Snapchat.
"The easier it is to go back and forth [from the local currency to Libra] the more confidence people will have," he said. "If you're banked you can imagine connecting your bank account, if you're not banked then you can imagine a map that shows nearby money transfer experiences."
Will this whole thing take off?
Libra is the first new cryptocurrency that has a real opportunity to bring digital currency to the mainstream, according to one of Libra's founding partners, Anchorage, which acts as an institutional custodian for crypto assets.
It solves some of the underpinning issues that other cryptocurrencies have not been able to, to reach this promise," says Anchorage President and co-founder Diogo Monica.
"It's based on a very scalable, highly efficient blockchain, that can do many thousands of transactions per second. And it's backed by bank deposits and government securities like the U.S. dollar, so it will have low volatility," Monica said. "The association has so many big players that already have relationships, which solves the chicken-and-egg problem of adoption."
Monica says that Anchorage will operate one of the many nodes to handle Libra transactions and could sell its services to other members of the association for safekeeping of their Libra assets.
Marcus says if people don't want to trust Facebook's Calibra, there will be other apps to access the currency.
To boost its security, Calibra will have the same verification and anti-fraud processes that banks and credit cards use. To gain access users will have to have a valid government ID and use two-factor authentication, leveraging the likes of FaceID. The service will have built-in fraud production and dedicated live support. And if someone accesses a user's account, Calibra promises to refund any lost assets.
Launching a whole new system comes with its challenges. "Every direction you look there's stuff you have to figure out from scratch," said Weil. "Not everyone is familiar with exchange rates, and even the folks that are, aren't necessarily familiar with digital currency. I'll take a lot of time to educate people."
There's also the question of regulatory approval. Weil says they're talking to regulators and are in the process of getting money-transfer licenses, which they expect to have secured for a launch next year.
"People will misunderstand and think this is a Facebook thing," said Weil. "We incubated it, but it's designed to be run in a decentralized way."