Why Facebook’s Cryptocurrency Might Change the Face of Financial Services

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On Tuesday, one of the largest companies in the world, and perhaps the most connected, announced its plans for a new cryptocurrency, Libra. This currency will be fundamentally different than the ones before it, resembling the likes of PayPal or Venmo more than Bitcoin.

Facebook is home to nearly 2.4 billion monthly active users – or about 1/3rd of the world’s population. If widely adopted, Libra could cause significant disruptions to the credit card and banking industries. We took a look at our consumer-generated data to provide insights on topics that we feel have the biggest potential for market disruption.

Libra Could Change the way Consumers Bank

In its most basic form, Libra will let you buy and sell things or send money to people with nearly zero transaction fees. It will look a lot like PayPal or Venmo and will be integrated into many of the apps you use today like Uber, Spotify, and eBay. Where Libra is fundamentally different than other online payment solutions is the fact that users won’t need a bank account to use the currency, something that is required when you set up a PayPal or Venmo account.

“[Westerners] already have access [to] the banking services and there are plenty of better ways to hide their monies than putting it on a fully transparent and trackable ledger. It does offer a safe haven to people like those in Venezuela whose currency and savings are being stolen by corrupt governments through inflation. It also opens up financial services to billions who can’t open a bank account (mainly because they don’t have ID). Which means they can now contribute and benefit from online commerce, which is good for everyone.”

-Anonymous Reddit.com User, 12/31/2018

People without bank accounts are the primary target for Libra. According its website, 1.7 billion people worldwide, or 31% of the global population, do not have access to banking and virtually all of these individuals live in the developing world[1]. One billion of the unbanked have a mobile phone and nearly half a billion have internet access, demonstrating that its easier for the world’s impoverished to purchase a cell phone than it is to open a bank account. Libra strives to empower these individuals, bringing them “online” to the world of financial services.

“My father is retired and splits his time between USA and Asia. In the last couple of years he’s been in Asia more than he’s in the US. We’ve had [to] help him wire money to himself from time to time, and the fees are ridiculous – $45 per transfer on top of what fees the bank in Asia tacks on. Does anyone know if there a lower-cost method for him to access his money whenever he is overseas?”

-Anonymous Reddit User, 12/26/2018

For those that have access to banking, Libra aims to provide a cheaper and more timely solution for making payments and sending money abroad. The current wire transfer system is expensive and takes three to five days to complete. Many people living in developing countries rely on remittances, or money sent home from family abroad, as an important source of income. Take El Salvador for example. In April 2018, remittances accounted for 21% of the country’s total GDP[2] . Libra will remove these barriers, creating a “giant leap forward toward a lower-cost, more accessible, and more connected global financial system”[3] .

Libra Could Change the way Consumers Pay

“IMO, a lot of consumer spending is fueled by access to easy credit and spending rewards from card issuers (cash back, airline miles, etc). how is [Bitcoin] going to satisfy those needs? merchants need to accept what consumers want to use. it’s not the other way around. for [Bitcoin] to make credit cards obsolete, consumers must prefer [Bitcoin] to using credit.”

-Anonymous BitcoinTalk.org User, 8/28/2018

As previously mentioned, Libra’s fees will be nominal compared to the fees paid by merchants when customers use their credit card. On average, credit card fee’s cost merchants 2.87% to 4.35% per transaction[4] . Lower transaction fees will incentivize merchants to adopt Libra and provide promotions that encourage consumers to pay in Libra instead of a traditional credit card. The question is, is how far will merchants be willing to go to rid themselves of credit card fees?

Libra Could Expand Consumer Bases for Multiple Industries

“When you don’t have a bank account, credit history, or job, it’s pretty f****** hard to get someone to give money to you. I tried to get a personal loan, credit card, and I wasn’t able to. Don’t have a car so I couldn’t get a title loan. I got the only loan I could because why not? I mean it can’t make my credit worse. I’ll post my payday loans when I get home tonight.”

-Anonymous Reddit.com User, 5/20/19

By opening the door to the financially underserved, entirely new segments of the global population will have access to a new range of goods and services. Think of the implications this might have for companies like Uber, which operate in 60 countries and 400 cities worldwide. Also consider lending and investment firms, who could offer borrowing and savings opportunities to Libra users.

Libra May Upend My Brand’s Space, How Can I Address this from the Consumer Point of View?

  • Understand consumer behaviors and pain points of today’s tech and beyond. The best way to keep tabs on market disruptions caused by Libra, will be to understand consumer behavior and pain points. Libra may have already leveraged the pain points for today’s consumer, but what will be the pain points in 2020 when Libra hits the market?
  • Identify consumer segments that may be eager to adopt Libra and the ones that may be hesitant. We know that Libra will make significant strides in the developing world, but how will it impact consumers in places like the U.S. and Europe where bank accounts and online payment infrastructure are widespread? Segmenting consumer bases will be crucial for industries who feel threatened by Libra’s online payment offerings.
  • Track consumer trends when Libra hits the market to map out changing competitive landscapes. It may be difficult today to imagine the secondary industries that pop up as a result of Libra, but they’re certainly coming. Future businesses will need actionable and strategic insights to address business opportunities that exist within the Libra framework.

Achieving Widespread Adoption

Libra isn’t your typical cryptocurrency. Its value will be tied to a basket of real currencies and backed by a reserve of real assets – which shuts the door on speculative trading. In the past, traditional cryptocurrencies have relied on price swings to build consumer awareness, which is illustrated in the chart below as mentions for Ripple, a Libra competitor, largely follow its price.

Libra can’t rely on speculation to gain popularity. To achieve widespread adoption, Libra and other brands hoping to capitalize on the currency must change the way they interact with consumers on Facebook and other social media platforms in terms of loyalty, rewards, and purchasing. Whichever brand figures it out first will win, and ultimately set the bar for others.

[1] Libra Members Association, “An Introduction to Libra,” Libra. Accessed: June 20, 2019. https://libra.org/en-US/white-paper/
[2] “World Bank Group. 2019. “Annual Remittances Data (Updated as of Apr. 2019)”. World Bank Group, 2019. Accessed: June 20, 2019. https://www.knomad.org/sites/default/files/2019-04/Remittance%20Inflows%20Apr%202019.xlsx
[3] Libra Members Association, “An Introduction to Libra”
[4] “Credit Card Processing Fees and Rates Explained,” Square, Accessed: June 20, 2019, https://squareup.com/guides/credit-card-processing-fees-and-rates