Facebook is gearing up to add cryptocurrencies and digital payments to the list of services they offer. They are banking on the over 2.375 billion active monthly users across the world to make the currency a globally-accepted payment method. The social media giant is looking to reach even the users who don’t have bank accounts. Some of the rivals they are to challenge are financial institutions like banks and payment processors like PayPal Holdings Inc, Master Card Inc., and Visa Inc.
Table Of Contents
- Development Timeline
- Concerns
- Earlier Online Currency Projects
- Likelihood of Success
- Importance of the GlobalCoin to Facebook
In fact, Facebook is already operating actively in the whole world giving it a good shot at reaching the targeted clients. Global Coin– the digital currency’s tentative name–is expected to be out for testing runs this year, while the payment platform is set for launch in Q1 2020 in several countries.
That project digital currency will be designed for use within the current company’s messaging channels of Facebook Messenger, Instagram and WhatsApp, with the idea of making payments secure and affordable to all users. Global Coin will first be rolled out to a few targeted users from select countries before spreading out eventually.
To make the launch of this digital currency possible, Facebook is already engaging different financial players on how best to go about the process. They have already got in touch with the governor of the Bank of England to analyze cryptocurrency-related risks and opportunities. The company has also involved regulators and officials from the US Treasury in the discussions concerning operational and regulatory issues. At the end of the day, they are open to other financial institutions sharing information about their users.
Facebook looks to create a secure and swift payment platform with low fees even for users not having a bank account. This leads to competition with banks as it looks to disrupt the existing financial networks.
The Facebook digital payment platform is registered under “Libra Networks” which deals with analytics, investing, financing, big data, blockchain, identity management, and other technologies.
Development Timeline
Actually, the grand cryptocurrency start has been on the blocks for some time now. Here is the development schedule Facebook has been following:
1. December 2017
The first indication of Facebook looking to join the world of digital currencies was when David Marcus joined the Coinbase’s board of directors in December 2017. Marcus’s experience as the former president of PayPal made him the best person to solve currency issues.
2. August 2018
A move by David Marcus to step down from the Coinbase’s board of directors was reflected Facebook’s intentions to take up the cryptocurrency business.
Having earlier in May 2018 been reassigned to work on blockchain, his resignation was a sign of avoiding conflict of interest.
3. December 2018
Facebook’s first step toward developing a working cryptocurrency was taken in December when they built StableCoin as a payment method for WhatsApp. The product had been by then made to start use in India. Afterward, reports told that all the company’s messaging platforms—such as Messenger, Instagram, and WhatsApp—would have the payment system integrated with them.
4. February 2019
Facebook acqui-hired British blockchain enterprise Chainspace in February 2019. Acqui-hiring is taking over human resources rather than the company itself.
It was the period when Facebook started seeking funding for the currency, albeit not publicly.
5. April 2019
The company changed its privacy policy and indications of the need for easy payment options. This was a move that, in as much as was not an official unveiling, was seen as a way of Facebook introducing payment platform to help it gain more revenue after losses caused by the expansion of end-to-end encrypted messages which reduce ads.
6. May 2019
This was the first time when little details about the project went public. Facebook met with payment firms—Visa and Western Union—in a bid to see how they can collaborate on the idea. It also hired a number of crypto-economic experts to help build the payment platform.
According to reports, currency testing will start later this year and the official rollout is scheduled for 2020.
Concerns
Data Security
One of the concerns the communication company has had in the recent past is data security. Introducing a payment platform might lead to intense scrutiny and regulations to ensure similar data breaches will not occur with the expansion of a new currency.
It is worth noting that using a payment system in the application means the company will collect user spend data. Those must be protected within law.
Privacy concerns have already prompted the US Senate to write to Facebook CEO Mark Zuckerberg inquiring on the issues. Some of the issues that it requires to be addressed are consumer privacy protection, consumer details the company keeps (if it shares them with third parties), and Facebook compliance to the Fair Credit Reporting Act.
Regulations of Other Countries
Different countries have different online regulation laws that might affect how consumers will pick up the use of Global Coin as a currency. Already, some countries like India, which is one of the largest populations in the world, are restricting the use of social media and crypto-currencies. Such regulations can slow down the overall currency growth.
Money Laundering
The US Treasury is concerned that the payment system can be used for money laundering. This has prompted the company to hold talks with the regulator on how best to launch and run the system.
Operational Issues
One of Facebook’s hardest concerns will be how to get the users to opt for Global coin as an acceptable payment instrument in place of the already-established currencies and banking system. The company must, therefore, come up with a way to get Global Coin to be accepted and widespread among merchants worldwide. It also has to find an approach to stabilizing Global Coin’s value.
The company will most likely achieve the widespread by charging lower transaction costs and linking its value to a long-standing currency—to avoid consistent inflation.
Earlier Online Currency Projects
Global Coin is not the first case of Facebook giving digital currencies a go. The first try was Facebook Credits, a virtual currency the application users would use to purchase apps within the site. However, it failed to gain the projected user numbers and Facebook had to cancel it after 2 years.
To ensure the success of Global Coin, Facebook is open to talking with deeply-rooter financial institutions across the world. They are already engaging financial regulators, governments, and central banks.
Facebook is also building on the benefits of saving time and cost of transactions to help the currency gain traction.
Likelihood of Success
As yet, it’s still a bit hard to conclusively determine the likelihood of Global Coin becoming a success. Even though, earlier indications show that the possibility of the coin failing is higher. This is due to the demographics of most users.
A report published by the Pew, a research center shows that most active Facebook users are in old age and have little to no knowledge about cryptocurrencies. They are most likely to not adopt Global Coin.
Teens would be the ideal market for cryptocurrencies as they tend to be the most aware of them. Only that Facebook has fewer numbers of teens who are active users. Most teens prefer Snapchat and YouTube.
The data security issue is also a major factor in determining the success of Global Coin. Facebook must work on proving that they can be trusted yet again by the confidential data. If they don’t gain back the reputation, most users will not be willing to use the digital payment platform for fear of data compromise.
The other issue that points to a failure of Global Coin is the fact that Facebook is more popular among low-income households. Most Facebook users are in poor-earnings states, being not in a position to afford the currency. Even teens who use Facebook are mostly from poor households. They will not have a financial opportunity to transact with Global Coin.
Does this mean that Global Coin’s future is all bleak? Surely it doesn’t. Facebook has a number of strategies to beat those odds and ensure the success of its cryptocurrency.
Facebook can use the vast resources it has to help to push the uptake of the coin among the broke majority of its active users. A test on using an integrated payment system on WhatsApp in India showed transactions of up to $2 billion. This is a sign that easy access makes it possible for anyone to use the system.
Facebook can also opt to partner with the widely-recognized money remittance companies like Western Union to help spread the uptake across the world.
Another issue that can affect the success of the Global Coin is the fluctuating nature of cryptocurrencies. However, this affects all the currencies already in place. It should not be a big concern.
The company is also expected to go big on marketing and cryptocurrency education. They are set to package the service as a payment platform rather than a cryptocurrency. The only difference from the other payment options like PayPal is that Facebook would be using Global Coin as the medium of exchange instead of the traditional currencies.
Importance of the GlobalCoin to Facebook
Many people wonder why Facebook needs to launch a digital currency of its own when it could use the already-existing currencies like Bitcoin. Well, indications are that the company is set to gain much from the success of Global Coin.
Some of the key benefits Facebook gets by releasing Global Coin are:
Retention
Facebook’s key communication channel, a continuous scrollable News Feed, is rapidly falling out of favor among users. Several users prefer a discrete communication channel which has prompted millions of them to leave Facebook. What matters now is that the company can find a product that will keep the users on the site.
The digital payment platform will make shopping easier by granting users the convenience of finding a product and paying for it at the same site.
Introducing payment options to the Facebook app could be time-saving as users wouldn’t need those other different apps for transactions. The more convenience the users get, the more engaged they stay.
Increasing Ad Impression
Just like the communication channels, most users are choosing not to view ads. Facebook needs to find a way to motivate the users to view the ads. The payment platform makes it possible that users will be searching for the products they need within the site. The users will then view the ads on the select products on their search.
Users viewing most of the ads will lead to a lot of advertisers which means a lot of revenue.
Banking Accessible to Everyone
Facebook is trying to relieve users of the necessity to resort to traditional complex banking systems for financial transactions. Facebook is accessible to everyone—even kids and seniors who can take advantage of the convenience of the new payment system. One does not need to have banking capabilities to enjoy the benefits of Global Coin.
This can also be a way of getting dormant users back to the site. Anyone who wants to send money through the platform will need to access the Facebook app.
Building Trust
Facebook has come under the scrutiny due to several private data breach accusations. Joining the banking world could seem an overambitious idea for now. But Facebook views it as an opportunity to convince users that they can still entrust the network with data and economic transactions.
When people successfully transact through the payment platform, they will easily give out their data to complete transactions.
In conclusion, Global Coin looks like a game-changer in the financial markets. But first, Facebook has to let users be sure that it can properly handle sensitive data. It also needs to do much user education and marketing to speed up the uptake of its currency as an alternative to the current world currencies and payment options.
