Is Facebook Your Next Bank?

Uncategorized Jul 22, 2019

In the 3rd Qtr. of 2008, Facebook had 100 million users. This number grew to 1 billion by the 3rd Qtr. of 2012, 1.5 billion by the 2nd Qtr. of 2015 and 2.0 billion by the 2nd Qtr. of 2017. Today, Facebook has over 2.4 billion users. It does not take a mathematical genius to figure out that Facebook’s user growth will soon slow down.

Facebook Users

Source: Statista


In addition to experiencing incredible user growth, Facebook has done an amazing job creating new revenue from each user. At the end of 2011, Facebook generated annual revenue of $1.38 per global user and $3.20 per U.S. and Canadian user. Once more, Facebook experienced a steady stream of growth. By year-end 2018, Facebook’s 1.5 billion daily users generated $7.37 per global user and $34.86 per U.S. and Canadian user.

Facebook Revenue Per User

Source: Statista


Again, squeezing more revenue per user will become increasingly difficult, especially as Facebook is experiencing repeated crises with respect to violations of their user’s data privacy. Now, governments and regulators all over the world are confronting Facebook with difficult questions and multi-billion-dollar fines (including a $5 billion fine from the FTC). In addition, there is also a drumbeat of calls by legislators to breakup Facebook and the other tech giants into smaller, separate business units.

Against Facebook’s user growth, revenue growth and data privacy challenges are the global message and payment app wars. What was once the simple message apps for sending text messages has morphed into its own user ecosystems that now provide a vast array of sophisticated services that mirror (and sometimes exceed) everything that Americans do with their Internet browsers – and can do so without a Wifi connection. These message apps are now a global force. 

These message apps also provide fast, easy payments to people and businesses (often using 1 inch square black and white blocks called QR codes). People activate their message app to quickly scan the QR code, type in an amount and tap SEND. In a matter of seconds, the recipient sees the receipt of their funds in the same message app on their smartphones. This process is quick, easy, reliable and frictionless. 

Two message apps, WeChat and Alipay in China, have a billion global users each while Paytm in India is approaching 500 million users. The use of these apps is so ubiquitous that street beggars in Beijing now wear pictures of their own personal QR codes around their necks.

Furthermore, these apps operate as browsers into a highly sophisticated smartphone-centric world. In many countries where low user personal incomes do not allow for ownership of desktops, laptops and iPads, one can purchase a smartphone for as little as $40. In effect, these users rely on their message apps on their smartphones as their window to the world in the same way that Americans and Canadians use Chrome, Firefox or Safari. The message app is their browser for news, e-commerce, entertainment, social media and productivity. Usage of these message apps is exploding the world over even as two-thirds of the WeChat users in China access WeChat between 10 to 50 times per day. 

WeChat users are especially sophisticated in ways that the West has not yet caught up with: The Chinese use WeChat to easily split and pay restaurant tabs, send “Lucky” red envelopes for Chinese New Year, pay for cabs, book dentist appointments, find dates, order wine, arrange laundry pickup and delivery, check prices in a store, pay street vendors, chat with groups of friends, give money to street beggars, share real-time locations, check daily deals and pay utility bills. Thousands of WeChat plugins are easy to add, and new plugins appear daily.

WeChat “Lucky” red envelopes for Chinese New Year


WeChat’s owner, Tencent, is also the largest video gaming company in the world and China’s subways teem with millions of riders every morning and evening playing Tencent’s Fortnight and Honour of Kings video games. These riders spend real money to enhance the capabilities of the digital characters in these video games.  WeChat and Alibaba’s Alipay are direct monetization channels for their owners. The concept is simple to imagine but enormously difficult to achieve: Scrape a few pennies per transaction all day long from a billion users. 

Meanwhile, Facebook has two message apps, Facebook Messenger and WhatsApp, with 1.5 billion users each and almost no monetization success to date. Facebook could try to follow WeChat and load up a zillion apps onto its message apps, but each American, on average, owns 3.7 computer devices and is no hurry to have Facebook, LinkedIn, Amazon, Orbitz, PayPal and eBay accessed only though a Facebook-owned message app. We like our Chrome browsers, our easily bookmarked favorite websites and all the functionality, flexibility and reliability they provide us. It is hard to imagine Facebook changing our basic computer habits.

So, with Facebook’s user growth and revenue per user ready to slow and no clear monetization path for its Messenger and WhatsApp message apps, is Facebook about to leave its glory days of rapid growth behind and become a cash cow?

Well, Facebook has a plan: Facebook has always excelled at creating incredible user experiences (UX). Great UX may be, above all, Facebook’s core competency. Think about it: If you had about 2.5 billion users and excel at creating great user experiences (UX), then you need to find your next frontier. And, where is great UX almost unheard of? Well, one can easily point at two areas to disrupt - financial services and health care payments! So, Facebook decided to begin with financial services by introducing Libra, its blockchain-based cryptocurrency. 

Libra is not a cryptocurrency like Bitcoin, whose value moves up and down in response to supply and demand along with other factors. Given its launch in 2009, Bitcoin’s first noticeable bump in price came in 2014. But, from the beginning of 2017 through the end of 2018, Bitcoin experienced a stratospheric increase in price, starting at $800 in December 2016, breaking through $5,000 in September 2017 and then $10,000 in October 2017, peaking at $19,783.21 on Dec 17, 2017. Predictions of $100,000 Bitcoin values were fueling this fire and “I’m a Bitcoin millionaire” became a common claim in online dating profiles.

Bitcoin Values: 2011 thru 2019 Source: Coinbase

Then, 2018 brought a bearish rout to the Bitcoin bulls. Bitcoin’s price dropped to $3,179 by December 14, 2018 only to begin to recover and rise above $10,000 by July 2019. Regardless of your thoughts on the long-term viability and usefulness of Bitcoin, Bitcoin’s 2017 to 2019 screaming roller-coaster ride have made it perfectly clear that Bitcoin is not yet ready for prime-time commercial usage. 

Bitcoin’s incredible price volatility gave rise to the stable coin, a cryptocurrency whereby each coin is backed by assets representing an external store of value. These assets include gold, other precious metals, the U.S. dollar, the Euro, a basket of currencies or some combination of these assets. 

Facebook’s Libra cryptocurrency is a stable coin (unlike Bitcoin). Each coin will have an intrinsic value and be backed by a basket of currencies called the Libra Reserve. Thus, Libra will not be a true cryptocurrency. True cryptocurrencies are truly anonymous and independent in their operation. They have no governing body and values are determined by market forces and events.

In comparison, Libra will be run by a governing board based in Geneva, Switzerland called the Libra Association, an independent, not-for-profit membership organization tasked with evolving the Libra ecosystem. Facebook is a member of this Board and has a single vote. 

Libra coins will be purchased by users at an intrinsic value and the funds from each purchase will be used to acquire the basket of currencies backing each Libra coin. Once a Libra coin is spent, the recipient may hold the Libra coin, spend it or redeem it for the value of the coin’s share of the currency basket. While there may be day-to-day fluctuations in the value of the Libra coin (based on fluctuation in the value of the currency basket), these fluctuations are not expected to be significant (and hedging mechanisms will surely emerge to remove the risk of price fluctuations.) 

Given Libra’s structure and operation, Libra is less a true cryptocurrency than a token. This is where the fun for Facebook begins. This is because Facebook is also creating a digital wallet called Calibra that is accessed through their Facebook Messenger and WhatsApp message apps.

So, now it becomes clear: Facebook Libra and Calibra are a means to monetize Facebook Messenger and WhatsApp 1.5 billion users (and to grow this user base). And, I have to say, this strategy (putting aside – for the moment – the significant resistance from government and regulatory bodies – and the big banks) is brilliant. 

Facebook does not mind placing control over the Libra stable coin token in an international body based in Geneva, where it in only one of many voices. This is because Facebook knows the true value creation is in the user experience (UX) they will create in their Calibra digital wallet – and their Facebook Messenger and WhatsApp message apps. 

The combination of a Facebook account, Calibra digital wallet and their transaction history begin to constitute a person’s digital identity. This helps the unbanked around the world and helps Facebook add its next billion Facebook, Messenger and WhatsApp users. Finding new ways to empower the poor around the world, and especially oppressed women in these societies, is a long sought after social good that Facebook can help realize. And, it is good business for Facebook. 

So, what will the Facebook Calibra digital wallet do and how does Calibra create value for Facebook? Well, to begin with, Calibra is a platform that brings together providers and consumers of financial services in much the same way the Apple App Store brings together providers and consumers of millions of iPhone apps. Apple takes a (small) piece of each purchase and charges various fees to the app developers. 

Facebook will, like Apple, also provide sophisticated tools to developers to create an unlimited variety of Calibra apps for all purposes. These apps will run in the Facebook Messenger and WhatsApp environment in the same manner that WeChat enables apps for online dating, travel reservations and doctor appointments. 

The Facebook Calibra Developer Conference will soon become an international multi-day event – just as the Apple iPhone App Developer Conference is today. As you can see, Facebook has a big vision for Calibra along with the technology, scale, user base and UX skills to pull it off. 

Libra’s infrastructure is also important. Libra is built on a highly scalable, open source blockchain platform. The result is that each transaction is time-stamped, encrypted and cryptographically tied to the previous and next transaction in an encrypted, immutable database that is distributed among all those who need to access it – along with special viewing permissions. Purchasing an object, service or right through Calibra is also confirmation of ownership – and in a time-stamped, encrypted, immutable record. Ownership and digital identity challenges disappear. Micro and rotating ownership of non-fungible assets like art, music, patents, and real estate also becomes possible. 

Smart contracts (using Libra’s Move smart contract code) are easily programmed and executed, thereby allowing multi-step chains of financial transactions to automatically execute as soon as the previous steps are completed. Facebook excels at creating great UX and the Libra - Calibra duo will be no exception.

Complicated financial transactions between institutions that previously took months are now completed in hours or even minutes. The combination of easily verified Libra coins, reliable digital identity (including facial recognition and other biometrics), encrypted and distributed blockchain transaction processing and automated smart contracts remove entire swaths of the friction that has long frustrated clients of financial services companies. 

Soon, Calibra will allow users to make peer-to-peer payments just like PayPal and Venmo. Merchants can accept Libra payments through the Calibra digit wallet just they accept Apple Pay, WeChat or Alipay payments today. Venders and mobile payments, such as Square, Stripe and Clover can easily incorporate Libra into their payment ecosystems. 

Peer-to-peer lending and all types of existing and innovative insurance and investment products become frictionless in the Libra environment as vendors leverage the customer’s enhanced digital identity along with validated ownership of Libra coins. Calibra can instantly verify that you are who you claim to be and have enough Libra Coins to buy digitized assets. Ownership by sellers is also easily verified in the immutable blockchain record. There is no need to fill out long, time-consuming forms or to reach out to other organizations to validate funds. No time delays in issuing or recording loans, policies or digital ownership. Micro ownership of digitized fungible and non-fungible assets becomes an easy, every day experience – along with easy, instant transfer and sale of these assets at any time by their owners. Ownership in less-developed societies becomes easier to protect and social mobility, especially for women, is enhanced. 

E-commerce becomes easier as Libra’s stable token value enhances the user experience (UX). Facebook Marketplace has the wheels to begin to challenge the e-commerce giants of the world – like Amazon, Alibaba and Peer-to-peer transactions in goods and services move onto the Facebook platform – easily paid for using Libra through the Calibra digital wallet – and transactions can easily occur between any two people and/or organizations anywhere in the world. Middlemen and friction are removed. 

The Calibra credit card quickly follows – supported by Mastercard and VISA’s enormous transaction processing engines (just as these companies now support PayPal’s transactions). After all, Calibra begins as a debit card – one buys Libra currency and then spends it. Adding a credit card is a simple step. Facebook can build, acquire or associate with a bank to support and enhance these features. 

All sorts of business and personal loans become feasible through Libra and the Calibra digital wallet. After all, a person’s digital identity is already established through their Libra – Calibra transactions and Facebook account. These loans can have Facebook as a lender or through the thousands of vendors on the Calibra platform. Again, secure digital identity, validated funds and immutable purchasing and payment history, and digitized ownership of collateral all combine to create frictionless lending and borrowing transactions. 

Annuities and guaranteed income also appear on the Libra – Calibra platform. Microsoft is teaming up with Blackrock (the world’s largest asset manager with $6.4 trillion in assets under management) to create a guaranteed income platform based on Microsoft’s 135 million Office365 users. Imagine what Facebook’s can do with its 2.5 billion users. Investment advice follows as users want all their assets and investment transactions to on the same encrypted, immutable platform. 

In the end, the Facebook Libra/Calibra vision is about creating a financial services ecosystem that rivals WeChat’s transaction and service ecosystem, but with 2.5 times as many users, a focus on financial services, and a more diversified global presence. Facebook Messenger and WhatsApp become the new engines of Facebook’s user and revenue growth. 

Great vision, but where are the bumps? Inevitably, incredible disruption hits incredible resistance and Facebook Libra and Calibra are no exception. Currently, there are the Top 10 hurdles to clear:

  1. The big banks do not like how Libra can eliminate their middlemen roles for many of their services. These banks will fight Libra tooth and nail – even as some banks (like JPMorgan) create their own stable coin.
  2. Governments all over the world will not like the loss of sovereignty over their capital inflows and outflows and have concerns as to how Libra may disrupt the their economies.
  3. State and local governments will object to the threat to their sales tax revenues.
  4. Congress will not miss the opportunity to kick Facebook while it is down – claiming the need to study the impact of something new and, perhaps, find a way to outlaw Facebook’s initiative into cryptocurrencies.
  5. Law enforcement will, understandably, object to the potential use of Libra for drug and terrorism financing along with money laundering.
  6. The true cryptocurrencies like Bitcoin, Ether and Ripple will object that Libra is not a true cryptocurrency and is, thus, a step backward.
  7. Tencent, Alibaba and Paytm will quickly add its own stable coins to WeChat, Alipay and Paytm and claim that Facebook Libra is redundant.
  8. Ride hailing services like Uber and Grab will move past their current debit cards and payday loans for their employees and into digital currencies.
  9. Google (with Google Pay), Apple (with Apple Pay and its Goldman Sachs-backed credit card) and Microsoft (with guaranteed payments) will not be left behind.
  10. Finally, we can expect to see other companies introduce their own stable coins and an eventual shaking out of these platforms will occur.

This list of hurdles is likely to grow longer rather than shorter over time. We do not know, at this time, if Libra and Calibra will ever see the light of day.

However, through the launch of Libra stable coin and the Calibra digital wallet, we are witnessing the beginning of a remarkable convergence of our financial services onto a platform (or a small group of global platforms) where our:

  • Access is always available (through a message app or wi-fi);
  • Digital identity is well-established;
  • Transaction histories are recorded in a time-stamped, cryptographically linked and immutable form;
  • Funds are instantaneously verified and transferred;
  • Ownership is digitized and instantaneously verified;
  • Assets are digitized into a liquid form and tokenized (thereby enabling small increments of flexible ownership); and
  • Smart contracts automate sophisticated financial transactions to occur almost instantaneously.

The result is that the friction that today accompanies almost all financial services transactions is removed and the financial services user experience (UX) finally enters the Digital Age. The pace of business will speed up as friction is removed and new innovative new products, services and assets are introduced.

It is not possible today to tell if Facebook Libra and Calibra will be a success: Will it become that single platform, one of several or many platforms or will it succumb to its gauntlet of obstacles? But, one thing is evident: The vision of a frictionless financial services environment with a great user experience (UX) is now here and that genie cannot be put back into the bottle.


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