Facebook Libra – Well populated graveyard.

Only users can save Libra.

• The loss of Vodafone is another nail in the coffin of Facebook’s digital currency Libra meaning that the only thing that can save it now will be wide-reaching engagement from Facebook users.
• I think that Libra has a lot going for it.
• Tencent has shown that a payment system inside a chat app can be hugely successful from which Facebook is taking it one step further by creating a digital currency.
• A digital currency has the advantage of being easy to use but it is deeply threatening to the existing financial system as it exists outside the control of banks, regulators and governments.
• In theory, this should make it a much safer and stable asset class given that it should be free from manipulation, money printing and the impact of sovereign debt, but at the same time, other digital currencies have proven to be great places to conduct illegal transactions.
• It is fears of this illegality that are being cited as the main reason for the current hostile reception that Libra is receiving from regulators and politicians.
• However, I think that it is the threat that Libra poses to the vested interests that are really driving the objection.
• The banking system as it exists to today is not fit for purpose.
• Despite massive consumer digitisation, it is still slow, overly bureaucratic, expensive and cumbersome to send money through the global banking system.
• Transactions which should already be frictionless and instantaneous are often taxed by multiple handlers and take days to complete.
• This is an industry that is more ripe for disruption than any other and yet all attempts to force it to modernise have failed.
• Facebook’s Libra project is the latest attempt to fail and while there are certainly issues that need to be addressed, I think that this one had real potential to offer consumers a decent digital currency (see here).
• The original list that signed up to support it was impressive, particularly as Mastercard, Stripe, Visa, eBay and PayPal would have been instrumental in driving the adoption of the digital currency by consumers.
• This because Libra needs an on and off-ramp to the rest of the world that is both widely available and easy to use in order to be viable.
• One by one these paths have been closed off and Vodafone deciding instead to focus on m-Pesa which is mobile money rather than a new currency is yet another damaging hit to Libra’s prospects.
• The problem as I see it is that politicians do not want a large segment of the economy put out of work and the banking sector itself will always fight to preserve its gravy train for as long as it can.
• The Chinese example shows that if there was a will among the powers that be to make a digital currency work in developed markets, it could be done without any real difficulty.
• Hence, Libra is firmly on the path towards the well-populated graveyard of those that have attempted to disrupt the banking industry and failed.
• For as long as the banking industry fails to improve its service and cost to consumers, there will be no shortage of attempts to disrupt it.
• The best thing banking can do is either make the existing service so good that there is little incentive to create an alternative or create the alternative itself.
• Libra’s one hope is that it can launch in some form that the regulators and politicians will allow and for it to win the widespread usage from the 2.1bn user base.
• This could then force the hand of governments, regulators and banks into accepting Libra as a fait accompli.
• Users are fickle and if the regulatory environment makes it so difficult to use, then no one will bother ensuring that Libra goes on the scrap heap with its peers.
• I have little hope for Libra and while the industry remains protected, very little is likely to change.