Facebook Libra: Start of a new way or a fad that will pass?

Published on: July 10th, 2019

There’s been plenty of noise lately around Facebook’s announcement that it’s entering the currency market with its newly branded Facebook Libra offering. It’s a move by Facebook to create an electronic wallet offering.

While the commentary varies in it’s opinion on whether Facebook will be successful in this endeavour, it has started an interesting conversation around the impact of cryptocurrency: Is this just another step in the march towards a technology driven change in how currencies around the world work or is it a fad that will pass?

Facebook’s bold move

Cryptocurrency is not a new phenomenon: This style of digital or virtual currency has been around for a number of years. Facebook’s move however is one of the first by a large multinational organisation, increasing the world’s interest in what changes it will bring to the way we use money.

Being one of the largest organisations in the world, it’s attracted an interesting list of partners on the Libra project, with brands such as Visa, MasterCard, Uber, Vodafone, eBay, Spotify and PayPal joining forces to work on Libra. Facebook is looking to launch the Libra currency in the second half of 2020.

As a business, Facebook has always seen itself as a change agent. In recent times however its reputation has been significantly tarnished, particularly around how it uses its members’ data and how easy it is to manipulate information and present it as ‘fact’. These controversies have challenged Facebook’s position in the market and made people ask the question: Is this a trustworthy organisation? Especially considering its reach into our daily lives. Beyond the Facebook platform and the Messenger app it uses, Facebook also owns the popular Instagram and Whatsapp apps.

So, given the recent issues, it could be seen as a bold move. Like all companies, Facebook is attempting to grab a bigger ‘share of wallet’ from its clients and adding a currency is just a part of that broader strategy. But will it work?

Is it too early to tell?

The reality is, when it comes to whether on not cryptocurrencies like Libra will work, the honest answer is that the jury is still out; it’s just too early to tell.

There’s no doubt that they could have a role to play, particularly in emerging nations where the banking system is both younger and less developed. In these countries cash is still king, and in many cases it’s uncommon for the general population to hold a bank account. So the ability to have an electronic wallet to manage day-to-day payments makes a lot of sense: It’s something we take for granted in developed countries as the norm.

It’s in developed countries where it will be more difficult to gain a foothold. Countries like Australia have a well-established, heavily regulated banking sector. Think about the largest Australian organisations and banks like the Commonwealth, Westpac, ANZ and NAB are all in that list.

We already have convenient methods of electronic payment, so the attraction of Facebook Libra is in theory a lot less. You can also safely say that these organisations will protect their market position, making it hard for Facebook to gain market traction of any significance. There’s also the fact that banking is a heavily regulated sector, and Western governments have a significant interest in their own currency.

Whenever a new market entrant disrupts a large existing market, you can safely bet that the various levels of government will want a share of the action. Just look at what happened with Uber and the Taxi industry as an example: A new entrant joined the market, offering a service that was cheaper and easier to consume. It became a political can of worms and in the end the various state governments legislated to protect an older industry that arguably had not been servicing its clients well.

Of course it’s difficult to predict at this time what the outcome will be. Facebook is such a large organisation that it wouldn’t be entering into this without significant resources behind its efforts. Disruption from tech giants like Facebook is now the norm, so it’s certainly within the realms of possibility that it will eventually be successful. I believe that 2020 is ambitious and while it may take longer for them to make this viable, who is to say what the currency landscape will look like in ten years’ time?

Should you look at cryptocurrency?

In the end, I believe a ‘wait and see’ approach is best. We have many convenient, secure methods of payment available here that suggests looking at a new currency, or investing in it, is most likely premature at this point.

General Advice Disclaimer

The information in this blog is provided by Apt Wealth Partners (AFSL 436121 ABN 49 159 583 847) and is of a general nature only. It may not be relevant to your personal needs, objectives or financial circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if the strategies and products are right for you.