Facebook’s announcement that it would participate in the formation of the Libra Association and create a new subsidiary called Calibra signaled an intention to invest around payments, but did not convey new efforts around social commerce any time soon, argues GroupM's Brian Wieser.
Last month, 28 companies and organizations, including Facebook, announced the formation of a non-profit “to provide financial services that will let people access and participate in the Libra network” or The Libra Association. Libra is intended to become a currency which will allow consumers to make instant payments to other individuals – including those without access to banking – and companies. Libra’s founding members feature many in payments (Mastercard and Visa are participating, as are PayPal and Stripe), although no banks are involved in the project.
Coinciding with this news, Facebook announced a directly owned subsidiary called Calibra which is intended to serve as a “digital wallet.” The currency is scheduled to become available in 2020 in Messenger, WhatsApp and as a stand-alone app.
Will the project succeed? Wait and see. One should be skeptical around whether Calibra or any new currency will succeed. Consider that when “fiat” currencies (those backed by a government directive rather than hard assets) were introduced in the 17th, 18th and 19th centuries, financial catastrophes and reversions to dependency on money backed by hard assets were common. Significant time – and trust – in the notion that governments would not print more money was necessary before the fiat currencies we rely on today would become stable. Crypto-currencies are typically not backed by hard assets, but can be limited by the difficulties involved in producing (i.e. “mining”) more of the crypto-currency which can lead to the same problems experienced by fiat currencies in their early days.
Calibra’s reserves will differentiate it from other crypto-currencies, but may not be enough to make a viable currency. Libra claims that it will be backed by “a reserve of real assets” funded by partners in the project, and those assets are in turn are then invested in low-volatility assets. In this way, the crypto-currency is backed by fiat currencies and should avoid many of the same fates that conventional crypto-currencies face, as most are not backed by hard assets. However, the perception that Calibra is a crypto-currency not backed by hard assets could limit trust. Further, concerns may linger around Calibra because of Facebook’s involvement, especially given the trust challenges the company will likely face for an extended period because of the Cambridge Analytica scandal and other consumer privacy violations.
But even if Libra succeeds, it doesn’t necessarily follow that Calibra will. Payments is a different business than the one Facebook is in. If a company such as Amazon or Google – which have both launched a wide array of scaled products with diverse revenue streams – were to launch another new product, there would be a basis for assuming that a new initiative might succeed. By contrast, Facebook has yet to demonstrate that it can produce a meaningful source of revenue beyond advertising. While one shouldn’t rule out the possibility that Facebook can succeed, one probably shouldn’t assume that it will.
Emerging market remittances are likely to be the focus for Facebook, not social commerce. Taking Facebook’s announcement at face value, this initiative is not about social commerce. As conveyed by the announcement, the focus of Calibra is on remittances– transfers of money from people in wealthier countries to relatives and friends in poorer ones, especially in places where consumers are underbanked. This could have enhance Facebook’s relationships with consumers using its financial services products, who might increase their use of Facebook’s platforms, or at least mitigate reductions in use. While it seems reasonable to assume that if Calibra takes off and is applied towards social commerce solutions, this would not likely occur until several years from now at earliest.
Social commerce is likely to become increasingly important for Facebook, but Calibra is not a likely driver of it. Facebook properties are increasingly playing in e-commerce, as demonstrated by Instagram’s Shoppable Posts and the integration of “Buy Now” buttons on Facebook and Messenger. Wechat is showing a path forward for Facebook to emulate in terms of expanding the presence that Facebook has in e-commerce. However, would a digital wallet –powered by Libra or conventional currency – necessarily cause Facebook to grow faster than it would without one? Or is it merely providing a convenient app and capacity for record-keeping that provides only incremental benefits?
In short, while Libra and Calibra might help Facebook if their initiatives succeed, it remains far from clear as to whether or not either will have a meaningful impact on Facebook’s efforts with social commerce. By contrast, ongoing efforts to build out its social commerce capabilities more directly are likely to be much more important for marketers for many years to come.
The August edition of Admap will cover the future of payments.