To Libra or not

I went to the September DN Intersect conference in Las Vegas – hosted by ATM company Diebold Nixdorf – expecting to hear a lot about ATMs but I did not expect to have my mind changed about Facebook’s cryptocurrency Libra and that is exactly what happened.

I had written off Libra – you probably had too. Too much immediate pushback from regulators and politicians, both in the US and also Europe.  But think again.

The scope of Libra is grand – imagine a digital currency with a user base in the billions and global reach. That’s what Facebook has imagined, and it met with quick and wide skepticism.  The world, many immediately believed, just isn’t ready for a new currency.

Maybe that is wrong however.

Two conversations I had at DN Intersect prompted a rethink on my part.  The first was with Douglas Hartung, a Diebold Nixdorf executive, and the other was with payments guru Richard Crone and also Heidi Liebenguth, managing partner of Crone Consulting.

Both conversations are scheduled to surface in the CU2.0 podcast library in early October. Listen to them. They are lively discussions that challenge multiple assumptions about Libra. Here, the highlights are recapped but to get the full energy of the arguments, listen – and be prepared to have orthodoxies challenged.

The first mindbending challenge came from Crone.  He set the table this way: there are 2.7 billion users of Facebook and its properties (Instagram, Whats App, Messenger, etc).  Daily users number 2.1 billion. 90 million businesses are in the mix. Maybe 1.7 billion of the users are unbanked or underbanked, making this a universe that has to tantalize financial executives, suggested Crone.

So why are none in the initial Libra consortium?  

Crone argues that a focus on Libra as crypto currency misleads.  Technically, sure, Libra may be a crypto currency but it also is backed by a bucket of national currencies led by the US dollar, said Hartung.  Facebook has specifically said half the value of Libra will be supported by the US dollar. The Euro, yen, British pound, and Singapore dollar are also in the mix.  That is a very different valuation proposition than applies to Bitcoin, for instance.

Libra, says Hartung, is a stable coin – and that’s a very different thing from Bitcoin and its baked in volatility.

So what is Libra? Crone puts it this way: “It’s a global p2p network and a giant reloadable prepaid account.”  

What’s the use case?  Hartung says that for many users the need when paying online to leave an app and go to a specific payment app creates friction.  Imagine you are in Facebook, chatting with a friend in Bali, and you realize it’s her birthday and you want to send her the value of a Bintang beer, around 90,000 Rp.  How do you do that today?

It’s awkward, clunky.

Enter Libra and, very possibly, a click will take $6 from you and deliver 90,000 Indonesian rupiahs to the birthday woman.  How easy is that?

“The notion that all I need to send money, anywhere, is in my palm is compelling,” said Hartung.

Hartung also says that, with Libra, the distribution model is plain and powerful – note the billions of Facebook users.  

Note, too, according to Crone, Facebook has slim interests in monetizing Libra per se. What it wants, says Crone, are more eyeballs on its properties which will translate into more advertising dollars and that means more profits.

Which just may create an attractive value proposition for financial institutions.

Yes, none are presently involved, publicly, with Libra, which involves a $10 million ante for its founding players.  

Focus first on who is in: Visa, MasterCard, PayPal, Stripe, eBay, Uber, Lyft.

And Facebook has said it expects to have over 100 founding members before Libra launches.

And as for the regulatory hurdles, Crone says they may be a help to Facebook, not a hindrance, by keeping competitors at bay. He points to the early history of BankAmericard where initial regulatory friction deterred competitors, says Crone, and that gave Bank America literally years to work out the bugs in its concept and build awareness.

Crone also says the wide transparency Facebook has applied to Libra thus far will also set a standard would be competitors will have to match.

Where do credit unions fit in Libra?  Only a handful are candidates for individually ponying up $10 million to get into the early Libra collective – that’s true.  But Liebenguth says this is where CUSOs come in and that gives credit unions a special edge.  

Question to ask: where are the payments focused CUSOs regarding Libra? Ask them.

Crone also says, often in the podcast, that every credit union needs a Libra strategy and they need it now.

Both Hartung and Crone talk, in very interesting terms, about the role of ATMs in Libra, particularly as a way for the unbanked to load cash into a Libra account.  It could be as easy as punching a few keys on an ATM, perhaps scanning a code, and putting bills in the cash slot.

That can be a source of fee income for credit unions, says Crone, who also said that a credit union could pitch that non member into joining and thus avoiding ATM fees.  Win-win-win.

Is this pie in a fantasy sky?  Maybe. Maybe Libra busts out before it officially launches.  Tech companies are known for ruthlessly and quickly unplugging flailing initiatives.  It could happen here.

But it also could be that Libra – by bringing banking services to the globe’s unbanked – solves a problem that paves the path to success. And meantime the more affluent Facebook users will have a tool that allows for in-app, cross-border payments with little friction and low cost and that’s a tool that  is needed in the 21st century. 

Want more details? Listen to the podcasts and hear what converted me from a Libra skeptic to having at least mild interest in the potential of a new currency to change how we pay, online and globally.

Robert McGarvey

Robert McGarvey

A blogger and speaker, Robert McGarvey is a longtime journalist who has covered credit unions extensively, notably for Credit Union Times as well as the New York Times and TheStreet, ... Web: Details

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