Besides Facebook's stablecoin Libra, what else should we be focusing on?

On June 18, Facebook launched Calibra, a companion wallet for its stablecoin Libra. To be precise, Calibra is Facebook's new company that aims to provide financial services on the Libra network, and the new company's first product is a digital wallet that can store and transfer Libra cryptocurrency.

According to Facebook, the wallet will have a standalone app that will also open within the WhatsApp and Messenger apps, and the wallet is scheduled to launch in 2020.

In Facebook's vision, the wallet will feature a marketing feature that "provides banking services to the unbanked." In other words, the Libra founding team hopes the new service will capture the billions of dollars locked out of the global banking system, using a permissioned blockchain to enable low-cost payments and faster cross-border transactions.

In addition, other key information about Calibra are:

1. As a financial service provider, Calibra will operate under supervision, which is one of the reasons for establishing a subsidiary;

2. The Libra Association and Calibra are independent of Facebook;

3. Emphasize privacy, Calibra will not share account information or financial data with Facebook or third parties without consent (except for "special cases");

4. These "special cases" may include: regulatory compliance, anti-money laundering and fraud prevention, performance data and sharing data with other service providers during payment processing to complete transactions;

5. Regardless of whether the local government applies anti-money laundering laws to encrypted wallets, Calibra intends to implement AML/CFT wherever the product is available. In addition, Calibra will not provide services in jurisdictions that prohibit cryptocurrencies;

6. Calibra will require identity verification and KYC to access the wallet;

7. Calibra will publish a comprehensive data policy prior to launch.

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Facebook's defeat in payments 10 years ago

This isn't Facebook's first foray into payments.

At the end of 2010, Facebook launched Facebook Credits, a digital payment solution, with the intention of occupying the global payment market. It was once very popular, but it failed within 15 months.

On Credits, users can purchase a platform token ( ($1 = 10 FB Credits) via credit card / paypal, which is used to purchase paid applications and game currency, and the platform token gradually transitions to $1 over time: $1 equivalent electronic fiat currency.

The business model for this product partly reflects the Apple or Google app developer's revenue share, in other words, the app distribution platform's percentage of total purchases. In the case of FB Credits, Facebook takes 30% of the developer's revenue.

Facebook Credits found initial success on the PC version before mobile came along. FB Credits generated 16 percent of the company's 2012 revenue, adding $0.80 to global average paid revenue per user (ARPU), Barclays Internet analyst Ross Sandler wrote in a March research note .

The New York Times has reported that Facebook is targeting an estimated $835 million worth of virtual items purchased through Credits, and that"The social networking company is laying the groundwork for its second move: a virtual currency system that could one day turn into a multibillion-dollar business."The end of the story, according to the press, is that Facebook Credits will enable micropayments and power its app development ecosystem.

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Examples of current US transaction fees

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Incentive support from node companies

This time FB brought in rescuers.

Compared with the desire of Facebook Credits to be used only for payment of game characters, the ambition of the Libra project is obviously greater. It has received world-renowned payment companies, venture capital funds, e-commerce, non-profit organizations, and recently listed taxi companies Uber and Lyft support.

Leaving aside Facebook's monthly active user base of more than 2.3 billion, the Libra Association has a total user base of more than 3 billion from global giants, which also enriches the users of the bilateral payment market. In addition, when the main network is launched, Facebook will only retain 1% of the voting rights, which may also help to alleviate concerns that this is just a "Facebook coin". It remains to be seen whether the $10 million entry fee is enough to incentivize these validator node businesses to aggressively seek merchant acceptance within their own organizations. (Facebook stipulates that businesses serving as validator nodes must make an initial minimum investment of $10 million in Libra tokens.)

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Opportunities in payments

As mentioned in the Libra white paper, "We believe that global, open, instant, and low-cost capital flows will create huge economic opportunities and promote the development of global commerce." Then in the field of digital payments, opportunities really exist. Is it big?

Let's look at a set of data.

Remittances to low- and middle-income countries hit a record high of $530 billion in 2018, up 10 percent from the previous year, according to the World Bank. After including high-income countries in the transaction category, global remittances totaled just under $690 billion in 2019.

Given that the global average cost of sending $200 is estimated at 7% in Q1 2019 (World Bank) and banks charge an average of 11%, in the eyes of Facebook and the founding members of the Libra Association, the new service has enough potential to significantly reduce costs .

The stock market moved on hearing the news. Shares in Western Union, the world's largest remittance company, opened 3% lower today on news that Libra is targeting cross-border remittance users and are still 2% below yesterday's close.

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The Potential of Digital Wallets

"Any consumer, developer or business can build products on the Libra network that add value to their services." - Facebook

Another opportunity that jumps out from the Calibra announcement is Facebook's ability to drive adoption of the digital wallet in both the US market and foreign markets.

Whereas digital wallets can provide traditional banking functions, payments, lending, asset management, and even insurance can all be bundled into one low-cost, large-scale service.

From the perspective of companies that provide products, the customer acquisition cost of digital wallets is at least very attractive. Asset management company ARK Invest even believes that the customer acquisition cost of digital wallets can be as low as $20. Despite the popularity of Alipay and WeChat Wallet in China and emerging markets, digital wallet adoption is not high in the U.S., limited by the need for well-established banking franchises and infrastructure.

However, recent entrants into the US market, such as Square's Cash App and Venmo, have begun to demonstrate that digital wallets are growing significantly. The two payment apps had a combined 20 million users in 2017, doubling the number of active users to more than 40 million.

Looking forward to Calibra, the advantages that can be used are: on Facebook, customers can be acquired efficiently and cheaply through cash tags, payment subscriptions, etc., and a monthly active user base of more than 2.3 billion, which will make Calibra have the potential to become the financial platform with the most users in the United States. One of the services (mobile banking or digital wallet). Assuming Facebook has 170 million active users in the US, a penetration rate of 5% would place Calibra at number 7 among companies in the payment space, behind only Cash App. If you open up 5% penetration to its global user base of around 2.3 billion monthly active users, that's over 110 million digital wallet accounts. (Equivalent to about 130 million Apple Pay, which is installed and counted on every phone sold).

As for what the Calibra wallet offers, the announcement cites other features Facebook could explore beyond the payments wallet, including lending, portfolio management tools (PFMs), QR code purchase functionality, and even a contactless payment solution for Metro cards. .

Although, Calibra's data policy states that they do not share data with Facebook or third parties, nor do they use data to improve ad targeting (except in "limited circumstances"). But it's not hard to imagine a digital wallet offering additional services based on user value, such as personal finance tools, smart coupons and discounts, or even ad-driven rewards, where users will receive a small percentage of Libra after viewing an ad.

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some doubts

But we still have a lot of questions about this product:

1. For example, the Libra Association and Calibra have stated that they will be independent of Facebook and promise not to share data with Facebook or third parties. Is there room for ambiguity in this clause? - Like a weird clause in their commitment statement saying that when you authorize a payment, they share data with all payment processors and service providers.

2. From a payment cost standpoint, is this actually a cheaper transaction compared to other p2p options? - Considering the on-board costs of entering the system through encrypted transactions, the cost of using the credit card network to purchase a large product may actually be comparable to the cost of the Libra network.

3. We know that Libra reserve assets have an incentive plan, that is, the interest will be used to pay the cost of the system, ensure low transaction costs, and distribute dividends to investors in the initial stage of the ecosystem startup, so what will happen when Libra’s funds for the incentive plan run out? manage?

4. Considering the open source of Libra Blockchain, will Calibra compete with other wallet providers?

5. U.S. Representative Maxine Waters called for stopping Facebook from developing its cryptocurrency. What regulatory issues exist in the cryptocurrency business, and are there any regulatory issues that they have not yet resolved?

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Facebook Blockchain Team Overview

Facebook publicly announced in May 2018 that they had formed a new team dedicated to blockchain technology, led by David Marcus, the former head of Facebook Messenger.

We analyzed the number of Facebook employees working on the blockchain via their LinkedIn profiles. It is worth noting that the average age of the blockchain team at Facebook is 2.1 years, while the average age of blockchain employees is 36.7 years. Most are engineering, business development and research roles.

Facebook's blockchain core team list:

David Marcus

David Marcus is the Vice President of Blockchain at Facebook. In May 2018, Facebook publicly announced that David Marcus would lead its blockchain efforts. Before leading the Facebook blockchain team, Marcus was the head of Facebook Messenger. Before joining Facebook, Marcus was president of PayPal; Marcus also founded mobile payments company Zong in 2008, which was acquired by PayPal for $240 million.

Kevin Weil

Kevin Weil is the VP of Product on Facebook's blockchain team. Before joining Facebook's blockchain team in May 2018, he served as Vice President of Product at Instagram. Weil has also held senior roles at Twitter, responsible for product, product marketing and design at Vine and Periscope, and head of engineering at Coolris.

Tomer Barel

Tomer Barel is the VP of Risk and Operations for Facebook's blockchain team. Before joining Facebook's blockchain team in May 2018, he was Executive Vice President of PayPal. Barel is also vice president of business development at 3DV Systems, a video imaging technology company, and a partner at consulting firm McKinsey & Company.

James Everingham

James Everingham is an engineering lead on Facebook's blockchain team. Before joining Facebook's blockchain team in May 2018, he was an engineering lead at Instagram. Everingham has also held senior positions at Yahoo and Luminate.

Christina Smedley

Christina Smedley is the Head of Brand and Marketing for Facebook's Blockchain team. Before joining the Facebook blockchain team in May 2018, she managed Facebook Messenger communications. Smedley has also held senior positions at PayPal and marketing and advertising firm Edelman.

Morgan Beller

Morgan Beller is the Head of Strategy for Facebook's Blockchain team. Before joining Facebook, Beller led corporate development and strategy at Medium. Beller is also a partner at Andreessen Horowitz and a product manager at eBay.