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Facebook has formed a new fintech company, dubbed Libra Networks, in Switzerland, according to Geneva’s commercial register cited by Reuters. The company, which registered in Geneva on May 2, will provide fintech services and develop related hardware and software, reports the outlet. Libra’s areas of focus will include blockchain, payments, data analytics, and investing.
Here’s what it means: Libra is the latest indication of Facebook’s ambition to use cryptos to burrow deeper into its users’ financial lives.
- Libra puts rumors about Facebook’s efforts in blockchain and crypto to rest.Earler this month, The Wall Street Journal reported that the social media giant was planning to launch a crypto payments system under the banner of Project Libra. This followed reports by Bloomberg that the company was working on a crypto, pegged to the dollar, to enable users of its WhatsApp messaging service to transfer money.
- Facebook’s move into financial services would see it join fellow tech rivals Apple and Amazon. Apple has partnered with Goldman Sachs to launch a credit card, while Amazon has long been active in the industry, offering a range of financial services including merchant loans and insurance. These tech companies have an ecosystem of hundreds of millions, if not billions, of active users. And given how deeply they’ve integrated into their users’ lives, offering financial services is a natural next step. Chinese tech giants like Tencent and Alibaba have set the standards when it comes to extracting more value from their user bases — a strategy we anticipate Facebook to double down on.
- The choice of Switzerland for these efforts should help Facebook speed up its fintech play.In recent times, Switzerland has made a concerted effort to capitalize on fintech and crypto enthusiasm in particular. Authorities in the country have taken the lead when it comes to creating a regulatory framework for the nascent asset class, with the Swiss Financial Market Supervisory Authority ( FINMA) taking an active approach to promoting the development of the sector. This supportive environment makes the country ideal for Facebook’s ambitions.
The bigger picture: If successful, Facebook’s efforts pose an existential threat to incumbent financial institutions (FIs) and fintechs, while giving much maligned cryptos new relevance.
- Facebook’s existing user base and deep pockets threaten established FIs’ dominance. The tech giant has more than 2 billion users across its three core platforms — Facebook, Instagram, and WhatsApp — per Reuters. By enabling these users to make payments within its applications, whether to each other or for purchases, the company could disintermediate banks and the likes of Visa, which earn revenue from transaction processing fees. Moreover, with so many of the company’s users in developing countries, per Reuters, Facebook has the potential to gain a stranglehold in these markets before established players. And it’s much more likely to be successful than fintechs at unseating incumbents due to its deep technological know-how and vast resources.
- The tech firm’s huge user base could also ignite widespread adoption of cryptos. Despite great fanfare over the potential of Bitcoin and other cryptos to displace central bank-issued currency, the nascent asset class has struggled to move beyond a speculative investment vehicle. In addition to regulatory uncertainty and continued fraudulent activity, the substantial friction associated with using cryptos has been key in restricting widespread use. However, with a quarter of the global population using one or more of Facebook’s social networks, the firm is in prime position to drive mass adoption.
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