In 2014, Facebook hired David Marcus, a former executive at PayPal to steward the development of the Messenger app. A lot of analysts saw a great game strategy at play and true to their word, Marcus shifted to head Facebook’s newly composed initiatives team in May last year. Early this year, The New York Times plans by FB to launch a cash transfer system based around , which is part of the social media giant’s venture into the .
The purpose of Project Libra
technology is just ten years old, but it has immense potential to provide solutions in many industries. Currently, the financial sector is the most targeted where various startups are pursuing solutions like cross-border transfer of cash. According to a which the Kansas Fed authored, technology will bring among other things, financial inclusion.
As per the document, most of the unbanked population remains so because of the complexity involved in accessing a savings or a checking account. One way or otherwise called distributed technology (DLT) might pull more of the unbanked people to banked is through streamlining the cross-border transfer of cash. Interestingly, the payment system under consideration by Facebook revolves around cross-border payments.
According to a Washington Post , the project dubbed “Project Libra” will enable users to send remittances to their WhatsApp contacts abroad. The report further outlined that the solution that comes out of Project Libra will be much bigger than just remittances. Instead, the answer will be a full payment network for all other cash transfer needs. It explains the meetings with payment networks like MasterCard and Visa. The social media giant also met with First Data, a payment processor and large e-commerce giants. Essentially, the company is gearing up for a major launch of a significant product in the financial industry.
How it will work
To facilitate the payments over , Facebook will develop a dollar-backed stablecoin. In particular, the choice of a stablecoin is due to its relative stability compared to traditional like and other . As such, the volatility of the “Facebookcoin” will track that of the greenback. Further, this could be a calculated move to shore up confidence in the .
Already, the WSJ report revealed that the company is seeking an initial $1 billion collateral to back up the stablecoin. Notably, the stablecoin will be the sole mode of value transfer within the new payment network. The emphasis on the is because the users will not be charged credit card fees while transacting.
Rewarding users to generate more revenue
The stablecoin will not only ensure that users transact at little to no fees within the ecosystem. Also, Facebook plans to use the to shore up its ad business. The idea is an interesting one where Facebook users will receive to view ads. According to the WSJ report, a Facebook user will receive a fraction of the stablecoin every time he/she views an advertisement. Also, one will earn a fraction of the when they interact with other content on Facebook or use the platform to .
This rewards program seems to have a twofold purpose. One, it will draw many more Facebook users to viewing ads. It will add to the already critical significance of advertising in the overall revenue for the company. For instance, the company $14.9 billion in revenue from advertising during the quarter ended March 31, 2019, which consists of an unimaginable 99% of FB’s total revenue. Therefore, one can acknowledge the essential nature of advertising to the Mark Zuckerberg-led company.
The second purpose of the use of stablecoin to reward loyalty is to discourage the scourge of bots which threaten FB’s revenue from advertising. A by Hootsuite showed that actually, there are many bots clicking ads than humans on Facebook. As such, some advertisers might simply be pouring their money down the drain as their ads could not be reaching more in-depth into the human audience.
Is Facebook changing the business strategy?
For a long time now, Facebook has been a struggle with its users concerning data privacy. The that Cambridge Analytica used data from FB users without their knowledge to manipulate elections were almost backbreaking for the community. As such, the company is seemingly working hard to clear up its business strategy and also to diversify.
Since the F8, Facebook has been showing signs of moving in the direction of e-commerce. Further, the company revealed while announcing the Q1 FY2019 earnings results that it is moving towards a privacy-focused business. The company is working towards increasing revenue streams, and the payments network is one primary sector. Therefore, one can acknowledge the significance of Project Libra and why it will help catapult FB into the next phase of the social network business.
Published at Wed, 08 May 2019 23:57:20 +0000
