As compelling as Libra’s potential for global financial inclusion may sound, it is not without its flaws. As of the first quarter of 2019, Facebook had 2.38 billion monthly active users – this massive reach forms the basis for its potential success, however the company’s negative reputation and plummeting consumer trust provide a strong argument against it. Mark Zuckerberg himself stated in a blog post that “frankly we don’t currently have a strong reputation for building privacy protective services.” Co-Founder Sean Parker even said Facebook is designed to exploit “a vulnerability in human psychology” to get its users addicted.
Money is fundamentally a social construct. A dollar bill has no intrinsic value but rather serves as a medium of value because it is backed by the U.S. government and therefore believed by everyone in the world to be valuable. The same “game of trust” principle applies to digital currencies as well. Consumers and merchants will have to trust Facebook enough to convert their local currencies into Libra, and right now, trust happens to be something that Facebook is running low on. Nonetheless, Facebook seems to have learned nothing of its dead-on-arrival launch of the Portal devices last fall and decided to dive headfirst into the market anyway. Of course, this is likely why Facebook formed the consortium with a diverse group of partners as it attempts to assuage this trust issue; nevertheless, Facebook is still the face of Libra, which puts enormous strain on its rollout in developed markets where anti-Facebook sentiments are gaining momentum.
Facebook’s negative publicity firestorm that kicked off with the Cambridge Analytica scandal has yet to subside. Making matters worse, Facebook doesn’t seem to have learned its lesson. when Facebook came under fire for the spread of misinformation and fake news in early 2017, Zuckerberg didn’t respond by noting the flaws of his global empire or in its users; he doubled down on the hopeful perfectibility of his platform and its users. Something that was taken as a pollyanna attitude within the public sphere. Shortly after the Libra announcement, an in-depth piece from The Verge detailing the dismal work conditions and severe mental trauma that Facebook content moderators suffer from caused quite a stir, with many railing against the “sweatshop-like” jobs that Facebook outsources to enterprise service vendors such as Cognizant. Trust in Facebook dropped by 66% following the aforementioned scandal, and all the negative press since have not helped Facebook in winning back consumer trust. While this has yet to hurt Facebook’s bottom line in any substantial manner, it also doesn’t offer Facebook carte blanche to enter new markets without resistance, especially one like personal finance where consumer trust is paramount.
While Facebook smartly anticipated the obvious data privacy concerns by claiming that no Libra transaction data will be mingled with Facebook data for ad targeting purposes, it’s ‘too little too late’ in the arena of public opinion and may well be past the point of no return for Facebook to regain that trust. The Libra whitepaper states that “aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent.” These are nice words, but do we all believe it? At a time when most people glaze over the lengthy ToS and rarely bother to learn what they are consenting to, the particular wording has left Facebook several loop holes. In addition, Calibra’s fine point also stats that “Calibra will use customer data to facilitate and improve the Calibra product experience, market Calibra products and services,” which appears to confirm that purchase data will indeed be collected and used to market additional products. Facebook may build a wall of privacy between its products, but that wall may offer a few doors in the name of ‘marketing purposes.’ For a business that fundamentally hinges on mining user data, Facebook may find it simply too hard to resist.
Besides the challenges in earning consumer trust, Libra has an oncoming storm of regulatory hurdles for the potential disruption it would unleash on the global financial system. Facebook has admitted to unintended consequences of its Facebook platform, so it’s certainly within reason to be extra cautious with LIbra. If Libra gains significant adoption rate in a certain market and a significant amount of people start to use Libra for their primary currency, it could destabilize national currencies and potentially complicate the investigation of financial crimes (or bog the platform down in aiding investigations). This is partly why it has already been flagged by some European regulators and U.S. politicians as something that will be heavily regulated, if not outright banned. As the public backlash against Facebook starts to turn into regulatory actions, Libra will almost certainly face significant regulation which could be crippling in some nations – especially smaller nations where their currency would be most affected – the exact same nations that Libra is supposed to help by ‘banking the unbanked.’
Of course, Libra won’t be without rivals. The upcoming Apple Card’s backing partner Goldman Sachs is looking into stablecoins – if these stablecoins were to power the Apple Card (we predict it will) it will potentially bring a full Libra competitor to market – one that has access to the over 700 million iPhone’s in the wild. It could also very well become the first product to successfully convert many high-value mobile users into mobile wallet users, with the potential to expand Apple Pay into a full-blown crypto financial service. Google, too, could come out with their own blockchain-based digital currency that leverages the large install base of Android to compete with Libra, especially in developing markets where Android phones dominate mobile usage, without the heavy baggage of eroding user trust that Facebook carries. Even Amazon, with its roots in ecommerce, could come up with its own “AmazonCoin” to facilitate global commerce if it chooses to. All these potential rival services further cast doubt on Libra’s chance at being widely adopted as the universal digital currency.
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