Move over Bitcoin, there’s a new kid on the block. We’re talking, of course, about Libra - the Facebook cryptocurrency being introduced next year.
Launching in just a few months time, Libra will enable Facebook’s 2.4bn worldwide users to pay for goods and services, as well as send money around the globe without any transaction fees.
Hypothetically it sounds great, right?
Well, sit tight, because over the next few paragraphs the Managing Director of our London accountants, Keir Wright-Whyte, will be breaking down everything you need to know about Libra, including the advantages and disadvantages it poses for SMEs.
Let’s kick off with the general overview - we’ve seen countless cryptocurrencies launched amidst the success of Bitcoin, so why is Libra such a big deal you might ask?
Well, perhaps most significantly, it’ll give Facebook the final piece they need to fully understand how its 2.4bn strong user-base actually behaves.
Already established as the world’s biggest online advertising platform, Facebook already has a pretty good grasp of who you are, where you like to visit on your weekends, what you’re interested in, who you’re friends with and, to some extent. Your opinions on a range of topics.
However, although it knows which advertisements and products or services get your attention, what you actually buy has been unknowable to Facebook.
World, meet Big Brother.
Libra isn’t quite as crypto or unregulated as, say Bitcoin or Ethereum, in that it’s more comparable to PayPal, pegged to a number of government-backed currencies and supported by payment giants Visa and Mastercard.
As a whole, Libra’s assets are managed by an independent Swiss trust, the Libra Association, of which Facebook is just one voting member.
From Facebook’s point-of-view, they envisage Libra as a PayPal 2.0 service in that it’ll be easier to set-up with fewer fees and more flexibility.
You buy Libra coins using real money and then store them in Calibra – Facebook’s own digital wallet – or another supported digital space.
Facebook says it does not plan to make any money off Libra, or not in the short term at least. This means it has no plans to lend credit like a bank would, for example.
However, it can see the opportunity if SMEs who sell through Facebook online could see how much they’re selling to people who use Libra, which would then in turn see SMEs spending more on advertising through Facebook, and the social network ultimately win.
From what we can tell, it’s aimed more at the developing world, rather than the West.
When you analyse Facebook’s 2.4bn users, as well as the 1.5bn users of it’s instant messaging platform WhatsApp, the majority actually live in developing countries.
For example, India is WhatsApp’s biggest market, with more than 300 million users. There are 120 million WhatsApp users in Brazil.
In those two countries, 80% of small businesses use WhatsApp as part of their business activities, such as exchanging bills and receipts with customers and suppliers.
Also, the cost of sending currency back home to third-world countries is punitive – 7% on average for every transaction.
Being frictionless, Libra puts that money in the digital wallet of, say, a Pakistani construction worker in UAE sending money home to his family in Lahore.
Off the bat, the big one is zero transaction fees.
UK retailers currently pay card services such as Visa and Mastercard between 1% and 3% on each debit or credit card transaction, plus your bank charges another 0.2-0.3% of each card sale,
Additionally, the payment provider charges a transaction authorisation fee of between 1p and 3p on each sale, as well as a monthly PCI compliance fee.
Libra would do away with all that. So, Libra would be an attractive alternative to conventional card transactions.
Also, Libra is being set up to handle micro-payments, which are not worth the while of the major card platforms, so this could be something of a godsend to publishers who want to sell articles on a per-read basis, for example.
Not disadvantages as such, more like resistance to change based on current payment behaviours and Facebook’s reputation.
Given that 40% of the UK’s micro businesses do not accept card payments, they might be resistant to adopting a currency whose value fluctuates against the pound.
And then, of course, there is the wider question of how many customers will adopt Libra, given Facebook’s highly publicised selling of data to controversial business Cambridge Analytica, which, it is alleged, manipulated the US election and UK Brexit Referendum through the social platform’s users.
Considering the company’s carelessness when it comes to people’s personal information, how many customers would be willing to give the advertising giant their hard-earned cash as well?