Magid’s Tim Spenny was recently called upon by Bloomberg to comment on Facebook’s Libra cryptocurrency. This post expands on those thoughts.
The promise of new and advanced payment methods that evolve the way we pay and are paid has been made over and over in the U.S. – with very few successfully delivered. Even Elon Musk said that the great problems of the internet have been solved, because he helped solved one of the biggest – paying securely online.
Yes, we can talk about Starbucks, Walmart and the long list of payments success stories across the FinTech world: Stripe, Venmo, TransferWise, etc., who have identified and improved payments for the better. We have come a long way, but you have to remember that we are still paying with cards, checks and cash in the U.S. virtually the same way we have for years.
And if we look more closely, we realize that there have been failed attempts to move the U.S. to contactless or to mobile, with the biggest names in tech and payments attempting to impact the payments space with little success, or at best, adoption of their products has lagged indefinitely.
Why have advanced payments technologies failed in the U.S., and why don’t we want to pay using methods like contactless and paying with our phones? The answer is simple, we don’t have to.
The primary reason that the adoption and usage of chip cards was successful in the U.S., moving us from magnetic stripes and swiping to dipping our chip cards, was because it was mandated through forced compliance to the retailer by the credit card industry.
We see the same example in India, when a law devaluing 96% of India’s paper currency was passed, nearly overnight, and adoption and usage of QR codes and other advanced payment method adoption and usage exploded.
But, if we don’t have to adopt it, we won’t. You’ll notice that the chip compliance mandate hasn’t included gas stations yet, so we are still swiping using our mag-stripe at the pump.
So why would Facebook venture into an advanced payment method as complicated, and with such an untrusted reputation, as cryptocurrency?
This is a bit of a trick question, because the answer doesn’t lie in the U.S. No, the need for an advanced payment solution like Libra, and the pain and friction it solves for, lies in those parts of the world where making a purchase online is nearly an impossibility due to lack of access and infrastructure to financial services. There are several other use cases that Libra could potentially solve for:
- You’re a long way from home and sending money to your family is either too slow, too expensive or too dangerous.
- Libra could serve as a safe harbor for your assets when your country’s currency is under extreme turmoil and there is tremendous uncertainty.
- It’s a person’s dream to actually shop online, but access to online funds is not available, Libra allows you to do so, safely and securely.
Here in the U.S., our payment methods are, simply put, advanced enough. They get the job done with little friction and create enough value for consumers to stick with what is currently working. Yes, some use cases will appear for Libra in the U.S. – anonymity, marketplace perhaps, P2P – and some groups will adopt and use Libra as a novelty, but adoption will lag over time.
But what if Facebook can get this right for those use cases it solves for, providing access to financial services and online payment options where none currently exist? If it can successfully scale Libra and make it easy to use, it could reach mass adoption and leap-frog current payment methods like cards and checking accounts. All without a mandate.