Shares of Facebook (META 4.10%) climbed more than 4% on Monday as investors mull over news that the social network is expected to unveil a new cryptocurrency on Tuesday. Backed by investments from several major credit card companies, along with PayPal, Uber, and other companies, the new technology could give Facebook an edge in its efforts to improve its infrastructure for payments across its social networks.
This news follows Facebook CEO Mark Zuckerberg's comments during the company's most recent earnings call about building technology for payments, suggesting a new cryptocurrency could be designed specifically to help the social network streamline payments. Could payments be one of Facebook's next big areas of investment -- and possibly a frontier the social network could profit from?
Facebook's cryptocurrency plans
Explaining Facebook's expected announcement about a new cryptocurrency, The Wall Street Journal wrote: "The financial and e-commerce companies, venture capitalists, and telecommunications firms will invest around $10 million each in a consortium that will govern the digital coin, called Libra, according to people familiar with the matter."
Making the currency unique compared to popular cryptocurrencies like Bitcoin, the coin's value "will be pegged to a basket of government-issued currencies to avoid the wild swings that have dogged other cryptocurrencies," sources in the know told WSJ.
The project is more than a year old and is expected to be used for peer-to-peer payments and for purchases, the sources said.
Investing in payments
A new cryptocurrency does seem to fit well with Facebook's growing interest in building payment features on its platforms. Facebook executives spent quite a bit of time in the company's most recent earnings call discussing payments.
Indeed, payments are expected to be a key feature for the company's new privacy-focused messaging platform -- a social network Facebook is working on that will integrate messaging across all of its services.
"So the playbook is going to be work on getting the basics right, make sure that we get safety right from the beginning," Zuckerberg said in the company's first-quarter earnings call. "In countries where we already are the leading platform, there will be more ability to work on things like payments in the near term and build in additional ways that people want to interact privately."
The private social platform that Facebook plans to roll out will "lend itself to private interactions around payments and commerce and interacting with businesses in that way," Zuckerberg added.
Of course, Zuckerberg was careful to emphasize that it doesn't expect to make money from payments in the beginning. "But for the near term, the way that we're thinking about that offering is many of these things at cost and for free as possible to deliver as much value to small businesses and businesses around the world."
It's too early to tell whether a new cryptocurrency, combined with Facebook's efforts to build out its payment technology, will morph into a catalyst for the company's bottom line over the long haul. But if these new technologies and features see wide-scale adoption on the company's platform, the initiative is at least likely to reinforce Facebook's powerful network effect.