Facebook (NASDAQ:FB) finally took the wraps off its big cryptocurrency plans this week with the introduction of Libra. Libra is designed as a stablecoin, backed by a reserve of real assets to prevent volatile swings in value that often affect other cryptocurrencies. Facebook's looking to assemble a group of 100 organizations to commit $10 million each to create the billion-dollar reserve. It's at 28 so far, including its new subsidiary Calibra.
Calibra will operate separately from Facebook, and users won't have to share information between Calibra's digital wallet (and any future products from the subsidiary) and Facebook. That means Facebook won't have access to any extra data for ad targeting. So, it's not clear how it will make a profit from Libra or Calibra in the near term, but there's a lot of potential for Facebook (and others in the Libra network) to increase revenue and profits if it can drive adoption of the new virtual currency.
Here are five potential avenues for Facebook to increase its profits from Libra.
1. Attracting more businesses to the platform
The goal of the Libra currency is to enable more commerce. That's why it's designed to be a stable cryptocurrency. Transacting in volatile currencies is difficult, which is why businesses have largely shied away from accepting even the most popular cryptocurrencies like bitcoin.
Libra will provide a way for consumers without traditional banking products (like a credit or debit card) to pay for things online. In its blog post announcing Calibra, Facebook points out that half of adults around the world don't have a bank account.
Facebook will likely lead the way in making it easy for small businesses to accept Libra as payment, which could attract new businesses to its platform. And along with new businesses come new advertising dollars, which will increase Facebook's ad revenue.
2. Serving the underbanked
Calibra will provide basic banking services like the ability to save and spend money with its digital wallet, likely at no cost to the user. But Libra opens an opportunity for Facebook or its subsidiary to offer more advanced banking services for a fee.
Calibra product lead Kevin Weil suggested Facebook could use the virtual currency as a way to offer credit to businesses or individuals. On the other side of those credit contracts could be investors looking to earn interest. Facebook could take the credit risk or collect a fee for acting as a middleman.
Creating a credit product for businesses might also benefit Facebook's ad business by giving businesses more money to invest in ads.
3. Peer-to-peer payments
One of the biggest advantages of cryptocurrency is that they offer a relatively fast way to transfer money to anyone else in the world inexpensively. Most bitcoin transactions are confirmed on the blockchain within 10 minutes (although large transfers usually require multiple confirmations). By comparison, traditional bank transfers can take days for funds to become available. Even domestic wire transfers can take up to 24 hours and are expensive.
Current peer-to-peer payments apps are limited geographically. Sending money internationally is still an expensive process, and Facebook has an opportunity to massively undercut the market by using Libra. Combined with its enormous user bases for its family of apps, it has an easy path to win a share of the fast-growing digital remittance market.
4. Increasing commerce on its platforms
Facebook has taken steps to increase commerce on its various apps including things like Facebook Marketplace and Checkout on Instagram. Libra could be another path for its users to spend directly with businesses on Facebook's apps.
CEO Mark Zuckerberg said he wants to integrate the backends of its various messaging platforms to provide secure end-to-end encryption across the family of apps. One use case for integrating the messaging services is that it would make commerce on Facebook easier. Both Messenger and WhatsApp will notably integrate Libra into their user interfaces, which could be integral to Zuckerberg's integrated messaging plans.
5. In-app payments
Libra will provide smartphone users without access to traditional banking a way to make in-app purchases for games or subscriptions. The best way for those users to buy things in apps currently is with products like app store gift cards, which are susceptible to fraud and can create breakage since you can't always buy the exact amount needed. Libra is more secure and more flexible.
Facebook might be able to collect fees from developers for processing payments in Libra instead of using standard payment networks.
First things first
Facebook's first steps with Libra are to generate mass adoption. None of these potential services work without wide adoption of the virtual currency both by users and businesses. To that end, Facebook is in a strong position with its 2.7 billion unique users across its family of apps and 90 million businesses with Pages on Facebook. There's also a wide range of partners in the Libra Association that could further adopt Libra in their apps and marketplaces.
Libra will launch in the first half of 2020, and it will take some time for Facebook and the Libra Association to build up a significant user base. Needless to say, this virtual currency is definitely a long-term project for the social network.