Facebook Bank,
& Trust Issues

Calibri et alBy the time my youngest is old enough to ask me what a bank is, you can bet I won’t have a concise answer. Were I to give it a stab right now, it might go something like this:

“That toy pig on your shelf, the one with a cork in its belly, that’s a bank. That building over there? That’s a bank, too. Except, a bank doesn’t need a building. Or a pig. It’s a bank if it stores or moves currency, or something that isn’t actually currency but acts like it. This app here on my phone, for instance, is a bank. So is this website. Except, they’re not banks in the physical sense. But they function like banks, so we sort-of call them banks. Or non-banks. Or fintechs … You look confused. Are you sure don’t want to ask me something that’s easier to talk about? Like, say, where babies come from?”

Likewise, I’m not sure I’ll have a ready answer for, “What’s social media?” For Exhibit A, I submit Facebook, which just announced plans to add bank to its existing definition, a place where you upload pictures of food, comment on and share articles after skimming the headline, and tell advertisers more about yourself than you realize.

I refer, of course to Facebook’s soon-to-be launched subsidiary, Calibra. According to its website, Calibra promises to be “a connected wallet for a connected world,” a “new way to save, send and spend,” and a “new currency for the world.” Moreover, Calibra promises smooth, secure, near-instant worldwide P2P, along with limited access for small merchants. 

It appears that the claims are not mere hype. Calibra may actually be and do all of these things. The secret sauce behind its speed, international capabilities, and security is its proprietary cryptocurrency Libra, which, according to the Calibra website …

… is a global cryptocurrency built on the foundation of a blockchain (the Libra Blockchain). Libra is fully backed by the Libra Reserve, a collection of currencies and other assets used as collateral for every Libra that is created, building trust in its intrinsic value. 

Money deposited in or transmitted through Calibra is converted to Libra. When withdrawn or delivered, it’s converted back. As of this writing, Calibra plans to charge “low-cost and transparent” transaction fees, “… especially if you’re sending money internationally. Calibra will cut fees to help people keep more of their money.”

According to Finextra, Facebook will “… manage the payments internally rather than relying on payment processing partners as it has done in the past.” It adds that Facebook’s global currency backers include …

… Visa, Mastercard, Paypal, PayU and Stripe; e-commerce companies eBay, Booking Holdings, Farfetch, Lyft, Mercado Pago, Spotify and Uber; telecoms companies Iliad and Vodafone; blockchain services Anchorage, Bison Trails, Coinbase and Xapo Holdings and a number of venture capital firms and NGOs. Notable absentees from the roster of backers include Google, Amazon and Apple and incumbent banks which are reportedly concerned about logistics and regulation.

Though Calibra is a Facebook subsidiary, it will operate independently. That’s smart operations and smart marketing, given recent scrutiny of Facebook regarding data collection and distribution, security, voting manipulation, and other issues. It’s also smart from a regulatory standpoint. As PYMTS.com reports:

Facebook’s Tuesday (June 18) news of the launch of its Libra cryptocurrency was heard around the world, and the Group of Seven (G7) nations definitely noticed, with the coalition calling for an investigation into the supposed risks of cryptocurrencies and how they would affect the current financial system, according to a report by The Financial Times. The G7 wants to create a working group that will investigate how to make sure that there are proper controls against the threat of money laundering with cryptocurrencies as well. Also participating in the working group will be the International Monetary Fund.

Not everyone is ready to sing Calibra’s or Libra’s praises. “It’s shady as hell,” writes deputy editor of The Verge Elizabeth Lopatto in her well-written, well-researched, enjoyably sarcastic-as-hell if not overly negative analysis. She spends some time debating whether it’s technically correct to call Libra a cryptocurrency, finally concluding, “… there is no stable definition of ‘cryptocurrency,’ so I am going to just call Libra a cryptocurrency for the sake of ease and keep it moving. If you’d like to put an asterisk on that, I can’t blame you.” Beyond that, her main concerns seem to be that Calibra will likely return a profit to Facebook (um, that’s kind of the American way), that she’s not so sure she trusts the technology, and that she doesn’t much care for Facebook founder and CEO Mark Zuckerberg. 

University of Chicago Law School professor Eric Posner isn’t terribly encouraging, either. Writing for The Atlantic, he warns, “Libra will almost exactly replicate all the problems generated by Facebook’s social network. Those problems can in turn be traced to the central paradox of Big Tech: The technological innovation that is supposed to liberate us from government ends up subjugating us to a handful of corporations.”

Yet surely Lopatto’s and Posner’s concerns have occurred to and will be looked into by the G7, not to mention by Maxine Waters, who chairs the U.S. House Committee on Financial Services and recently announced new task forces on financial technology and artificial intelligence.

Calibra will certainly have an ace up its sleeve come launch time in the form of 2.4 billion Facebook users, a number that’s likely grow between now and then. Most Facebook users appear unfazed by concerns raised by the media and the United States Congress, as shown by their continued, blithe uploading of food pictures, sharing articles after skimming the headline, and telling advertisers more about themselves than they realize. When (if) Facebook becomes a bank, there’s little reason to expect that to change.

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