How Libra will shape the future of e-commerce
Here’s how the new Facebook cryptocurrency could change the way millions of people buy online.
To understand the reasons that led Facebook to give birth to its own cryptocurrency, we need to start from what is nowadays called the WeChat playbook, which is based on three very simple principles:
1. Make it attractive for users to bring their money into their messaging apps (or, more generally, the place where people spend most of their time).
2. Simplify the way people move their money around.
3. Create more and more reasons to make sure that money is kept within those apps, despite the ability to easily bring it back into your bank account.
At the beginning of 2014, WeChat started giving the opportunity to its users to send virtual money envelopes right inside their chats. Within a few months, millions of people started bringing their money into WeChat and, although everybody could cash out at anytime, the company quickly added more and more reasons to keep the money within the app.
Soon no one was taking their money out. Today more than 1 billion people use WeChat for daily transactions, totaling nearly $12 trillion of payments per year. In China WeChat replaced cash.
Does Facebook have the right credentials in order to replicate the WeChat playbook? Probably, it does. Here’s why:
- The compelling events that will lead users to bring their money into the Libra system are several: millions of people still need to send money cross-border and in different currencies. Although it is becoming increasingly easy to do so at a low cost, no player has been able to establish itself as a leader (excluding WeChat in China). Moreover, 1.7 billion people still remain outside the financial system with no access to a traditional bank account and therefore unable to perform digital transactions. Nevertheless, 1 billion of these own a smartphone and about half have internet access.
- Moving money around: the reason why this process will be made simple is that Libra is based on a blockchain and this prevents Facebook from becoming a traditional bank (and having to comply with the regulations of traditional financial systems)
- Make sure users leave their money in Facebook apps. At first it will not be easy: Facebook must ensure that as many merchants as possible will accept payments through its currency, as well as create a network that is broad enough to allow people to exchange cash in Libra. Disincentivizing the conversion from Libra to cash will define the success of the whole project and will avoid the most feared risk, namely that there won’t be enough reserves in US dollars to cover the amount of Libra in circulation (the new currency will be fully backed with a basket of bank deposits and treasuries from high-quality central banks).
How will Libra impact e-commerce then?
If Libra is successful, it could give access to e-commerce to 500 million people who own a smartphone and an internet connection but do not have access to the traditional banking system (the so-called unbanked). With this, the Libra system will allow them to perform digital transactions for the first time, both to exchange money on a peer-to-peer level and for online purchases.
How the payment process will work for the end user is not yet clear but we can imagine an experience similar to what happens within WeChat: once the user has decided to purchase a product, one click will suffice to confirm the transaction from his Libra wallet to that of the merchant.
On the merchant side, Libra will easily become the preferred currency for everything related to purchases and transactions taking place within Facebook products, such as Instagram check-out, Facebook Marketplace or sales that occur through messaging apps like Messenger and WhatsApp.
Just think that your Libra wallet will be a click away from the advertiser ad. This will easily lead to better conversion rates and higher returns on investment for companies betting within the Facebook ad network.
And who makes money from that, aside from the advertising company? The company selling the ad space! Facebook will probably see the advertisers investments grow significantly over time while, together with its partners, it will mature significant interests on the money deposited by its users in the real world.
How merchants will be able to collect payments in Libra?
Every business will have to join the Libra network in order to be able to receive payments through the currency. Facebook has not yet released specific information on this process but we can foresee it will be possible to create a company wallet on Libra that will allow any business to collect payments from the various channels connected to the network , especially through the main Facebook-owned messaging apps.
As customer communication is becoming moire and more fragmented, the introduction of Libra could help messaging apps to play an increasingly central role and take on email as main channel of communication between businesses and consumers.
At Callbell, where we help more than 1,500 companies communicate, support and sell through messaging apps, we are already investigating how this payment method can be integrated within our solution. In addition to facilitating customer communication through messaging app, our goal here will be to facilitate transactions between our users and their customers that take place through Messenger and WhatsApp, planning to release the integration between Callbell and Libra as soon as the documentation is made public during the first half of 2020.
There is an incredible number of companies out there that can exploit Libra’s potential and we can’t wait to find out how this technology can be leveraged to shape the future of e-commerce.
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