Facebook Wants to Know If You’d Trust It With Your Money

Whatever the spin, once the currency becomes available in the first half of 2020, Facebook will collect more consumer data and dig deeper into its users’ digital lives. As it continues to apologize for the many ways it’s breached people’s trust, the company is asking users to take a huge leap of faith on Libra. “Are people going to feel safe using Facebook as their digital wallet?” asks Dave Heger, an analyst at Edward Jones Investments. “When you start talking about money and the potential loss of money, I would think a lot of people would be pretty skeptical just based on the recent history that the company has had.”

Regulatory pressure on Facebook has never been greater. The Federal Trade Commission is finalizing an investigation into its privacy practices, which the company has said could lead to a fine up to $5 billion. Presidential hopefuls Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have called for investigations into the big tech companies and the power they wield over Americans’ lives. Facebook co-founder Chris Hughes has said the social network should be broken up. Reacting to the Libra announcement, Ohio Senator Sherrod Brown, the top Democrat on the U.S. Senate Committee on Banking, Housing, and Urban Affairs, said, “We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight. I’m calling on our financial watchdogs to scrutinize this closely to ensure users are protected.”

Facebook hopes to dispel the concerns, first, by keeping its social media and payments data separate. It’s created a subsidiary, Calibra, which will build and maintain the digital wallet products, including the currency, and will store users’ financial data. Calibra will know when you send money to a friend or buy a new pair of shoes, storing that information on its own proprietary servers. The social network won’t have access to that data. That separation, Marcus said, is important for building greater consumer trust and to win regulatory approval. “There needs to be a super clear demarcation,” says R.A. Farrokhnia, a professor at Columbia Business School who specializes in cryptocurrencies and financial technology. “There are very clear rules on using financial-transaction data for purposes other than facilitating a payment, and I’m sure Facebook will be held to a higher level of scrutiny given just the past history.”

The vision for Libra is global. Consumers will eventually be able to convert government-backed money into Libra through the Calibra wallet, which will exist inside WhatsApp and Facebook Messenger. The wallet will also exist as a standalone app, so you won’t need a Facebook account to access the currency. A big part of Facebook’s pitch is that Libra will even work for the billions of people around the world who don’t have a bank account. Some day, Facebook hopes, Libra will be accepted as payment by brick-and-mortar merchants.

Facebook’s second concession is that it won’t control Libra. It has joined with more than 25 companies, including PayPal Holdings, Visa, and Uber Technologies, to form the Libra Association, a governing body that will oversee the currency and manage its reserve, which will back the coin one-to-one—the reserve, composed of bank deposits and short-term government securities, will equal the of Libra on the market. The association is an effort to “level the playing field,” Marcus said. Each association member, including Facebook, will have a single vote on important decisions regarding the currency, like how and where the currency will be issued.

Marcus says he expects the Libra Association to expand to include 100 companies by the coin’s debut. Once Libra becomes available, a user will be able to spend it through other digital wallets owned by competitors including PayPal and Visa. “If this becomes a utility that many other companies build products on, that’s success,” says Christina Smedley, Calibra’s head of marketing and brand.

The real test of how this will affect privacy will come when Libra makes it to market in 2020. The Libra Association tasked with managing the coin hasn’t yet drafted a charter, which will stipulate how the currency is backed, distributed, and governed. Calibra has been in talks with regulatory bodies and central banks in numerous countries, according to Marcus. Farrokhnia says U.S. regulators, such as the Securities and Exchange Commission and the Commodity Futures Trading Commission, are watching very closely to ensure consumers will be protected. “The regulatory aspect of this should not be underestimated,” Farrokhnia says. “But Facebook is Facebook. They have a ton of resources at their disposal.”

©2019 Bloomberg L.P.