Vodafone and French cable/mobile player Iliad are among the backers of Facebook’s latest ambitious bid to infiltrate every area of a consumer’s daily life, its Libra Network payments system.
The launch of Libra is another sign of the death of the MNOs’ old dream of dominating the mobile payments industry. Mobile money, especially in developed markets, is in the hands of the big consumer brands – Apple, PayPal and so on. Facebook has its eyes on those rivals as it goes a step further, moving from payments to its own currency, a tactic which Amazon is expected to emulate.
Facebook says it will launch its currency, and associated services, in 2020, allowing its users round the world to make online payments and other transactions at lower cost than conventional banks impose. The first product will be a digital wallet, Calibra.
More ambitiously, the Libra Association, which Facebook has built around its project, will develop Libra Blockchain and manage the Libra Reserve of Stablecoins. Unlike bitcoins though, the Stablecoins will be tied to the value of government-issued currencies – a basket of trusted currencies such as the US dollar.
It is mainly targeting unbanked people (1.7bn around the world, many but not all in developing economies). This is where the presence of Vodafone is most significant. So far, Facebook has no banks in its ecosystem (though it does have a vital partner in Mastercard, for processing, as well as other payments partners like PayPal). And Vodafone has deep experience of operating money services outside the established banking systems.
Mobile operators may have shut down their m-payments services in mature economies in the face of Android Pay and Apple Pay, but in sub-Saharan African, Vodafone’s M-Pesa service, a simple SMS-based money offering for the unbanked, has been very successful, and accounts for a large share of transactions in the countries where it is available, most notably Kenya, where it is a cornerstone of the business of Vodafone-controlled Safaricom.
The M-Pesa services list has expanded from basic payments to include savings, insurance and limited loans, and the service is now available in Kenya, Uganda, Albania, Romania, Egypt, India, Ghana, DRC, Tanzania, Mozambique and Lesotho.
Meanwhile, Iliad said in a statement: “This project of ‘Internet of money’ matches the DNA of Iliad, whose goal has always been to make digital innovations available to as many people as possible.”
While Facebook has its vast social network and WhatsApp base to tap in emerging economies, Vodafone will be a valuable partner with its established brands of trust in several large markets, and its experience of navigating the regulatory minefield which accompanies any kind of money services in many countries. The MNO could have seen Libra as a threat to M-Pesa – instead, it seems likely it will leverage its strengths in some large target markets like Kenya and India to strike a strong partnership deal with Facebook and expand its own services with the new currency.
This reflects the difficult balance that operators still need to strike with Facebook and the other webscale giants. Those companies are getting more and more involved in services that require strong, secure network connectivity, and if they don’t see that ubiquitously deployed by telcos, they will roll out networks themselves, as their experiments with shared spectrum, drones and balloons show.
But they don’t want to be telcos, with all the capex burdens, falling margins and regulation that role brings. So MNOs’ opportunity lies in providing the kind of connectivity these webscalers need, while their risk is the old dumb pipe one. It is vital that the telcos in Libra achieve a better share of the value chain, by becoming indispensable partners to Facebook, and by layering their own added value services around the payments apps.
This falls down in markets where net neutrality laws are very strict as the experience of Facebook Basics in India showed. This offering, which zero-rates a basic level of access to Facebook services to encourage uptake and mobile usage, has been an important driver of new traffic in some emerging economies like Nigeria. But in India, it was blocked on the basis that partner MNOs were favoring Facebook applications over others by pre-installing them and offering them for free.
And Facebook faces the broader risk that, by adding currency, there will be more pressure for it to be broken up because of its huge power over users’ lives and personal data. Building the broad Association (see inset) around the currency is important because, as with Open Compute Project and Telecom Infra Project, it portrays Facebook as spearheading a platform which will save cost and drive business for all – even potential competitors like PayPal.
But it also sees the social media giant gaining access to financial information, some of the most sensitive of consumer data types, and aiming to be the underlying currency for well-used services like Uber and Spotify, which are both founding members. It will have to hope that there will be less concern about the data privacy of consumers in emerging markets than if it tried to target its currency at US users.
The new initiative may, if Vodafone plays a clever hand, boost that MNO’s position in emerging market financial services, and Orange, also aiming to be a big player in banking and with many operations in Africa, could follow its lead. But overall, Libra is just another reminder that mobile payments are one of many false dawns for MNOs.
When contactless, NFC-based payments started to take off, many operators believed this would be a great way to achieve new revenues, and to infiltrate new aspects of consumers’ daily lives. Early phone-based payments schemes integrated NFC with the SIM’s identity and security mechanisms and so seemed a natural fit for MNOs to control. But when Google introduced a cloud-based way to manage and secure NFC payments, and the major smartphone brands ran away with payments relationships, that dream died along with MNOs’ hopes of outgunning the over-the-top giants in app stores, content streaming, navigation services and many other examples.
So Libra, and possible challengers from Google Android or Amazon, will be another challenging partner-or-enemy dilemma for MNOs, especially those in emerging economies. At a first glance, it looks as though Vodafone is playing a good hand, but the disruption of currency and banking will be a highly complex process, with many risks for Facebook and its partners. Operators will not be the major element in that story, but they need to formulate good strategies for seizing a role in this emerging value chain.
The Libra Association:
The Association is “an independent not-for-profit organisation, made up of trusted, geographically diverse companies, NGOs/multilaterals and academic institutions,” according to a statement.
The founding members are:
- Operators: Iliad, Vodafone
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify, Uber
- Blockchain: Anchorage, Bison Trails, Coinbase, Xapo Holdings
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Non-profit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking.