Facebook’s announcement this morning of a new cryptocurrency, Libra, and the nonprofit association that will oversee it raises questions about the future of global banking and Facebook’s role in it. But behind Facebook’s ambitions to create a quasi-nation state ruled by mostly corporate interests is a secret weapon, one the company hopes it can use to create another platform used by billions of people — and generate enormous new revenue streams along the way.
It’s called Calibra, and it’s a new subsidiary of Facebook the company is launching to build financial services and software on top of the Libra blockchain. At first blush, Calibra resembles a fairly standard payments company — but its tight integration with Facebook’s enormous user base could give it a significant advantage over any rivals. Thanks to its proximity to the technical development of Libra, and its ability to leverage WhatsApp, Messenger, and Instagram, Calibra could very well become Facebook’s next big thing.
Calibra’s immediate goal is to develop and launch its own digital cryptocurrency wallet, and integrate that wallet into other Facebook products. The company will become a member of the nonprofit Libra Association and have equal voting power as Facebook and the other partners, which include Uber, Lyft, eBay, and PayPal, along with several other tech companies, financial service providers, venture capitalists, and fellow nonprofits. That way, Facebook can say it does not solely control the currency or the network by itself. It also gets the benefit of having twice the representation as other companies, at least for now.
Calibra is how Facebook intends to make money off Libra, a digital currency it says it does not want to control, despite having created it. More generally, it’s a massive play for Facebook to get into financial services in a way that no other technology company may be able to compete with. Think of it as the Bank of Facebook — an arm of the social network that hopes to do for loans, credit, money transfer, and commerce what its suite of apps has done for online communication.
Libra is the technology that underpins the network. But when it launches, Calibra will likely be how most people interact with the currency until competing wallets arise. In fact, it will likely be the first cryptocurrency wallet that hundreds of millions of people will have access to, by nature of being bundled with Facebook’s massive ecosystem. With billions of users potentially interacting with Calibra, it will instantaneously have many hundreds of times the user base of the world’s most popular existing wallets from Coinbase and others.
Kevin Weil, vice president of product at Calibra, says the digital wallet features will come to Facebook Messenger and WhatsApp. But Calibra will also exist as a standalone iOS and Android app for those who don’t have Facebook accounts. He describes the core function of Calibra as two-fold: holding your money securely for free, and allowing you to transfer it to anyone else on the planet for a fee many magnitudes lower than current international money transfer rates.
“For us, WhatsApp and Messenger are great homes for Libra. A couple billion people use them. But it’s not just that they use them, but how they use them,” Weil tells The Verge. “Messenger is to talk to close friends and family, and those are exactly the types of people you send money to. There’s a lot of overlap between the things you want out of a wallet for currency and the things you want out of a messaging app.”
Weil says Facebook gathered feedback about where its digital wallet should focus by monitoring how people used WhatsApp in developing countries, a prime market for Libra adoption. According to Weil, WhatsApp users would send photos of money transfer receipts to one another, and use those images to receive money across borders. But doing so is still cumbersome, time-intensive, and extraordinarily costly. “Why does it cost insane amounts of money to send money? That’s the goal,” Weil says. “We want to make sending money as easy as sending a text message.”
Of course, many Facebook users can already send money using Venmo, PayPal, or even Facebook Messenger’s built-in peer-to-peer transfer feature. But for that you need a credit card or a bank account, a financial tool not accessible to roughly 1.7 billion people. Weil says Calibra will be available to anyone with a cheap Android smartphone.
Underpinning all of this will be the security and transaction verification Facebook promises its blockchain-based Libra network will provide. There will also be a real identity component to mitigate the risks that Libra will be used to facilitate crimes. Another company could theoretically build an anonymous Libra wallet, though, so the mitigation here is primarily to Facebook’s reputation.
Weil says Calibra will require you sign up with a government-issued ID, and Facebook’s digital wallet will also provide fraud protection and a public commitment to never share your financial details or transaction history with the social network’s advertising divisions. In other words, your Facebook account data will largely be kept separate from your Calibra account.
So if Facebook can’t make money off ads targeted using your purchase history and it doesn’t want to charge people for using the app, what about transaction or transfer fees? Weil says those aren’t the primary business model, either. “We want to reduce fees for everyone. We’re not planning to charge fees for peer-to-peer [payments]. There may be low fees for merchant payments, but that’s just to cover the cost of the risk and fraud and chargebacks,” he says. “We imagine that those fees will be an order of magnitude lower, like 10 times lower, than what they are today.”
The real goal, Weil says, is to boost adoption to the point where Libra can have a vibrant financial services economy built on top of it, not just by Facebook but by any other company in the world. “You have financial services businesses like Visa and MasterCard who can drive merchant acceptance of Libra with millions of businesses around the world, and marketplaces like Uber and Lyft to make it possible to get rides and pay in Libra. And since their transaction fees are lower, maybe you even get a lower price,” Weil says. “People who might have only had cash before, you suddenly have access to a digital currency on their phone.”
Weil says one day Calibra would like to offer financial services built on top of Libra, like credit, and he says there’s no chance the company would ever cut deals with vendors to secure exclusivity for its digital wallet. “I can’t imagine a scenario in which we would want that. Calibra can only be successful when the Libra ecosystem is successful,” he says, pointing to other founding members of the Libra Association, like PayPal, that already operate digital wallets that can be updated to support Libra. “They will be friendly competition on day one and that’s something we welcome. If a vast majority of people use the Calibra wallet, that defeats the goal of the Libra ecosystem.” Weil says any company will be able to build a Libra digital wallet, and you can even host your own on private servers.
Weil says Libra becoming successful will have all sorts of positive ripple effects for all participants. “You suddenly have billions of new consumers for any online service. Businesses today that operate in cash only, if they have access to a digital currency they have access to advertising platforms, including Facebook,” he says. “There are meaningful side effects on Facebook’s business if Libra is successful.”
Leading the construction of that ecosystem is the former head of Facebook Messenger: David Marcus. As the head of Facebook’s blockchain chain division, Marcus is uniquely positioned to combine his career in digital payments with his more recent experience at the helm of a multi-billion-user communications platform that, over time, has become a do-everything app for Facebook. (Among the things it does is transfer money.)
Marcus says the concept of decentralization, when combined with digital commerce and Facebook’s massive user base, creates a perfect foundation for a new currency to take off.
“This is something I’ve been dreaming and thinking about for many, many years,” says Marcus, who got his start in tech in the 1990s when he founded an internet service provider in Geneva. He later founded a company that let you buy items online using a prepaid mobile phone plans, sold it to PayPal in 2011, and rose through the ranks until Facebook poached him to run Messenger in 2014.
Marcus says that five years ago, the technology and policy apparatus surrounding cryptocurrencies wasn’t yet mature. But he “felt the time was right back in late 2017, in December,” and Facebook CEO Mark Zuckerberg agreed. Zuckerberg tapped Marcus to run its new blockchain division in May 2018 as part of a substantial reorganization of his executive division.
“We talked about the opportunity of doing this, and I had a pretty clear vision of what I wanted to try to achieve,” Marcus says. “At first, we really wanted to explore if there was a way of leveraging existing blockchain and network [technology]. My life would be a lot easier if there was such a thing. Sadly there wasn’t.”
Marcus says Bitcoin and other cryptocurrencies will coexist with Libra. But he sees the value of Libra not in how many dollars or euros it’s worth, but in what it will be used for. “If you look at a stable, high-trust, low-volatility form of digital-native currency that would be available to anyone with a $40 smartphone and move around at very low cost,” he says, “that is going to the extremely valuable.”