This week, Facebook joined Amazon, Apple and other big tech names as the race to implement a truly global digital currency and win over the unbanked population is heating up. Facebook’s success — or dominance in the crypto space — is far from a certainty.
While Facebook’s 2.4 billion strong global network gives it a reach like no other company on the globe, its proposed crypto offering is a laggard compared with systems that have been in place for years at Amazon and Apple. Those companies also don’t face the privacy and other concerns that consistently hound Facebook.
Facebook may face skeptical regulatory bodies, because of privacy issues, as it tries to implement its crypto plan. Amazon is more credible than Facebook and may not have similar problems with regulators, says David Garrity, a co-founder of blockchain consulting firm BTblock. “Facebook doesn’t play by the rules, while Amazon doesn’t have that regulatory problem.”
Last week the online retailer started a secured credit card with Synchrony Bank called Credit Builder, with no annual fees, a refundable security deposit and perks like 5% cash back on purchases.
With 11% of Americans having a 550 credit score according to a 2018 FICO survey, Amazon claims to primarily aim at customers with bad or no credit history.
Just as Facebook has faced U.S. government pushback for Libra, Amazon, too has been criticized for its financial moves. Independent U.S. Sen. Bernie Sanders of Vermont and N.Y. Democratic Rep. Alexandria Ocasio-Cortez have both targeted Amazon’s new credit card for its 28% interest rates, and are seeking to outlaw the card.
“This kind of greed makes the poor even poorer and @AOC and I intend to outlaw it” Sanders tweeted on June 12th, while Ocasio-Cortez tweeted that it was “debt trap for working people and it has to end.
Garrity disagrees with the lawmakers’, and sees the new card helping consumers build their credit.
“What Amazon is doing in this area is not predatory,” says Garrity. “They realize they have customers with high credit scores and are reaching to those who can’t purchase on Amazon.”
Amazon has also raised speculation it may move into cryptocurrencies, though officials denied the interest. Nearly two years ago it registered domains AmazonEthereum.com, AmazonCryptocurrency.com, and AmazonCryptocurrencies.com.
“Amazon may be able to find success in the digital banking sphere earlier than Facebook because of its understanding of consumers, technological advancements, and less regulatory hurdles,” says Garrity. “Amazon has greater consumer insights than Facebook given its multiple consumer-facing franchises that actually involve consumer spending as opposed to just attention engagement like Facebook.”
Apple raised eyebrows with its own steps into digital banking.
Having already a well-established mobile payment and digital wallet available for IPhone users, Apple Pay, the company announced the iPhone CryptoKit at the Worldwide Developers Conference on June 5th. Apple says CryptoKit allows users to perform common cryptographic operations.
Facebook’s promise of all sorts of social good flowing from the Libra system — bringing banking to poor people without access to the global finance system, privacy protection — may not be enough to damp regulatory skepticism. Regulators will “take a long time approving this,” Garrity said.
“Facebook has proven to not go by the rules with their privacy scandals and not abide by regulations. Until those risks are addressed, how will regulators will be able to trust that Facebook will be compliant?” Garrity says.
While Facebook has clearly taken a bold step towards digital currency, which can potentially reach out to more than 2 billion users, other tech companies are also competing to enter the financial banking world, and may even be closer to reaching their goals.
Amazon has taken its own e-commerce market steps, as Facebook promises a secure blockchain-based payment system designed for mainstream users, with the creation of Calibra, ensuring “the separation between social and financial data,” as a digital wallet to pay and send money using Libra.
Having the support to create a “secure, scalable, and reliable” system from big corporate partners like Mastercard, PayPal Holdings, and tech giants like Uber and Spotify, Facebook claims to be trying to provide financial services to half of the adults in the world that don’t have active banking accounts.
According to Garrity, these partner companies had a relatively insignificant investment of $10 million and so “I consider more as if they are purchasing an option, know that they may not need to make the investment if the regulatory approval for Libra is not forthcoming.:
While the company’s announcement yesterday brought attention to a mainstream digital currency, Facebook may not be the tech company closest to putting its foot into the digital banking space.