Is Libra the Future of Global Digital Currency

Libra’s corporate backers are backing out. Over the last two months, we’ve seen PayPal, Mastercard, Visa, eBay, and Stripe all exit the Libra Association. The ship jumping came at a particularly bad time for Mark Zuckerberg who also faced a Capitol Hill grilling in October.

While Libra is currently on the ropes with regulators, we wanted to know how consumers felt about Libra. It is still early days and basic awareness is low. But our research suggests that Facebook’s Libra is still in the fight.

When we consider trends in financial technology market research, there is a pattern. It often begins with early alarm and resistance to innovations that change the way we pay. Online banking, online shopping, online investing, peer-to-peer payments. All were once met with regulatory and consumer suspicion. And all followed a similar path to adoption. This is, in part, why we don’t think Libra should be counted out.

Insight Analysis And Consulting firm Grail Insights recently conducted a survey of 1,000 US consumers to understand awareness and perceptions of Facebook’s foray into digital currency. Not surprisingly, awareness was low, with 66% having never heard of Libra. For those over 34 years old, 72% had no awareness of Libra. Only 8% claimed to be “very familiar,” and this skewed male and under 34. This is typical of early awareness in the technology realm.

Consumers were also concerned about Facebook’s power in general, with 56% agreeing with the statement, “Facebook has too much power and should not be in the finance business,” while 28% are neutral on the issue. Given we know 71% of Americans are concerned about how Facebook handles personal information (see Grail’s study on Big Tech and the trust crisis), it’s not a surprise that there is a negative halo over Libra. How are we to trust a company with our money if we don’t trust them with our vacation snapshots?

AWARENESS BEGETS TRIAL; TRIAL BEGETS TRUST.

One way that Facebook has gained trust in the area of financial transactions is through trial. When asked their level of agreement with the statement “I trust Facebook to be a platform where I share currency,” only 17% agreed. However, when we looked only at those who had a previous financial interaction on the Facebook platform, such as buying something, 47% agreed.

This is where there’s cause for optimism. Those who have already shared currency through Facebook trust it more.

Think back to a first-time digital finance interaction with a brand. Perhaps it’s splitting a check through Venmo or a major international currency transfer through TransferWise. Often there is early apprehension. Will this work? Then we hear from our peers or a trusted source that indeed it does. So we try. And we learn that not only does it work, but it works better, offering a benefit of speed, or ease, or cost-savings. Then we come back for more.

This isn’t to say that Libra’s future is assured, but it is a caution against extrapolating too much from the current bad press. Venmo has more than 40 million users, making it a massive success in the peer-to-peer payments space. But Facebook boasts more than a billion users worldwide, and even a modest proportion of trial within that installed base could provide Libra with a massive network effect. Facebook users with prior experience using the platform for a financial transaction show openness to the Libra concept. 51% say they are comfortable with Facebook having a currency as long as it is regulated, almost double the 26% of the general population who feel the same. Men are slightly more comfortable, as are those under 34 years of age. That could well be the nucleus of early adopters for a new form of currency.

DON'T CALL IT CRYPTO

And one of the ways Facebook can make consumers more comfortable with that new form of currency is the language they use to describe it. One of Grail’s hypotheses is that the Libra brand could be heading towards a perception problem if it continues to be labeled a “cryptocurrency.”

In actuality, Libra is not the same as Bitcoin, Ethereum and other highly volatile and unregulated cryptocurrencies. If it succeeds, Libra will be regulated and will be pegged 1:1 to the US dollar. Unlike the stark fluctuations of the crypto market, Libra is designed to preserve value over time.

“Crypto” means secret or concealed. There is an unsavory association with the term. It brings to mind money laundering, drug trafficking, terrorism. That is less likely to happen with Libra since Facebook would retain a record of user transactions.

(Yes, this opens up another can of worms. Facebook would conceivably have access to your identity, your online behavior, and how you spend your money. That’s a data trifecta!)

But the point is, Facebook needs to shake the ‘crypto’ moniker. Libra should be referred to as a ‘digital currency.’ And digital currency should be referred to as the future of currency.

Interestingly, when we asked about their level of agreement with the statement, “Cryptocurrency is unsafe, whether or not Facebook is involved,” 47% agreed. We speculate that if the proposition was reframed as ‘digital currency,’ then sentiment would change.

BANKING ON THE UNBANKED

Libra’s strategy is focused largely on the unbanked. Zuckerberg made this clear in his opening remarks to Congress on October 24, “There are more than a billion people around the world who don’t have access to a bank account,” he said, “but [they] could through mobile phones if the right system existed.” US lawmakers pushed back, claiming the reason people are unbanked is that they don’t trust banks. If true, then why would they trust Facebook? Those objections betray a very US-centric position, rather than an understanding of where the vast majority of the world’s unbanked live . . . and what they need.

The world’s unbanked may see Libra differently. They may simply be looking for a safer, faster, and easier way to manage small amounts of money. Many of the billion-plus people Zuckerberg referred to who don’t have a bank account probably have or will soon have a smartphone. They are likely to interact with Facebook long before they interact with major banking brands. And therein lies a massive opportunity.

While our research did not focus on emerging markets or the unbanked, it did show that those making less than $30K are more likely to trust Facebook as a currency platform than those with higher incomes. While this finding may also be skewed by age, it’s another indication that Libra could provide an appealing alternative to the unbanked and underbanked--a deserving topic for future research.

“I ACTUALLY DON’T KNOW IF LIBRA IS GOING TO WORK” - MARK ZUCKERBERG

There’s no doubt Libra faces Herculean challenges. The CEO himself expressed reservations to Congress. If successful, Libra would be the first time that a consortium of private companies, rather than a government, formed a ‘reserve’ to back a currency. This makes governments nervous, and not just the US.

What’s happening right now is that Libra, as an idea, is already creating a race with other countries. It’s a race that Facebook would need regulatory approval to enter. Because of Libra, the Federal Reserve is contemplating its own form of central bank-backed digital currency. Countries like China and the UK are doing the same. The irony is not lost. Facebook may well be the revolutionary instigator of a global financial paradigm shift that it won’t be a part of.

Whatever happens, Zuckerberg is right. He doesn’t know if Libra will work, but then, he continues, “it’s important to try new things.”

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