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Facebook, Cryptocurrency, and The Future of Mobile Commerce

It’s the beginning of a new year, and instead of focusing on the here and now of our fast paced mobile industry, I’d like to take a few steps back and look at the intimations of deeper shifts in the tech landscape.  Here’s the big idea I’d like to unpack: in 2018, Facebook began making moves toward becoming the world’s largest cryptocurrency player and building a mobile payments platform that could rival Visa as well as some day disrupt the global banking system itself.

It sounds crazy, especially in the context of 2018, arguably the worst year in Facebook’s history.  Rocked by the Cambridge Analytica data breach, the ensuing revelation of Russian disinformation during the 2016 election, the misuse of its platform in inciting violence against Rohingya Muslims in Myanmar, and a tone-deaf cover-up campaign and PR smears against George Soros, Facebook has lurched from one scandal to the next.  The cumulative blow to Facebook’s credibility has given rise to a potentially existential threat as a movement among users has started to #deletefacebook.

Amid this crisis, Facebook quietly launched an in-house start up, one focused on blockchain technology and cryptocurrency.  Last spring it was announced that David Marcus, head of Facebook Messenger and former president of PayPal, would lead this new initiative.  8 months later, the start up has hired more than 40 people, with several former key PayPal execs.    The group has been highly secretive, forcing prospective employees to sign NDAs before revealing details of the project.  When over the summer Marcus stepped down from the board of Coinbase, one of the world’s largest crypto firms, because of “conflicts of interest,” you could tell things were getting serious.

Last week, Facebook finally went public with the announcement of their first crypto product—a digital stablecoin pegged to fiat currency – to be used for remittance payments in India.   The payments will be enabled on Whatsapp, the messaging platform with over 200 million Indian users.  The strategy is compelling: India represents over 10% of the $613 billion global remittances market and lowering transaction costs and frictions while adding currently unbanked users could be a winning real-world use case.

We can also see outlines of the bigger picture taking shape.  As I’ve written in the past, Facebook suffers from “WeChat Envy:” with over 600 million WeChat Pay users and millions of vendors and service providers on its platform, WeChat has turned a messaging app into a universal mobile commerce portal.  As Connie Chan of A16Z wrote: WeChat users in China can access services to hail a taxi, order food delivery, buy movie tickets, play casual games, check in for a flight, send money to friends, access fitness tracker data, book a doctor appointment, get banking statements, pay the water bill, find geo-targeted coupons, recognize music, search for a book at the local library, meet strangers around you, follow celebrity news, read magazine articles, and even donate to charity … all in a single, integrated app.

Facebook would love to diversify from its ad-based revenue model and leverage its 2.5 billion plus installed user base into generating payment-based and transaction-based revenue.  Starting in India is a good idea as they have a huge and growing mobile enabled population, there is no major incumbent like WeChat, and international payment platforms like PayPal have less presence.

Analysts have posited where Facebook can go with a dollar based digital currency: start out with peer-to-peer payments, then drive online vendor adoption.  Ultimately, Facebook could use its coin/wallet as a “Pay with FB” option for any online vendor in the same way that Facebook Login works for identity.  Finally, like WeChat does today, the currency could be used as a seamless payment option for offline merchants via QR code scan.

Especially for those mobile-first/mobile only users in developing countries, a Facebook dollar pegged stablecoin and digital wallet would not only represent a universal mobile commerce system, but a more stable store of value than their local fiat currency.  We could even imagine how at some point Facebook could start an online bank for the digital natives in these emerging economies.

It’s a lot to accomplish, of course, and the irony is that to drive adoption of a digital currency Facebook needs the one thing that it currently has in short supply: trust.  Herein lies a potential chicken and egg dilemma: by targeting more transactional revenue driven by user utility rather than ad sales, Facebook can rebuild trust.  But it must have some trust to drive initial adoption.  This is why Facebook’s move into blockchain/cryptocurrency can be seen as playing both defense and offense at the same time.

Facebook has already reinvented itself twice, going from a single social media platform in the desktop era to an unbundled collection of mobile apps.  Becoming a mobile commerce ecosystem with its own native currency would be an amazing third act for the company.  Despite the beating it has taken this year, I wouldn’t bet against Facebook.  They have the capital, the users, and some very smart people taking on the challenge.

 


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