24th June, 2019
Last week, Facebook announced that it will be revolutionising the way people make payments over the internet with Libra Coin – sending the entire tech world into a frenzy. Here’s the run down.
After a couple of years since the massive cryptocurrency hype, Facebook’s CEO Mark Zuckerberg announced that the fifteen-year-old social media giant was turning to blockchain technology in an attempt to revolutionise the way people make payments over the internet.
Whether it’s sending money to a friend or paying for goods and services, the traditional methods of payment are famously slow and expensive.
But since the concept of blockchain technology surfaced, there has been speculation this mysterious technology would eventually replace more dated methods of payment with cheap, seamless processes.
While many businesses are already using this technology, crypto is yet to become a mainstream method of payment.
After Zuckerberg’s announcement, it seems this transformative tech may finally hit the mainstream market – in a very big way.
But before we take a look at how this exciting venture is going to work and the way SMEs are likely to benefit from it, let’s take a step back and understand what cryptocurrency actually is.
To put it simply, if AUD is the currency of Australia, and NZD is the currency of New Zealand, then crypto is the currency of the internet.
The various cryptocurrencies (Bitcoin, Ethereum, Litecoin and so on) are essentially digital assets that people have developed, which have generated significant value over time.
Cryptocurrencies are formed using a technology called ‘the blockchain’, which is a decentralised database or ledger that uses the internet to record transactions in a transparent and autonomous way – heavily reducing the risk of error or fraud.
While the blockchain is known for its use in financial transactions made over the internet (in other words, fintech), its use casts a wide net across many other industries and has been used in both the public and private sectors.
READ: Blockchain: Not just about fintech
Notorious for its volatility and technological complexity, the crypto and blockchain space has always been somewhat of a question mark for the average layperson.
But assuming Facebook’s new venture takes off, using this technology will likely become as seamless as sending a text message to a friend.
Now that we’ve (kind of) got a grasp on what cryptocurrency and blockchain actually means, let’s chat about Facebook’s new currency: Libra.
Libra is being developed so people can transfer money over the internet in a simple, powerful and non-expensive manner. The coin is set to allow people to make instant payments with almost zero fees and will be integrated into many other mobile applications.
For instance, people will be able to make instant payments to friends and service providers through apps like WhatsApp and Facebook messenger.
While Facebook is the company spearheading the development of this new payment method, this project is being rolled out by a consortium of 26 other large-scale tech companies (including Uber, PayPal and Spotify).
According to TechCrunch, Facebook intends on bringing on another 70 such companies before its launch in the first half of 2020.
Aside from the obvious benefits that everyone stands to enjoy from the rollout of this exciting technology, startups and SMEs are likely to derive three particularly rewarding benefits above everyone else.
Whether you’re looking for funding from a local family member or an overseas investor, raising capital is normally a slow and expensive process.
Factoring in the time it takes for money to actually hit the account, foreign exchange rates and other associated fees, actually receiving capital is never as simple as it sounds.
Once Libra launches, this will all change. Early stage businesses will be able to access their capital quickly and seamlessly, allowing them to accelerate their growth rapidly.
Regardless of the payment platform you use, there is always a fee. Because of this, service prices need to be increased in order to factor in those fees.
With Libra’s promise for a payment process with nearly zero fees, SMEs will be able to charge less for their services, which will in turn help them compete in larger markets.
These days, everyone wants everything done instantly.
But SMEs are often faced with the conundrum of wanting to pull the trigger right away but being unable to get started until they receive (at least some) payment.
With the release of Libra, this whole issue disappears. Once the instant payment is made, the small business can get started on the service right away – allowing SMEs to keep up with the fast servicing pace of bigger businesses.
Putting all the hype aside, as this payments revolution continues to gain traction, it is likely to come under a large amount of scrutiny from the various regulatory bodies in the countries where it will be used.
The Australian Securities and Investment Commission (ASIC) together with the Australian Transaction Reports and Analysis Centre (AUSTRAC) have already expressed concern about Libra. And, as the excitement grows, so will the concern.
How will the regulators deal with this transformation? Only time will tell.
One way or another, the global fintech sector is certainly up for an exciting few months ahead, with Libra promising to announce some of the biggest technological advances in history.