Facebook Building Cryptocurrency-Based Payments System
Social-media giant is recruiting financial firms, merchants to help launch payments platform. Facebook Building Cryptocurrency-Based Payments System
Facebook Inc. is recruiting dozens of financial firms and online merchants to help launch a cryptocurrency-based payments system on the back of its gigantic social network.
The effort, should it succeed, threatens to upend the traditional, lucrative plumbing of e-commerce and would likely be the most mainstream application yet of cryptocurrency. It comes as the social-media giant is under intense pressure from regulators, users and shareholders to address privacy shortcomings.
At the heart of the initiative, under way for more than a year and code-named Project Libra, is a digital coin that its users could send to each other and use to make purchases both on Facebook and across the internet, according to people familiar with the matter.
Facebook’s secretive plans for a new payments system involve both investments from traditional financial firms and the potential for users to be rewarded for their activity on the platform.
Hurdles to the project are high. Cryptocurrencies have so far failed to catch on in payments. The existing system is full of entrenched interests and technology clogs.
And Facebook’s battered standing with users, investors and regulators make it a delicate time to plow into new territory.
Working in its favor: One-third of the world’s people log on monthly to Facebook, and they all need to buy things.
A spokeswoman for Facebook’s blockchain efforts declined to comment, referring to a previous statement that it “is exploring many different applications.”
Seeking total investments of about $1 billion, Facebook has talked to financial institutions including Visa Inc., Mastercard Inc. and payment processor First Data Corp. , the people said. The money would underpin the value of the coin to protect it from the wild price swings seen in bitcoin and other cryptocurrencies, they said.
Facebook is also talking to e-commerce companies and apps about accepting the coin, and would seek smaller financial investments from those partners, one of the people said.
Bloomberg News reported in December that Facebook was working on a digital coin that users of its WhatsApp messaging service could use to transfer money, with a focus on overseas remittances. The New York Times reported in February that the company was seeking to raise as much as $1 billion for the project.
Facebook is following rivals including Apple Inc. and Amazon.com Inc. into the financial lives of its users. Each has explored or launched major financial products in the past year, joining with traditional financial firms to manage the logistics and regulatory burdens.
Facebook aims to burrow more deeply into the lives of its users. It is building a type of checkout option that consumers could use on other websites, some of the people said. Similar to how a Facebook profile can be used to log into hundreds of websites (including The Wall Street Journal), Facebook envisions allowing those credentials to be selected as a payment method when users buy goods online.
One idea under discussion is Facebook paying users fractions of a coin when they view ads, interact with other content or shop on its platform—not unlike loyalty points accrued at retailers, some of the people said.
This would reward the kind of genuine interaction that Facebook, beset by bots and hate speech, has been trying to encourage. It could also blunt criticism that the company makes billions of dollars on the backs of its users, sometimes in troubling or invasive ways.
Creating a so-called stablecoin backed by government currency better positions it as a legitimate payment method rather than a speculative bet. The volatility of bitcoin and other cryptocurrencies that aren’t backed by hard assets has hampered their usefulness in payments.
Facebook has for years tried to crack into the payments markets, with discussions dating back to the run-up to its 2012 initial public offering. In 2014 it hired PayPal Holdings Inc. President David Marcus and has been adding engineers and products heads steeped in payments and blockchain in recent years. Facebook Building Cryptocurrency-Based
Now Facebook must bend a variety of stakeholders to its vision. Most immediately are Visa and Mastercard Inc., whose networks handle the vast majority of credit and debit card payments in the U.S.
If it succeeds, the project threatens the card networks’ dominance over global payments. Facebook comes armed with more than 1.5 billion daily users, many of them in developing countries where social-media sites provide the backbone of internet commerce.
The pitch to merchants is a break on fees, one of the people said. Facebook envisions eliminating swipe and other card processing fees that merchants pay on transactions, which are typically around 2% to 3% and are collected by banks, payments processors and networks such as Visa.
It is also working to tie online purchases more closely to ads. One idea being considered is that users could click ads to buy a product and pay with Facebook tokens, which the retailer could then recycle to pay for more ads, one person said.
Facebook rolled out a similar feature—using dollars and traditional card payments—on Instagram, which it owns, in March.
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