Facebook Plans to Launch a Significantly Scaled-Back Libra Following Pushback

The coronavirus pandemic, which is expected to significantly damage digital ad revenue, highlights Facebook's efforts to develop payment and commerce opportunities across its apps.
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Facebook is moving ahead with Libra, its planned digital currency, albeit in a much less ambitious form. 

Libra will launch between mid-November and December of this year, the Libra Association, the currency's governing body, told reporters this week. But it will more closely resemble a typical digital payments system like PayPal  (PYPL) - Get Report than the global cryptocurrency Facebook originally proposed last year. 

Facebook shares rose 1% on Friday to $177.98.

“We’re retaining the construct of a multi-currency Libra, but it’s fundamentally changed, streamlined and simplified relative to the original one," Christian Catalini, head economist at Calibra, Facebook's digital wallet that will use Libra, told Reuters.    

In lieu of a digital coin backed by a basket of currencies, as was originally proposed, Libra will consist of "stablecoins" backed by individual currencies such as the dollar or euro. It will be offered via WhatsApp and Messenger, and serve as one means of peer-to-peer payments that Facebook is prioritizing in the coming years.

The coronavirus pandemic, which is expected to damage digital advertising revenue, suggests a new urgency to Facebook's longer term project of getting new revenue streams, such as payments, up and running.  

On Facebook's most recent earnings call, CEO Mark Zuckerberg identified  payments and commerce across all its apps -- WhatsApp, Messenger, Instagram and others -- as a critical project for the company. 

"We’re taking a number of different approaches here, ranging from people buying and selling to each other directly, to businesses setting up storefronts, to people engaging with businesses directly through messaging, and a number of things on payments ranging from using existing national systems like India’s UPI [united payments interface], to creating new global systems," Zuckerberg said in January. 

Facebook also launched a digital payments system called Facebook Pay last year. Describing the distinction between that and Libra, Zuckerberg said Libra would be "more efficient, especially for things like transferring money across borders." 

Facebook relies on advertising revenue from core Facebook as its largest source of revenue, but that segment of its business has decelerated -- and is expected to drop this quarter amid the coronavirus pandemic. 

In a press release last month, Facebook cautioned that its advertising revenue will be "adversely affected" by the pandemic, and noted that services like WhatsApp and Messenger that are seeing increased usage aren't yet being monetized. 

Facebook received strong blowback from global regulators on the original Libra proposal, which was initially described CEO Mark Zuckerberg as a new "global financial infrastructure" backed by the Libra Association, the governing body, and Calibra, Facebook's wallet. 

Several corporate participants in the project, such as Visa  (V) - Get Report and Mastercard  (MA) - Get Report, pulled out of the project after lawmakers warned they could be held liable for illegal activity using Libra. 

Libra still requires a final green light from various markets where it will be available, and Facebook has said it won't launch without without regulatory approval. 

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