Facebook’s LIBRA Highlights Inequalities For Innovators In The New Digital Economy

FinTech, Innovation, Investing | June 28, 2019 By:

Last week, Facebook announced ‘Libra Coin’, a coin managed by a private consortium that they have pitched to the world as a cryptocurrency (or something that somewhat resembles one). Facebook has heralded Libra as a panacea for value exchange, but there are a huge amount of hurdles that Facebook and its Libra consortium affiliates will have to surmount before and if Libra ever actually materializes this promise. It’s an uphill battle.

If Libra wasn’t spun out by Facebook, it is unlikely the venture would ever get a bank account to get up and running in the first place.

I welcome any development towards greater financial inclusion, it’s an area that I am passionate about, that is, to bank underbanked high-potential tech companies in the burgeoning digital economy. Access to banking services is not just the plight of the worlds 1.7 billion unbanked, many of whom Libra intends to offer financial services to, but the plight of many high-potential entrepreneurs who are turned away by legacy banks.

To start with, Libra is a direct threat to incumbents. Many of these legacy institutions have been bailed out by tax-payer funds, and as such, I believe, have a duty to act equitably, in the best interests of society at large. This would include not denying banking services to viable and promising ventures.

Facebook’s global influence and indeed financial clout will make the denial of banking services, perhaps by partners eager to maintain or attract its wider business, or that of Libra’s affiliates, less likely. What is somewhat ironic is that if Facebook was to launch as a start-up today, rather than way back in the early 00’s, it would struggle to secure a banking partner due to the general culture of risk aversion we see in global banking.

Emerging businesses in the Fintech, AI, Gaming and Blockchain space are routinely and repeatedly declined without any explanation. The reasons are clear however, firstly banks don’t want to bank an enterprise which may rise up and capture some of their market share or disrupt their business model. Secondly, these market segments are considered to small and the cost too high to modernize existing risk modelling frameworks. This means they effectively have no track record on which to base funding decisions, thus businesses and technologies are unable to reach their potential due to a procedural hurdle.

Regulators aren’t going to make the Libra roll out in any way easy

It took less than a day for regulators and lawmakers to push back on Facebook’s move into cryptocurrency. Senior US congressional finance committee members, global regulators, former lawmakers and industry insiders highlighted a litany of potential roadblocks and downsides in Facebook’s ambitions. As an established global tech powerhouse, Facebook, alongside Libra’s roster of highly resourced and influential council members, has the clout to respond to these arduous challenges with some authority. For other high potential ventures in this space, who do not share the exceptional status and affiliations enjoyed by Facebook, the challenges they face in securing a banking partner are compounded by challenges presented by the anti-competitive business environment.  Simply put, the current business landscape is not equipped to spur on the growth and advancement of the high-potential ventures that are emerging in the new digital economy.