It will spend $US39 billion on research and development in the three years to December 2021, according to Morgan Stanley analyst Brian Nowak. It can afford to build a global platform for its own digital currency.

But it is worth asking the following question: What problem is Facebook seeking to solve in a country like Australia?

Australians are some of the fastest adopters of new technology in the world. This has made our financial institutions aware of the need to offer world-leading technology payments to customers.

The four major banks have invested billions over the years in the payments system to connect merchants to consumers. This has occurred with the encouragement of the Reserve Bank of Australia’s Payments System Board.

The RBA has used a combination of regulatory suasion and industry collaboration to speed up the development and rollout of the New Payments Platform, which will make real-time payment services for consumers, businesses and government agencies ubiquitous.

Facebook co-founder and CEO Mark Zuckerberg could change the face of international payments, or not. 

Banks have embraced a range of digital banking services and, in most cases, offer real time payments on a national basis at minimal cost to consumers. Customers can choose a range of payment technologies including Apple Pay, Samsung Pay, Alipay, Afterpay.

It is true that various parties still clip the ticket on transactions with the biggest fee take going to two of the prominent backers of Facebook’s Libra currency, Visa and Mastercard. These two companies are obviously trying to protect the interchange commissions they collect as middlemen in the system.

Advanced payment systems

Australians have the advantage of one of the world’s most advanced payment systems. They can conduct their business in Australian dollars and without the need to buy a privately owned currency.

Facebook conveniently ignored reference to China in the digital currency documents published this week even though China is home to the world’s most advanced and innovative payments system.

If there is a threat to financial institutions from disruptive new payments technologies it is just as likely to come from Chinese giants Alibaba, Tencent, Ping An and Baidu as it is from Facebook.

Thanks to high barriers to entry and sympathetic regulators these Chinese companies have built ecosystems that have allowed consumers to leapfrog the use of credit cards and go straight to smartphone-based payments, according to a study published this week on disintermediation in banking and finance by McKinsey & Co.

The 50-page McKinsey report highlighted the huge gap in cost-efficiency between banks in digitally advanced economies such as Australia and Denmark and those in the United States and India. McKinsey’s examined the cost-to-asset ratio and market share of 3000 banks and found Australia and Denmark have cost-to-asset ratios of about 100 basis points whereas the US is about 300 basis points.

McKinsey says technology companies such as Amazon are already disrupting traditional payment models with a credit card issued in partnership with JPMorgan with no annual fee, no foreign transaction fees and no earning cap or expiration of loyalty points. Amazon also offers Amazon Cash which allows customers to add cash to their accounts by making payments at partner retailers.

Less blockchain, more asset-backed security

Facebook published technical details of its currency platform in a paper titled “The Libra Blockchain”. But when you boil it down, the currency at the core of the Facebook plan is less like a blockchain and more akin to an asset-backed security.

One expert in blockchain said the Facebook currency was similar to an exchange-traded fund, which buys assets in response to demand and sells them when demand falls away.

Those seeking to game the Facebook currency will no doubt be pleased to see the new currency has features similar to those in securities markets and is vulnerable to foreign exchange risk. It is unlikely any Australian business, large or small, would be brave enough to deal in international markets using a currency that is exposed to forex market risk.

In other words, there will have to be value-added services and these will have to be paid for by someone. Facebook, which was co-founded by Mark Zuckerberg, became a $538 billion global tech giant thanks to the willingness of users to trade off their privacy to advertisers in return for access to a social network of 2.4 billion people.

It is possible the Australian users will be willing to trade off the security and certainty of using their national currency for the ability to buy goods using tokens issued by a company that pays little or no tax here.


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