Just when you thought the worst was over for our best-loved listed banks, Facebook, Inc. launches a cryptocurrency for facilitating e-commerce and loans within Facebook Messenger and its WhatsApp service.
The crypto, which is called Libra, will be stored in a digital wallet that Facebook is calling Calibra and users will be able to transfer “money” through a text. It’s not too dissimilar to PayPal and popular Chinese payment systems like AliPay and WeChat Pay that are widely used in China.
ASX stocks in the firing line
If the Facebook initiative gains popularity here, it will be a threat to our banks, including the big four Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB).
Other companies that are touted in media reports that will be negatively impacted include money foreign exchange services like OFX Group Ltd Fully Paid Ord. Shrs (ASX: OFX) and buy-now pay-later (BNPL) groups like Afterpay Touch Group Ltd (ASX: APT).
I think the banks are most at risk but I don’t think BNPL companies will be hurt by Facebook’s move unless the social media giant plans to launch its own consumer financing business. If anything, the development could present BNPL operators, including Zip Co Ltd (ASX: Z1P), new opportunities.
How Libra works
Libra uses blockchain technology that Bitcoin is based on, but it will be pegged to major fiat currencies. This means Libra’s price shouldn’t fluctuate like Bitcoin although it will offer the same benefits of low/no cost payments and transfers to just about anyone in the world.
Facebook is looking to launch the payment system in the first half of 2020, assuming it can get regulatory approval from regulators, including APRA and the RBA.
Another interesting point is that Libra isn’t owned by Facebook, although the NASDAQ-listed giant is one of the 28 founding members of the Libra Association, which includes Mastercard, Visa, PayPal, eBay and Vodafone.
This means it probably has a greater chance of success as I don’t think many would trust Facebook with their finances given its track record in protecting privacy of its social media users.
Investors shouldn’t underestimate the disruption a service like Libra could cause to traditional financial institutions. Anyone who has been to China will know the impact digital payments can have as just about everybody there uses their mobile phone to pay for goods and services (usually through the most popular messaging app WeChat with more than a billion monthly users).
While WeChat Pay doesn’t use cryptos but Yuan, this has allowed its owner Tencent to offer banking and financial services to its userbase.
It will be interesting to see if Aussies will be using Libra to pay for property like some have with Bitcoin.
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Brendon Lau owns shares of AFTERPAY T FPO, Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, and Westpac Banking. Connect with him on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.