This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.
It’s coming! The not-entirely-Facebook-led-cryptocurrency-formerly-known-as-Libra is coming soon!
Or is it? On August 16, The Block’s Frank Chaparro (subscription required) reported that Novi, the cryptowallet that is supposed to help people hold and spend the Facebook-backed, yet-to-launch stablecoin Diem, was trying to find another coin to work with. The reason, Chaparro said, is that Novi is running into regulatory hurdles (which would not be hugely surprising, given all the grumbling from US regulators about stablecoins lately). An unnamed source told Chaparro that the Diem Association, which is supposed to oversee the Diem payment network, is now “effectively a zombie organization.” According to Chaparro, the Diem Association has yet to begin minting Diem stablecoins, despite a triumphant announcement in May that Silvergate Capital would be the exclusive issuer and manager of the Diem coin.
On the morning of the 17th, Silvergate’s stock began to tumble, and as of August 20’s close was still down more than 9% from where it was before Block’s story published. (Still, FIN can’t find a mainstream media outlet that’s confirmed the story, or even picked it up.) On August 18, Novi’s head David Marcus published a long, earnest defense of Diem and Novi, promising that everything is fine:
Novi is ready to come to market. It’s regulated, and we’re confident in our operational ability to exceed the high standards of compliance that will be demanded of us. We feel that it’s unreasonable to delay delivering the benefits of cheaper, interoperable, more accessible digital payments.
Marcus is a credible person who has been with the Facebook currency efforts from the beginning; for the moment most people are taking his word that Diem/Novi will launch soon, presumably before the end of the year. Whether it will have much impact is another question.
The whole Diem exercise highlights a curious aspect of the West’s current heated attempts to build a “superapp”, as well as a financial path for Facebook that might have been, but wasn’t. Accept for the sake of argument that masses of customers want to consolidate the money-connected (and other) services they currently use on their phone into a single one-stop app. Then think about the mobile “banking” landscape, say, five or ten years ago. PayPal, not exactly a bank, was around and a market leader; Square, Stripe and Zelle were nascent, as were loan companies like SoFi; big national banks were putting out primitive apps. But no single financial company was anywhere near dominating the space to a point where you would put down your digital chips and say “Yeah, that’s the financial superapp of the future.”
Instead, the thinking in the earlier part of this century was: don’t build a financial app and draw users to it—better to build a financial app on top of where users already are—which means Facebook.
Recently FIN interviewed Zor Gorelov, the cofounder and CEO of Kasisto, a New York-based software company that creates interactive financial services. The firm recently announced a $15 million Series C fundraising round; NCR is both a strategic partner and an investor.
Gorelov recalled that not long ago, many of the biggest financial players looked to Facebook Messenger as a banking and payments platform. In 2016, for example, TechCrunch excitedly reported that
MasterCard account holders will soon be able to check on their accounts, track their spending, review past purchases and more right in Facebook Messenger. That’s right – MasterCard is the latest company to embrace Facebook’s chatbot platform as a new means of interacting with its customers in an automated, but A.I.-enhanced way.
As recently as 2017, Citigroup launched a Facebook Messenger chatbot pilot in Singapore; American Express and PayPal also wanted to join the Facebook Messenger financial space. Gorelov can easily rattle off these examples because Kasisto was involved in most of them. With Facebook’s billions of users, it’s not hard to see the appeal.
And yet, do you know anyone who currently uses Facebook for payments or banking? True, Marcus’s blog post is quick to remind us, Facebook is still a player in the payments space, with $100 billion in payments volume conducted over the last four quarters. (A good chunk of that is presumably through WhatsApp, which is a bigger player in many of the largest non-US markets; in May, for example, WhatsApp relaunched its money transfer program in Brazil, after the central bank for a time had banned it.) Even so, fees from payments make up less than 3% of Facebook’s overall revenue.
Why did Facebook’s financial platform plans slow down to a crawl? Gorelov has a simple explanation: “But then Cambridge Analytica happened and all the banks very quickly walked away.”
It’s a fascinating connection that’s not often seen: Facebook was arguably on a trajectory in the financial space to create the first non-Chinese superapp. But more than any other service, handling people’s money requires customer trust, and the Cambridge Analytica scandal shattered Facebook’s trust. Perhaps Diem can help restore that, but it’s an uphill climb.
This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.