Facebook plans to launch a cryptocurrency called Libra next year as part of its wider efforts to expand beyond social networking into e-commerce and global payments.
Facebook said it has linked with 28 partners to form Libra Association, a Geneva-based entity governing its new digital coin, which it will launch in the first half of 2020, marketing materials and interviews with executives show.
The Menlo Park, California-based company has also created Calibra, a subsidiary which will offer digital wallets connected to messaging platforms Messenger and WhatsApp to save, send and spend Libras, which will be backed by government-backed assets.
Facebook is betting it can squeeze revenue out of its messaging services through transactions and payments, something already happening on Chinese social apps like WeChat.
"Combining transaction data from the Calibra app with the social data that Facebook and WhatsApp and Instagram has, that's where the treasure trove is," said Teunis Brosens, ING's lead economist for digital finance and regulation in Amsterdam.
"And that's where the questions emerge."
However, consumer privacy concerns or regulatory barriers may present significant hurdles for Facebook, whose services already boast more than a billion users.
"Given its history of managing our data, it shouldn't take much to convince people that Facebook managing our money is probably a terrible idea," Neil Campling, Head of TMT Research at Mirabaud Securities in London said in a note.
Facebook hopes to not only power transactions between established consumers and businesses around the globe, but offer some consumers access to financial services for the first time.
The name "Libra" was inspired by Roman weight measurements, the astrological sign for justice and the French word for freedom, David Marcus, a former PayPal executive who heads the project for Facebook, said.
"Freedom, justice and money, which is exactly what we're trying to do here," Marcus added.
Facebook, whose shares gained around 2% in early trading, faces a public backlash over a series of scandals, and its new venture may face opposition from privacy advocates, consumer groups, regulators and lawmakers.
Some have called for Facebook to incur penalties, or be forcibly broken up, for mishandling user data, allowing troubling material to appear on its site and not preventing Russian interference in the 2016 U.S. presidential election through a social media disinformation campaign.
Facebook has engaged with regulators in the United States and abroad about the planned cryptocurrency, company executives said. They would not specify which regulators or whether the it has applied for financial licenses anywhere.
Cryptocurrencies are largely unregulated and investors have lost hundreds of millions through hacks, while the market faces money-laundering and terrorist financing allegations.
Markus Feber, a senior German lawmaker in the European parliament, said Facebook's new coin should lead to wider regulation.
"This would be a good reason for the European Commission to start work on a proper regulatory framework governing the rules of virtual currencies" he said in a statement.
And Facebook hopes it can bring global regulators to the table by publicizing Libra, Kevin Weil, who runs product for the initiative, said.
"It gives us a basis to go and have productive conversations with regulators around the world," he said.
The Swiss financial watchdog said it was in contact with the initiators of the Libra project but declined to comment on whether it was obtaining specific regulatory permission or status.
The Bank of England said its governor Mark Carney met Facebook CEO Mark Zuckerberg earlier this year, but declined to give details, while the Bank of International Settlements in Basel, an umbrella group for central banks, declined to comment.
Bitcoin, the most well-known cryptocurrency, was created in 2008 as a way for pseudonymous users to transfer value online through encrypted digital ledgers.
Early developers believed that the world needed an alternative to traditional currencies, which are controlled by governments and central banks.
Since then, thousands of bitcoin alternatives have launched, and Facebook is just one of dozens of blue-chip companies dabbling with the underlying technology. But its status as a Silicon Valley behemoth that touches billions of people around the world has created significant buzz around Libra's potential.
Partners in the project include household names like Mastercard, Visa, Spotify, PayPal, eBay, Uber and Vodafone, as well as venture capital firms like Andreessen Horowitz.
They hope to have 100 members by Libra's launch. Each member gets one vote on substantial decisions regarding the cryptocurrency network and firms must invest at least $10 million to join. Facebook does not plan to maintain a leadership role after 2019.
Though there are no banks among the inaugural members, there have been discussions with lenders who are waiting to see how regulators and consumers respond to the project before deciding whether to join, Jorn Lambert, executive vice president for digital solutions at Mastercard, said.
The Libra Association said it plans to raise money through a private placement in the coming months.
Privacy, Regulatory Concerns
Although Libra backers were hopeful about its prospects, some said they were aware that consumer privacy concerns or regulatory barriers may prevent the project from succeeding.
Calibra will conduct compliance checks on customers who want to use Libra, using verification and anti-fraud processes that are common among banks, Facebook said.
The subsidiary will only share customer data with Facebook or external parties if it has consent, or in "limited cases" where it is necessary, Facebook said. That could include for law enforcement, public safety or general system functionality.
Transactions will cost individuals less than merchants, Facebook said, though executives declined to provide specifics.
Sri Shivananda, Paypal's chief technology officer, said the project was still in its "very, very early days", while Mastercard's Lambert said much needed to happen before launch, which could be derailed by too much regulatory pushback.