• We Can Rebuild the Broken Payments System, According to Facebook

  • According to David Marcus, head of the financial services branch, Facebook has faced unfair resistance from regulators, but the tech giant is committed to revolutionizing payment systems.

    According to David Marcus, the head of Facebook’s financial services division, the company wants a “fair shot” at rebuilding today’s broken payments system.

    Marcus wrote in a memo Wednesday about Facebook’s role in improving financial systems that Facebook Payments, which launched in 2009, has enabled more than $100 billion in payments volume. According to Marcus, the platform and Facebook’s other financial services projects have faced unfair opposition from traditional financial players and regulators, but the company is ready to be taken seriously.

    “I’ve heard variations of the argument that the payments and financial services industry should not allow Facebook to be a part of these innovations,” Marcus wrote. “I’ve overheard several conversations about how great this proposal would be if Facebook wasn’t involved.”

    The opposition Marcus mentions is primarily focused on Novi, Facebook’s planned digital wallet that would allow for quick, and often free, money transfers. The tech behemoth had planned to pair Novi with the Facebook-initiated stablecoin project Libra, but ran into regulatory issues.

    Former President Donald Trump stated in 2019 that Libra would lack “standing and dependability” and that stablecoins would never be recognized as “real” currencies. Benoit Coeure, a member of the European Central Bank’s board of directors, expressed concern in 2019 about Libra posing a threat to the US dollar’s dominance.

    According to Marcus, the opposition has positioned the tech giant, which had approximately 2.89 billion users as of the second quarter of 2021, as a dark horse.

    “The promise of a level playing field is one of the core tenets of our value system,” Marcus wrote. “The notion that any individual or company bringing a solid solution to a problem will have a fair chance.”

    Following the backlash, Facebook renamed the Libra project Diem. Diem is now governed by the Diem Association, a non-profit organization dedicated to addressing government and regulatory concerns.

    “I understand and accept the need for additional scrutiny as a result of our size,” Marcus wrote.

    The regulatory strategy

    Facebook announced a partnership with Silvergate Capital in May 2021, in which the bank holding company will be the sole issuer of the Diem USD stablecoin. According to some, the move is primarily intended to appeal to regulators.

    “Libra received a lot of pushback, and as a result, Facebook decided to say, ‘okay, we’re going to take the regulatory approach, we’re going to do everything by the book, we’re going to go get whatever state money transfer licenses we need with Novi,’” said Michael Del Grosso, research analyst at Compass Point Research and Trading. “And with Diem, rather than going to a less regulated stablecoin issuer, we’re going to go through Silvergate, a member of the Federal Reserve of California and a state-chartered bank.”

    According to Marcus, Facebook is a “challenger” in the financial payments industry. Users of the Novi wallet will be able to send and receive US dollars, Euros, and other fiat currencies for free.

    “So, why don’t you just do that and call it a day?” He put pen to paper. “Well, we could.”

    But, according to Marcus, Facebook isn’t ready to abandon the idea of incorporating stablecoins. He wrote that a closed payments system based solely on fiat currencies is “not going to cut it.”

    A secure, well-designed stablecoin that is truly backed one-to-one by fiat currency, a feature that many projects today lack, would provide consumers with greater payment protection and options, according to Marcus.

    Facebook is committed to achieving this goal while remaining compliant with regulations. According to Marcus, the Novi wallet has licenses or approvals in the majority of US states. Furthermore, he stated that the Diem stablecoin project has “addressed every legitimate concern.”

    “Change has been long overdue. It’s going to happen one way or another. Novi is prepared to enter the market,” Marcus wrote. “It is regulated, and we are confident in our operational ability to exceed the high compliance standards that will be required of us.”

    Marcus’ statement, according to Del Grosso, reflects the work Facebook has done and wants regulators to see.

    “Facebook is attempting to appease regulators by playing their game,” Del Grosso explained. “And I believe that is what David is saying in today’s post. He is claiming that they have gone out, done their research, and earned their place in the marketplace today.”

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