After months of speculation, Facebook just announced a new cryptocurrency called Libra that will launch in 2020 along with Calibra, a digital wallet for storing, spending, and sending money. Essentially, that will make Facebook the newest online bank (a booming industry already crowded with the likes of Ally, Capital One, and Discover) and an alternative mobile payment system. It seems like an odd move for a social media company, and consumers face two big questions: Why is Facebook creating a cryptocurrency, and should you trust the House That Zuckerberg Built with your financial data?

Facebook’s Case for Crypto

In its white paper, Facebook makes an ethical case for Libra and Calibra. “All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges.” Facebook promises to make banking more accessible by slashing fees, but it also spends a lot of time insisting that Libra won’t belong to Facebook — at least not entirely. The cryptocurrency will be governed by “an independent, not-for-profit membership organization, headquartered in Geneva, Switzerland” called the Libra Association. Facebook will be a member, but so will Visa, Mastercard, PayPal, and other companies.

Facebook is smart to distance itself from the cryptocurrency given its poor reputation for privacy scandals in the U.S. and Europe. But when Libra launches next year, the only way to store and spend it will be through Facebook’s digital wallet, Calibra. It’ll be integrated into Facebook Messenger, WhatsApp, and stand-alone apps for iOS and Android phones. And that’s why Facebook is becoming a bank — the “default provider” advantage.

It’s the same reason Microsoft became a web browser via Internet Explorer in the 1990s. Microsoft didn’t own the internet any more than Facebook will own Libra. But since Microsoft provided the operating system for most of America’s computers, it could control how people used it by preloading Internet Explorer as the default browser on every PC. That strategy allowed Explorer to dominate the browser market for more than a decade, until someone else came out with a worthy alternative (Google Chrome).

With Calibra, Facebook won’t just be the default way to store and spend Libra — it’ll be the only way. Alternative apps will eventually crop up, and like Google Chrome did with Internet Explorer, one of those apps may unseat Calibra at the top of the currency’s market share. But that will take time, and Facebook will always enjoy first-come, first-served status, as well as Calibra’s integration with its messaging apps.

Privacy Concerns

Facebook will make money from Calibra the same way banks do: transaction fees, merchant interchange fees, and perhaps net margin interest one day. But storing your money and your financial data with a social media company is a slightly different proposition than with an online bank like Ally. After all, Facebook has a torrid history of selling your “private” data without telling you about it. “When it comes to any type of data, whether that’s financial or personal, consumers should always proceed with caution when implementing new technologies,” personal finance expert Kelly Anne Smith told in response to the Calibra announcement. “Always read the fine print and know exactly what your rights and protections are before jumping in.”

Smith isn’t the only one advising caution. A few hours after Facebook’s announcement, Congresswoman Maxine Waters, Chairwoman of the House Financial Services Committee, asked Facebook to stop developing its cryptocurrency altogether until Congress has a chance to investigate its plans.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” Congresswoman Waters wrote in a congressional press release. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a Federal Trade Commission consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.”

In 2020, Calibra could be a world-changing innovation that makes cryptocurrency mainstream and disrupts the financial services industry. Or it could make a lukewarm debut, then go the way of the Facebook “poke.” But it’s possible that regulators will kill it before it ever gets off the ground. Whatever happens, we agree with Smith: Read the fine print before using Facebook as a bank.

The author of this story does not own stock in Facebook, nor any banks or financial services companies.

What’s Next

  • See our review of the online bank that aren’t social media companies with poor privacy track records.
  • Find out which mobile payment system works best for your needs.