Facebook's road to Libra: 2009 to 2019

June 18, 2019 3:40 PM

Facebook's Libra project didn't come from nowhere. The social network has a long history of experimenting with digital payments, and launched a separate (and ill-fated) digital currency a decade ago.

The market has changed a lot in the intervening years, but Facebook never gave up on its plans to launch a currency. It's clear that Facebook itself has changed too, and controls a lot more data and expertise than it did in its first years as a payments company.

2009: Facebook Credits

Back when Facebook launched its digital currency, Credits, in 2009, its social network had only the barest resemblance to a commerce platform. People could buy Credits at a rate of 10 for a dollar, and use them in a virtual gift shop to post images of birthday cakes and balloons on friends' timelines.

But Facebook was also a popular gaming platform (remember Farmville?) and Credits were designed to make it easier for consumers to spend money on in-app purchases. The idea was to buy Credits in bulk and spend them as microtransactions within games. Credits would also make it possible for game developers to price in-app purchases in a single currency rather than localize their pricing by geography.

2010: Credits get physical

The challenge with digital currencies has always been: How do consumers get money into the system? Facebook's solution was perhaps the most straightforward. It chose to sell Credits on physical gift cards at Target stores.

In addition to giving users a way to fund their own Facebook Credits wallets, Facebook also positioned Credits as a stocking-stuffer. Facebook was also growing as a gaming platform, making these cards more appealing to buy as a gift or for personal use.

2011: Credits get mandatory

In July 2011, Facebook decided to put its thumb on the scale to encourage adoption of Credits by making the digital currency mandatory for nearly all game developers that accept payments through the social network.

The plan was to spread this rule to other app categories down the road, but there was already developer pushback. Facebook defended its rule by saying the Credits system made it easier to spend money across its platforms by creating a single wallet accepted by all games.

2012: Facebook the payments company

When Facebook filed for its IPO in 2012, few people thought of it as a payments business. But the company already generated some $557 million, or roughly 15% of its revenue, from "payments and other fees" the prior year, according to its S-1. This was a sharp increase from the $106 million it attributed to payments and fees in 2010, and an even more dramatic spike from the $13 million it earned from payments and fees in 2009.

This payments empire wasn't built on Credits, however. By mid-2012, Facebook had already begun to phase out its digital currency.

2013: Facebook's data comes to the forefront

At this point, Facebook was starting to get on banks' radar for the wealth of data it collected on its users — and how that data could be used for determining creditworthiness or fraud risk.

Companies like Think Finance began looking at consumers' social media footprint in determining lending decisions, such as by seeing if an applicant's social activity was indicative of a real or synthetic identity. First Mariner Bank used Facebook to predict incidents of fraud and default, such as if someone began posting about trouble they had paying bills.

These observations don't replace traditional credit scoring, but they demonstrate the power Facebook's platform held for lenders and payment companies. In 2013, the Federal Financial Institutions Examination Council published social media guidance for financial services companies, and the CFPB and FTC began looking at how debt collectors used social media.

2014: Facebook hires PayPal's president

In a clear signal that Facebook was taking payments seriously, it hired PayPal President David Marcus to run its Messenger business in June 2014. At the time, however, Facebook downplayed the significance of this move.

Marcus "is just a real talented product generalist and he's done a number of different things, including in his past, he ran and built a messaging company," Facebook CEO Mark Zuckerberg said during a July 23, 2014 earnings call. "Messenger will have, over time, there will be some overlap between that and payments ... the payments piece will be a part of what will help drive the overall success and help people share with each other and interact with businesses."

But this was to be a long-term goal, Zuckerberg emphasized. "I really can't underscore this enough that we have a lot of work to do and we could take the cheap and easy approach and just try to put ads in or do payments and make some money in the short term, but we're not going to do that," he said.

That said, Facebook wasn't waiting on Marcus to test more payments technology. It added a "buy" button that July to let its online and mobile users make purchases through advertisements. But this also meant the demise of its digital gift card marketplace.

2015: Facebook adds payments to Messenger

Marcus didn't take long to turn Messenger into a payments platform. By this time, PayPal's Venmo had set the standard for combining social interaction with P2P payments, and companies like Square and Google had their own take on social P2P — as did rival P2P networks such as SnapChat.

By the end of the year, Facebook had expanded Messenger's capabilities by tying into Uber, allowing users to order a car and pay for their ride within the social network's chat app.

2016: Rise of the bots

So what could set PayPal apart in social P2P? In 2016, the answer was "bots."

Facebook added bots to its Messenger app, combining artificial intelligence with big data to streamline processes such as product search and customer service. The idea was to replace the need for consumers to download a separate mobile app when making one-off purchases.

Starting with just a few bots from CNN and 1-800-Flowers, Facebook Messenger aimed to expand its bot universe by inviting developers to create bots for other companies.

2017: PayPal joins Messenger

Despite wanting to grow its own Venmo service for P2P and B2B payments, PayPal had taken a liking to Facebook's Messenger platform. It launched a P2P service followed up by a system for businesses to send invoices over Messenger. The idea would be for small PayPal users, such as those running a garage sale, to be able to send an invoice and receive payment as part of a Messenger conversation.

This was also the year Facebook brought Messenger bots outside the U.S., but that international expansion would be short-lived; in 2019, Facebook pulled the plug on the U.K. and French versions of the service.

2018: Marcus moves to blockchain

In May 2018, Marcus left his post at Facebook Messenger to run a group charged with developing use cases for blockchain.

The move was part of a larger executive shakeup that also created units for apps and business operations. At the time, little was said publicly about Marcus' new role, but he emerged from that project in 2019 as the head of something called Calibra.

2019: Libra and Calibra

In June, Facebook finally unveiled its plans for a cryptocurrency and blockchain platform, Libra, which is set to launch in 2020.

The end goal is to treat Libra as a mainstream cryptocurrency, backed by a reserve of assets. It formed the Libra Association with partners including Mastercard, Visa, PayU, PayPal, Stripe, Visa, eBay, Lyft and Uber.

To advance its own interests in the platform — while keeping it at arm's length from the social network — Facebook launched a subsidiary called Calibra. This business line would develop use cases such as a digital wallet that will be available in Messenger, WhatsApp and as a stand-alone app.

The news drew immediate scrutiny from regulators, but with the currency not expected to launch until 2020, Facebook has plenty of time to address the concerns of skeptics. However, it must still demonstrate use cases for merchants, consumers and other stakeholders.