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HIGHLIGHTS

  • Facebook introduced Calibra earlier this week.
  • Calibra is a digital wallet that holds Libra.
  • Facebook will launch Calibra in 2020.
Over a year ago, when David Marcus, the ex-boss of Facebook's messenger app, was appointed as the chief of a unique blockchain project, analysts speculated that Facebook would be coming up with a global payment system. Their speculation came true this week when Facebook unveiled its digital currency, Libra, on Tuesday to fill the gap of cryptocurrencies.
Libra aims to be ubiquitous as a payment method, more efficient with fewer costs, and more accessible to ordinary people and businesses, especially unbanked ones.
The average remittance charge to send money internationally is 7 per cent, currently, and intermediaries pocket around $50 billion for such transactions, annually. Libra may disrupt this payment system by eliminating the fees with their intermediaries and banks. Facebook's digital payment is targeting the $613 billion cross-border money transaction market.

How Libra works

Anyone can buy the currency through any wallet app that holds Libra, including Facebook's own wallet subsidiary Calibra. There will be no intermediaries or acquirer as they exist in the current payment system. The acquirer, also known as a credit card bank, is licensed as a member of a card association (like Visa or MasterCard), and creates and maintains the merchant's bank account in the existing system. Every transaction on a payment website has to sign a contract with acquiring banks. The acquirer certifies the card transactions and connects issuing banks on behalf of the merchants.
Whereas Libra cuts down on the number of intermediaries in such transactions. To simplify: It seems right now that Libra will work similar to Amazon Pay points, which can be used to purchase goods or pay for services. But it is designed for the whole world and will have a wider reach instead of being tied up within a specific website or app. Calibra is like an e-wallet, such as Paytm, but instead of holding Indian Rupees, it will hold Libra.

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