The Wall Street Journal reports Facebook (FB) is talking to the likes of Visa (V) , Mastercard (MA) and First Data (FDC) to obtain about $1 billion worth of investments in its cryptocurrency project, which was first reported to be in the works back in December. The funds would help underpin the value of the cryptocurrency, which will reportedly be a stablecoin whose value is pegged to that of existing currencies.
Notably, whereas a December Bloomberg report talked about Facebook's stablecoin allowing WhatsApp users to make cross-border money transfers without incurring large fees, the WSJ's report suggests Facebook's ambitions run much deeper than just that. Mark Zuckerberg's company, which has recently begun stepping up its efforts to drive e-commerce transactions on its core app and Instagram, is reportedly talking to e-commerce firms and app developers about accepting payments made with its cryptocurrencies, and mulling the idea of "paying users fractions of a coin when they view ads, interact with other content or shop on its platform."
Lower transaction fees are one of the key potential benefits to using Facebook's coin: In theory, merchants could reduce payment fees that are often above 2%, and (as Facebook seems to be aware) it would be much easier to facilitate various microtransactions involving Facebook or a third-party developer or publisher through which a consumer either pays or is paid a tiny sum of money. And to the extent that these microtransactions include payments for ad views, they could also provide a boost to Facebook's ad business.
Other potential benefits for Facebook: Boosting consumer usage of its various apps, and (though it would have to be careful about dealing with privacy concerns) obtaining transaction data that it could use to improve ad targeting.
But there are some challenges as well. Among them: Winning the trust of consumers who might be worried about the coin's stability and security; giving consumers whose payment card loyalty programs provide cash back and/or other perks enough incentives to use the coin; convincing merchants and content providers that the coin will be popular enough to be worth supporting; and dealing with potential pushback from existing payments players that feel threatened by Facebook's effort.
The WSJ's report suggests Facebook, whose crypto effort is reportedly led by former PayPal (PYPL) chief David Marcus, is thinking seriously about such challenges. Here, the part about Facebook seeking investments from the likes of Visa, Mastercard and First Data is particularly interesting: Given that Facebook has $45 billion in cash and no debt on its balance sheet, it could easily provide the funds needed to underpin its coin on its own. But instead, it's apparently trying to get incumbents that might otherwise oppose its effort to provide the funds, and in doing so turn them into stakeholders.
One thing is clear: Facebook is thinking big when it comes to its cryptocurrency effort. And while only time will tell how successful the effort will be, the company's user base and resources, together with what has been reported about its effort to date, suggest it has a decent chance of making a splash in the payments world.