Fintech

Facebook’s Novi crypto wallet is here, minus its most controversial part

Without the Diem stablecoin, it's unclear why businesses and consumers will use the digital wallet.

Facebook’s David Marcus

Facebook's David Marcus says it's still committed to Diem.

Photo: Andrew Harrer/Bloomberg via Getty Images

Facebook no longer has to explain when it's rolling out its Novi cryptocurrency wallet. But the limited test it started Tuesday raises more questions than it answers.

The pilot of the wallet, available as an app in most of the U.S. and Guatemala, is meant to test core features of the product, as well as customer care and compliance, Facebook's David Marcus said in a tweet.

That's clear enough. Facebook's larger payments and crypto strategy remains opaque — especially because Diem, the stablecoin that stirred up so much controversy when Facebook first proposed it two years ago, isn't part of the pilot.

How Novi works

People with the Novi wallet can convert dollars or other fiat currency into USDP stablecoins, send those to other wallets, take money back out of the wallet in local currencies and even withdraw cash at certain locations or transfer it to a bank account, depending on where the user lives. The plan is for the Novi wallet to interoperate with other digital wallets.

The USDP stablecoin is issued by Paxos Trust Company, which is backed 1-to-1 by U.S. dollars, and regulated by the New York State Department of Financial Services. Coinbase is providing custody for storage of customers' funds.

This initial version of the Novi wallet has a limited but not insignificant market: people sending remittances between Guatemala and the U.S. Marcus noted that remittances make up 14% of Guatemala's GDP, the vast majority of which is from the U.S. The World Bank estimates that the average remittance cost out of the U.S. in 2020 was 5.1%.

Novi won't be available in Alaska, Nevada, New York or the U.S. Virgin Islands. It wasn't clear what regulatory hurdles remained in those territories.

Customer service

Novi offers customer service via chat in Spanish and English. Facebook said it is "encrypting sensitive financial information" and has "built-in protections against fraud."

One differentiator may be Novi's ability to undo transactions, which is different from how cryptocurrency transactions typically work. Coinbase, for example, says that transactions can't be "cancelled or altered" once they're initiated. It's unclear if the money in question would be sent back for unauthorized transactions or if Facebook is in some way covering the cost of undoing transactions.

Facebook isn't the first to conceive of reversible crypto transactions. Crypto firm Kirbo has a crypto "undo button" for several tokens including its own kiro token.

In traditional payments, chargeback and fraud costs are part of what's paid for by the interchange fees charged to merchants.

Business model

Facebook's wallet is designed for payments, with merchants paying lower-than-usual fees to accept Novi. As with traditional credit and debit cards, those fees fund the payments system.

"On the Novi side, it's basically to create the best possible digital wallet that will enable anyone, no matter where you are, to have access to the financial system and move money around for free," Marcus previously told Protocol's David Pierce.

But building out a payments network, as Marcus knows from his PayPal days, is not simple. It has to convince merchants, which have a wide range of options for payments processing, to use Novi.

Facebook plans to monetize Novi by providing "merchant services" with "low rates for merchants to accept payments," Marcus told David Pierce, noting that merchants pay high rates in the U.S. Facebook's plan is to offer cheaper rates, undercutting other providers. It's unclear how Facebook will manage fraud and customer service costs while keeping its fees cheaper.

If it expands Novi beyond the current limited pilot, Facebook could push its massive user base of Facebook, Instagram and WhatsApp users to try out Novi. But Facebook has a problem: It has long offered payments and free money-transfer services within Messenger, which Marcus previously ran. Those services have a not insignificant number of users. But they lack the cultural cachet of apps like PayPal's Venmo. Square's Cash App even became a popular hip hop namecheck. If no one's saying "Messenger me," is anyone going to say "Novi me"?

The crypto competition

Just as merchants have a number of payment processing options, consumers have a range of options for sending money. Remittances have historically been expensive, but World Bank data shows the cost of sending money out of the U.S. falling steadily over the past decade.

There is no mainstream crypto-based product for sending money overseas, at least in the U.S., but there are a number of consumer payment options with more on the way, many using technology to reduce costs.

If individuals want a crypto wallet, there are offerings from Coinbase and others that convert fiat to crypto and back and support a range of different cryptocurrencies and stablecoins. Some of these wallets or other services are used to send remittances internationally.

Guatemala's neighbor El Salvador, for example, offers a Chivo wallet from crypto firm Bitso that is designed to enable bitcoin transfers to and from the U.S. El Salvador is attempting to adopt bitcoin as legal tender, in part to reduce remittance costs.

"There are many better ways to transfer money or crypto than Facebook — Coinbase for one, so if as a user I know Coinbase is the custodian, I'm just going to use Coinbase," said Melody Brue, principal analyst at Moor Insights & Strategy.

Carpe Diem?

The Novi wallet will go without Diem for now — even though that was a major reason for its existence at the outset. And that makes the questions around the future of the Diem stablecoin more urgent.

Diem was once known as Libra, and the Novi wallet was originally called Calibra. Though originally conceived by Facebook, Diem is now run by a nonprofit which has a number of companies involved, Facebook among them.

Now, Diem is waiting for regulatory approval to launch in the U.S. It reportedly has switched from seeking a license in Switzerland to moving operations to the U.S., and partnered with crypto-focused bank Silvergate to launch a dollar-backed token. But the regulatory path for any stablecoin, let alone Diem with its history, is unclear.

Lawmakers summoned Marcus to testify before Congress about Libra in 2019. On Tuesday, five Democratic senators, including Banking Committee Chairman Sherrod Brown, called on Facebook to shut down Novi and "not bring Diem to market," noting that Facebook committed to not launch a digital currency without regulatory approval.

"Despite these assurances, Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, though these plans are incompatible with the actual financial regulatory landscape — not only for Diem specifically, but also for stablecoins in general," they wrote.

Regulators have concerns, too. The Federal Reserve is expected to release a much anticipated report on stablecoins, which financial officials increasingly view as a risk to the stability of the financial system: If investors start questioning the reserves behind a coin, that could prompt a run on that coin or stablecoins in general, forcing a sell-off of reserve assets which could in turn jeopardize the broader markets.

Facebook says it still supports Diem. However, since Facebook is now only one of a group of companies backing the project, it's less clear what the relationship between Novi and Diem really is and why it matters.

"I do want to be clear that our support for Diem hasn't changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live. We care about interoperability and we want to do it right," Marcus said in a tweet.

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep Reading Show less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep Reading Show less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep Reading Show less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep Reading Show less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins