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Facebook in Active Dialogue With CFTC Over Digital Payments

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Per Reuters that quoted a Financial Times (FT) article, Facebook (FB - Free Report) is in active discussions with the U.S. derivatives regulator regarding its “crypto stablecoin initiative.”

Notably, the company plans to launch its own digital currency, which is internally called GlobalCoin, per CoinDesk.

Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), noted that the talks are in initial stages and they are still deciding whether Facebook’s crypto stablecoin will fall under their purview.

Facebook, Inc. Revenue (TTM)

Facebook, Inc. Revenue (TTM)

Facebook, Inc. revenue-ttm | Facebook, Inc. Quote

Additionally, Giancarlo stated that if the company’s digital coin is pegged against a standard currency like the U.S. dollar, there might be lower chances for the digital currency to be monitored by the derivatives regulator.

Reportedly, Facebook is also in talks with other regulators and banks to understand the operational issues and limitations with the currency.

Facebook’s Foray into Digital Currency

Facebook’s digital currency is likely to allow users, even those who do not have bank accounts, to easily and securely send and receive payments preferably at low cost.

The company is designing currency that will be suitable for its family of applications — WhatsApp, Instagram and Facebook Messenger, per CoinDesk.

Moreover, a recent BBC report stated that Facebook may start testing its digital currency by the end of 2019 and is likely to launch its digital payments system in a few countries by first-quarter 2020.

Notably, the company is already in talks with banks and payments firms including Western Union (WU - Free Report) and Visa (V - Free Report) to allow for exchange of dollars and other international currencies to its digital coins.

Further, Facebook is looking to get e-commerce firms accept its digital currency in exchange for their products and services. Per BBC, Facebook inking deals with online merchants and agreeing to charge low transaction fees. This may also boost Instagram’s e-commerce feature.

Facebook is enhancing its focus on payments services apart from its core ad business, a model similar to Tencent’s (TCEHY - Free Report) WeChat.

The Downsides

Facebook over the past few months has received flak for its user data handling practices. From the Cambridge Analytica scandal to exposing users’ photos to outside developers, the company was in a bad state.

Additionally, Facebook has been fined by a number of regulators and is required to follow new regulations like General Data Protection Regulation (GDPR), aimed at protecting user data.

Therefore, amid ongoing data privacy issues, users may be skeptical to use Facebook’s digital currency. Underperformance of the company’s new initiatives given the high investments may hurt profits.

Facebook currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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