(Pocket-lint) - Diem - formerly Libra - is a new payments system that was originally going to roll out in 2019/20. But as you'll read below it's had numerous issues with partners dropping out including PayPal, Visa and MasterCard as well as regulatory challenges.
The regulatory challenges were serious and included a lot of pushback from the US and EU - you can read full details on these at the Diem Wikipedia page should you wish.
Libra has been replaced by Diem
After the problems, Libra rebranded as Diem in late 2020 seemingly to create a new start. Partners still on board include Lyft, Spotify, Uber and Shopify.
The system wasn't necessarily designed as a replacement for current currency - instead, it's designed to bring digital payments to those who don't have them currently and create a way of doing cheaper transactions across borders.
The system is backed by Facebook, but the organisation in charge of it is actually not-for-profit, based in Switzerland with a simple rationale of providing a global currency. It says that "moving money around the world should be as easy and cheap as sending a text message". The idea being that you could basically use any app to send payments.
In mid-2020 it appeared that Libra (as it was then) wanted to create a structure housing different cryptocurrencies and had applied to the Swiss authorities for a licence.
And indeed, in 2021 the strategy behind Diem appears to have shifted towards supporting current currencies and merely making payments easier. Facebook's Libra wallet - a digital wallet just like Apple's or Google's - now appears destined to support traditional currencies rather than just Libra/Diem.
Diem withdrew the Swiss application and has applied to US regulators for a license to operate in money services. So, whatever happens, it appears Diem will be US-focused at first.
Diem says there are 1.7 billion people – 31 percent of the global adult population – who do not have access to an account at a bank, including a staggering 14 million people in the US.
There may also be new ways for web services like Uber or Spotify to pick up new users through partnerships with other founding members or from people who don't have traditional bank accounts.
There will still be some fees, but the original;l Libra organisation was talking about making money transfers much more accessible including sending money across borders "for a low fee".
What happened to many of Libra's partners?
The original list of partners included Visa, Mastercard, PayPal, eBay, Stripe, Lyft, Uber, Vodafone and Spotify. In October 2019, Visa, MasterCard, Stripe, eBay and PayPal all dropped out of being a founder member of the Association.
The trio of MasterCard, Visa and PayPal dropping out was a massive blow for Libra's prospects of success.
These companies would have had to invest at least $10 million in the foundation - essentially forming its initial cash reserves. For that cash, each of the founders could then form one of the nodes - essentially a bunch of servers - that will run the currency's transactions.
The Libra Association says the leaving founder members isn't a problem as it will be will be admitting new members soon. Libra claims over 1,500 companies are waiting to join. Apparently it would require a two-thirds majority to vote in any particular new member.
Facebook chief Mark Zuckerbergadmitted on October 2019 that regulatory concernswere causing problems for Libra. The key problem is that financial regulations are different in different territories.
Consequently, Libra's head of policy Dante Disparte was quoted in January 2020 at the Global Blockchain Business Council in Davos that the association would "rather go slow and get it right than assign a deadline to launch that keeps us from solving the problem of payments for those who need this solution most."
Facebook's digital wallet - Novi
Facebook established a standalone subsidiary which was originally called Calibra to manage its input into the Libra Association (later Diem). Calibra would basically be a digital wallet that could be used by consumers. Think of Facebook's Calibra effort as a competitor to PayPal.
Calibra was planned to have its own standalone app but you'll also be able to use it to pay people within Messenger and WhatsApp as well as - presumably - Facebook itself.
In May 2020 Calibra was rebranded as Novi, probably to reduce confusion with Libra.
While Facebook was heavily involved in the creation of the Diem Association, it doesn't appear to be a dominant one because of the way the foundation is structured. It says that after launch it will have the same voting rights as other partners.
How will it work?
Diem will reportedly let you send money to almost anyone with a smartphone "as easily and instantly as you might send a text message and at low to no cost". It also hopes to offer people more banking-style facilities like paying bills and contactless payments on public transport and in coffee shops. Apple Pay is clearly in its sights, there, as potentially are other digital-heavy banks like Monzo and Revolut.
Diem is entirely open source, so while Facebook itself is making a wallet, it should be the case that other wallets will compete with it.
As we mentioned, there are some fees - there will likely be small charges that will be paid by sellers of goods and services but they may pass them onto the consumer.
Certainly, with Facebook's security reputation at an all-time low it remains to be seen how convincing it can be on the topic. Certainly, the creation of Calibra/Novi as a separate company is designed to assuage potential criticism.
Novi will be using the same verification and anti-fraud processes that banks and credit cards use "and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behaviour". There will also be live support to help if you lose your phone or password and there will be refunds for fraudulent use of your account.