Influencers with Andy Serwer: David Marcus

In this episode of Influencers, Andy is joined by David Marcus, Head of Facebook's F2, as they discuss the launch of the Novi wallet and Facebook’s role in the future of money.

Video transcript

Built on blockchain technology, Facebook's Novi is being hailed as the next generation of digital wallet designed to send and receive secure payments within a matter of seconds. Leading the charge for Facebook's foray into digital currencies is David Marcus, head of Facebook Financial and an online payments pioneer from the early days of the dot com era.

In this episode of Influencers, I'm joined by David Marcus as we discuss the launch of the Novi wallet and Facebook's role in the future of money.

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Hello, everyone. I'm Andy Serwer and this is Influencers. And welcome to our guest, David Marcus, head of F2, also known as Facebook Financial. David, nice to see you.

DAVID MARCUS: Thanks for having me.

ANDY SERWER: So I want to ask you about Novi, which is a digital wallet that Facebook has. How is it different from other digital payment systems, I guess, offered by companies like Venmo or by your former business, PayPal.

DAVID MARCUS: So both of these products are very near and dear to my heart for for having spent time on them. The biggest difference is really the fact that Novi is a next generation digital wallet that is built on new payments infrastructure, ideally with Diem which was formerly known as Libra, which basically serves, if you will, as a protocol for money on the internet. And the biggest difference is actually the fact that these wallets that will be built on top of this infrastructure, including Novi, the Facebook upcoming wallet will enable people to move money around different wallets. So you'll have interoperability.

Today, most wallets are a little bit like older communication systems that weren't interoperable before email. And we're a little bit in a world as if you were using Gmail, and you couldn't send an email to Yahoo Mail, which would be odd in these days. But that's true for money and wallets today. So Novi will be interoperable.

And also, while it will enable people to send money domestically for free and really conveniently, it will also focus intently on cross-border payments and international payments.

ANDY SERWER: That interoperability is a big focus today with, say, the metaverse, which is an interesting concept as well. One focus of Novi is, in my understanding, to provide financial services for the unbanked worldwide. Why will Novi reach them where others have not?

DAVID MARCUS: So, I think we need a paradigm shift in our current payments infrastructure. When you come to think about it, it hasn't evolved all that much in the last 50 years. About 70% of our total payment volume in terms of value goes on top of ECH, which are rails that were built in the early 70s and take about three days to clear.

And the current system is tilted in such a way that for the people who need it the most, they're actually charged the most. And so, we're thinking that new infrastructure, the same way it actually played out in communications when you come to think about it, will actually help lower the cost and the barrier of entry for many, many people, $1.7 billion people, currently who are completely unbanked and another billion who are underserved by financial services.

And if I may just elaborate on that parallel with communications, we used to spend $1 a minute for an international call and $0.15 to $0.25 per text message. And with the internet and over the top apps, among which WhatsApp and Messenger were big players and still are big players in the space, we were able to completely change the game. And now, with a $25 smartphone, you have access to unlimited high fidelity communications. And that was a privilege that was reserved to the more wealthy of us back in the day. And I think we can help do the same thing for money.

ANDY SERWER: You said you plan to release Novi, what, late this year or early next year? Do you have a target date? How many countries will it be available in? And and what payment features will users get immediately?

DAVID MARCUS: So we're planning to launch this half, so before the end of this year or 2021. And in initial, less than a handful of countries, and then gradually, go from there. We want to be very deliberate in the way that we scale the product, because we're also very cognizant that in some of these regions there are lots of local integrations that need to be built notably for cash out and cash in locations. Because if you're the recipient of a cross-border payment, you often don't have a bank account on the receiving end. And so, you need to make sure that you can actually physically go to a local cash out point and get your cash out immediately.

Or use it with other people who will be on the network in your country, which is also why interoperability, by the way, is so important. Because we can't pretend or think that we're going to have the ability to build the best wallet for everyone. We're going to build a very good wallet where we know the market really well. And our hope is that, over time, you have a lot of local players that will build much better experiences than we can ever build in some parts of the world. And we want to make sure that customers on Novi are able to send and receive money with these other wallets.

ANDY SERWER: Do we have to ask you, has Mark Zuckerberg been very involved with Novi? How often do you talk to him about this project?

DAVID MARCUS: Oh, we talk regularly about this. And it's definitely a project that's important to him. And I feel that it's important for the company at this time. I think we can help be a solution to long-standing problems that many, many people have experienced for a very long time. And that's why we're all so passionate about this mission and about our ability to bring a really good solution to the issues.

DAVID MARCUS: And I mentioned the metaverse earlier, and I know Mark is very keen on that concept for the company, can Novi, is Novi connected to the metaverse, somehow?

DAVID MARCUS: Well, in a way, yes. Because in the metaverse, and actually, it's a very helpful way to think about future-proofing our products, by the way. But when you think about the metaverse, you think about a digital-only world.

And when you think about a digital-only world or environment, then you can actually completely get rid of antiquated infrastructure and concepts that have no reason to exist in a digital-only world. And that's very helpful, because it helps you think from a blank sheet of paper. And I think when you start to think about how payments should be invented for a world that was fully digital, it would look very different than the current world where you have to actually walk to a branch to do a wire transfer or cut paper checks.

And a world like this will need a protocol for money, will need interoperability, not only for the world itself or the environment itself, but also for the wallets. And it will require smart contract programming language and programmable money, because it'll enable creators to build all kinds of new monetization models that will be great for them and really great for consumers.

And so, we believe that we can be an enabling part of the vision for the metaverse. And while building for that, also building the right product and sets of experiences for the very people who are on those $25 smartphones right now and who probably won't experience the metaverse for a little while. But they will get the benefits of lower cost and more accessibility for payments and storing their money digitally.

ANDY SERWER: Fascinating. As you can tell, I love talking about the metaverse or asking you about it, I should say there. So listen, you secure licenses and approvals for Novi from nearly every state. But approval, to my mind, remains murky with federal regulators. Will you launch Novi with or without a specific green light from the feds?

DAVID MARCUS: So, actually, that's actually not correct. So Novi is a wallet that requires the proper licensing in every state as a money transmitter.

And in some states, they just don't have that framework. But in most states they do. And that's it, basically. And so from that standpoint, we're ready to go.

On the Diem side, they're also working on their end. And as just a, for the audience, Diem was originally called Libra. It's now an independent association made of 26 companies of which Novi slash Facebook is one. And I sit on the board. But it's an independent organization now.

And what they're looking to do is roll out the network and a new stablecoin. And as you know, stablecoins are now bounty. There are a number of stablecoins out there. And they have different properties.

We believe that in terms of consumer protections, both on the purpose-built payments blockchain that Diem is and on the stablecoin itself, that it's in a class of its own. And so we'd like to launch with that. And you should talk to them to see where they are with their approvals.

But as far as Novi is concerned, we've got all of the licensing requirements. And we're ready to go.

ANDY SERWER: OK. So, the licensing I was referring to, that needs more federal regulatory approval would be with Diem. But not with Novi?

DAVID MARCUS: Well, I think you should talk to them about the licensing regime that they're seeking. And I think the reality is, in both cases, those two parts of this equation to make it really work well for consumers and businesses alike are definitely not going to launch without the proper regulatory framework. And those things need to be regulated appropriately. And we believe in that both for Novi and for any stablecoin that we would support.

ANDY SERWER: Got it. And just for people watching and listening, it's Diem. D-I-E-M. Not--

DAVID MARCUS: Yes, like carpe diem.

ANDY SERWER: Some people were confusing like, DM. I'm DM-ing you.

DAVID MARCUS: Well.

ANDY SERWER: Right.

DAVID MARCUS: Not necessarily a bad analogy to me. Right.

ANDY SERWER: There you go. Yeah. So Axios reported that you were in Washington DC last week meeting with regulatory stakeholders. So have you spoken with, say, Treasury Secretary Janet Yellen, SEC Commissioner Gensler or other top lawmakers like, say, Elizabeth Warren? And if so, what did you guys talk about?

DAVID MARCUS: So I'm not going to be specific with the meetings we've had. Because those were private meetings that we've had with a number of regulators. But it's been a while for me, I think. We've basically focused on the work for the last 18 months or so and building the best possible digital wallet out there, and building all of the operational readiness that is actually required both from a customer service standpoint, and from a compliance and regulatory standpoint in terms of our readiness to meet or exceed these standards on the Novi side.

And it's been a while. And it felt like it was the right time. And this all started with this medium piece that I put out two weeks ago now. And basically, restating our ambitions and our motivations. And I think if I could redo one thing, is really to state our motivations-- where we're going to make money. Because I think in the absence of explaining where our business model basically, we had left a vacuum for people to interpret all kinds of different things that ended up not being true.

And so, being out there and explaining exactly how we're going to build a business on top of this keeping still absolutely free transactions for consumers, whether for domestic or cross-border transactions, was an important part of the conversation. And also, just to check in with regulators more generally about where we are on this journey and where the market is headed.

ANDY SERWER: Well, let's talk about that revenue piece a little bit, David. Because you said you didn't expect to get revenue from Novi until 2023. So do you expect to be a revenue generator after that and how?

DAVID MARCUS: So, when I mentioned it was not going to be a revenue generator until 2023, I meant that in terms of the scale of Facebook for something to register, it takes quite a bit of work. And so I don't expect the Novi or payments revenues in general at Facebook to be meaningful until at least 2023, which is basically the time it'll take to start building the merchant services side of the house and really enable merchants to accept digital payments at a lower cost than what they're currently paying.

And doing so with more flexibility as well. Because I think that a great deal of innovation will come from a protocol for money on the internet and programmable money and next generation of digital wallets like Novi but many others as well.

ANDY SERWER: Well, it's ahead of F2. Do you expect Facebook to get into the business of loans and deposits and other traditional banking services?

DAVID MARCUS: So, not directly. So in other words, and I also think that when the market is talking about stablecoins, it's also talking a lot about a used case that I don't think is going to be very big, because we're talking about deposits. And people typically, certainly I do, and I'm sure you do as well, we like to earn interest on our deposits. And stablecoins typically don't pay interest, at least those that are fully backed with a reserve that doesn't allow them to actually pay interest.

And so, my expectation is that banks will still be the primary deposit holders. And those who are actually forward leaning and will integrate with the likes of Diem or new protocols for money on the internet will actually be able to not only retain that role but expand from there.

And I think from our standpoint, we're really focused narrowly, as a first step at least, on payments and enabling more people to have access to a modern payment network and a modern wallet. But I think over time, we might develop into other lines of businesses. But most likely in partnerships with existing banking institutions and financial services providers rather than doing these things first party.

ANDY SERWER: David, you know that consumers are going to be potentially worried about security and privacy. How do you convince them that Novi will be safe? And also, what are Facebook's plans with using data from payments?

DAVID MARCUS: So, I want to be super clear on this. So, no data that will be used at Novi can or will be used for ad targeting, or for any purposes around the ad model. And basically, the way that we've designed this, and it actually took us a lot of effort to build it the right way, is that your financial data is not going to be commingled with your social data. And I feel that people really want that.

And it's an important commitment that we need to make and uphold over a long period of time for people to actually trust us over time. And I think that when we look at the used case that we're solving right now and we're focused on, the next best thing is so much worse than I think what we'll bring with Novi that I think, at least for people who need to send money abroad, they'll give us a shot. And then, with that shot that we plan to honor really, really well, over time, we plan to earn people's trust. So, they give us a shot for other things over time.

But it'll take time. And I'm cognizant of that. And I think that we won't have two opportunities to actually earn people's trust and deserve it. And so, we don't plan to miss that opportunity when we get it.

ANDY SERWER: Yeah. I mean you talked about a trust deficit that you mentioned that the other day. Is that connected to some of Facebook's previous problems, quite frankly? Or is that just about this new incipient world of crypto and digital wallets?

DAVID MARCUS: I think it's a little bit of both. I think that it's our scale, because we're big. And I think it's important to ensure that things that could scale rapidly.

Although, I don't think Novi specifically will scale very rapidly. I think it'll take a long time. And we can dive into that more if you want. But it's our scale.

And I think also a number of questions that emanate from whether Facebook should or should not enter the space of financial services, which is an interesting question because we've been in payments since 2009. And the last 12 months have more or less processed about $100 billion of payment volume for all of the various payments activities that we have, whether it's person-to-person payments in Messenger, and WhatsApp in Brazil and India, or for donations, or for commerce-related activities across our platforms, or to buy ads on Facebook for smaller merchants and advertisers.

So we've been in the payments business for a long time. And so we're already in that industry. And what we're trying to propose here, while it's more ambitious in terms of rewiring our underlying payments and aging payments infrastructure, I think is something that we can do very, very well, and really address the problems that frankly haven't been addressed in over 50 years. And I think it's time.

ANDY SERWER: Definitely. It's a lot of friction in the system. You mentioned scale and saying that it might be hard for Novi to rescale quickly. And how important is scale for Novi? Is it important unto itself? Or is it just part of the, to use that term, flywheel of Facebook?

DAVID MARCUS: No. It's important because we really think that it's important to reach, of course, as many people as we can in the process of providing cheaper, more open, more accessible, and interoperable payments. And so, the question is where the scale is going to come from. And I think that when you think about the US, the US market for person-to-person domestic payments is really well-served. You have no lack of options to send money for free to your friends or to your contacts.

Internationally, it's a whole different situation. And cross-border, it's a completely different situation. So I think that when I think about scale, I think about scaling in the use cases, the very specific narrow use cases that we want to solve.

For the US, our approach is going to be really more focused on the merchant side and can we actually reduce costs for merchants to accept digital payments. And if that's the case, and we do it well, then merchants will potentially incentivize consumers to pay with this new method of payments. And then, we'll get that side of the flywheel going.

But that'll take time. And the current user experience for Novi is one where you need to upload your government-issued ID to basically authenticate yourself before you can make your first transaction. So unless you're really fixing a problem that no one else is fixing, or rather that the next best thing is really not that bad comparatively, then people are pretty resistant to go through a lot of friction to sign up for a new account.

And so, we think it's just going to take a little bit of time. But we're focused. This is a long-term project. And we believe that we can deliver a lot of good over a long period of time. So we're very committed to seeing it through.

ANDY SERWER: And I was looking at it on desktop. N-O-V-I, for those of you who want to check it out. But is it ultimately going to be an app, as freestanding app? Or does it already exists, is there a beta app out there?

DAVID MARCUS: Yeah. I have it on my phone. But, yes. It's an app for iOS and Android. And eventually, it'll also be integrated into WhatsApp and Messenger, so you can send and receive money from Novi in line with the conversations you're having on Messenger and WhatsApp.

ANDY SERWER: And can you get it now? Or is it just for you, for now?

DAVID MARCUS: For now, it's, sadly, not for everyone yet.

ANDY SERWER: Internal beta.

DAVID MARCUS: It's, yeah. It's an internal what we call dogfooding app build that we're actually using internally. And it works great. And that's why we're also so passionately eager to release that so everyone can benefit from it.

ANDY SERWER: Yeah. We do dogfooding over here, too. Listen, Facebook is the target of a lawsuit by the FTC. And there's questions about monopolistic practices, antitrust reforms making their way through Congress, so critics would ask you, David, is this the right time to expand Facebook into a whole new sector of the economy?

DAVID MARCUS: So let me address this really head on. Because this is an area that I feel needs to be talked about when it comes specifically to this project. We could have really done this a completely different way. And as a matter of fact, a lot of people internally, externally have been puzzled by why we didn't do it that way, which is that we could have built a traditional digital wallet. Which means, that it would have run on existing rails. It would have used Fiat money, not stablecoins.

And trust me, I would have had probably a lot less gray hair by now. And we didn't do that. And the reason we didn't do that is because we felt that just bringing yet another wallet, that would be differentiated only by the virtue of our distribution, would actually not solve the systemic issues that we believe exists currently in our current payments infrastructure.

And if we did that, if we just built a normal digital wallet, then we would basically be our own island with no interoperability with other wallets or other players that would have the opportunity to co-build on that new infrastructure. But instead of that, what we decided to do was basically build core-tech for a purpose-built payments blockchain, which was then called Libra. And basically, gave it away and hosted it in an entity that we don't control at all anymore.

And you know you don't control something when decisions are made, and you're not on the same page, and they get made. And you look at your team, and you're like, yep, it's functioning exactly the way we hoped it would.

And it's hard. Believe me, it's really hard to actually, completely, devolve influence and power over something like this. But if it can be one of the protocols for money, then no one entity should control it.

And so, I think we did a-- we took a step, I mean, a number of unprecedented steps to really make this as open as possible within the constraints of current compliance and regulatory frameworks. And we could have done it a very different way that would have been more protective of Facebook rather than making it an open ecosystem that would enable interoperability and others to develop on it.

So I think your question is perfect for this. Because our behavior and the way that we're approaching this is with broader ecosystem impacts rather than just focus solely on Facebook's advantage in the space.

ANDY SERWER: And what about bad guys, David, who want to use Novi. Money laundering, illegal payments, I'm sure that's going to be a concern.

DAVID MARCUS: Of course

ANDY SERWER: And how would you address that?

DAVID MARCUS: Well, I mean, first of all, we've been addressing that since 2009 with our existing payments products. And we have a pretty decent track record of doing that. But we care about this a lot, right?

There's no way that you can actually scale a new wallet or payment system if you're not best in class in detecting fraudulent activity, protecting your consumers, and focusing on anti-money laundering, sanctions enforcements, and terrorism-funding, and all of these things that are really critical when you touch all things money.

I actually think and strongly believe that new infrastructure that enables more real-time reporting to all of the right authorities at the right time rather than batch processed reports, which is the way the current system works, well after the transactions have been completed it's going to be a lot better for law enforcement and for anti-money laundering and other initiatives than the current system is.

So I think that not only will we meet the current bar, but I think that the combination of new technology, new real time networks and systems, and new approaches will actually yield much better outcome at stopping criminal activity and bad activities on top of these new networks. And I think in some cases, this has been proven on a number of other blockchains for other things related to traceability. But I think in our case, we've taken it really, really to a whole new level.

ANDY SERWER: And so, does that mean more regulation? I mean, for instance. Treasury Secretary Yellen said last month the US needs more rules for stablecoins. SEC Chair Gensler said they may be securities, that's slightly different. But, it's a piece, I guess, if you will.

So do we need more regulation? The answer is probably yes. But really, then what kind of regulation, David?

DAVID MARCUS: Yeah. So I think we can break it down in several parts. The first thing is really consumer protection. Do consumer understand what they're buying? And what guarantees they have to get their money out in an adverse event?

And so, that pertains to if you're talking about stablecoins. Specifically, what are the reserves made of? Are there fully backed reserves? Or are they not fully backed? And if they are fully backed, what are they backed with?

And in my view, a very high quality stablecoins are only backed by cash and very short-term treasuries. That's it. And then you could add a capital buffer on top of that to basically cover unexpected operational losses or what-have-you to add another layer of protection.

But if you have that kind of protection, I would argue that this is much better than a current deposit with a traditional wallet here in the US. Because it means that your dollars are fully backed at all times with high quality assets. So I think, that's the consumer protection angle.

Then it's the question of what do you use these stablecoins for? And when you look at the payments use case, which is, by the way, not what stablecoins are mainly used for right now. In our case, we're very motivated to solving the payments use case. But stablecoins are mainly used right now for exchanges when people are buying and selling other crypto assets.

So if you look at payments regulation, there, I think, it's pretty clear cut what needs to happen to your earlier question. There are provisions around anti-money laundering, the combating, the financing of terrorism, sanctions enforcement. And I think the rules are pretty clear. And this actually offers an opportunity to get better at it than the current system is, which I think it will be. And I think there, it's really clear what needs to happen.

ANDY SERWER: David, let me just shift gears quickly and ask you a little bit about you. You were born in France, you grew up in Paris and Geneva. What is it like having an international background? And how has that inform you at a place like Facebook, which is an international platform and with a product like Novi which of course is also international?

DAVID MARCUS: Well, I think it gives me, although I feel very American now by now, I think it just gives you a little bit of a broader aperture on how other people think. And how to actually move a product that is global in nature in ways that are going to be more accepted globally and better suited to consumers in other parts of the world.

And when you come to think about it, the original idea of Libra was definitely more global. In the sense that it had this idea of a multi-currency, stablecoin rather than only a dollar stablecoin. Because it was a multi-currency stablecoin, the idea was to place it in a neutral place. It was Switzerland. And since then, that global approach to this project actually didn't pan out in the way that we had imagined.

And since then, the Diem team has brought this project back to the US and focused it on a dollar stablecoin. Because it's really hard to actually get so many different constituents with different views, different agendas, different priorities around the table to agree on something that's so new despite the fact that it can bring so much goodness to their constituents. And so, it's hard.

And so we're taking together collectively with the Diem Association, its other members, and Novi. We're taking a more step-by-step approach. And it's OK. Because this is a long journey. And we also take the first step to bring better infrastructure, better payment rails for all people around the world.

ANDY SERWER: And final question, David, where do you see Novi and F2, and yourself, and Facebook in terms of financial services, say, five years from now?

DAVID MARCUS: Well, I think that the best possible place would be a place where people trust Novi for payments. And again, I realized that this is not a given, this is something that we'll have to prove ourselves around and really earn people's trust. But I'd love for Novi to be a trusted brand for people when it comes to payments. And for people to use it for all kinds of different things, mainly for payments.

Interoperable with other wallets. So send and receive with other wallets. And I hope that the ecosystem that we've helped spur actually creates a lot of innovation that will bring many more people online on the financial system. I'm actually also pretty excited about the opportunity of assets collateralization on chain. So that people have more access to capital in places where it's hard for them to do so.

And I hope that this innovation is actually not going to come from us, but from the developer community that will be built around this opportunity. So trust that brand in payments, lots of people using it, and it's solving a lot of problems for a lot of people and small businesses around the world, and innovation that stems from the community that hopefully will rally around this when it goes live.

ANDY SERWER: David Marcus, head of F2, also known as Facebook Financial. Thanks very much for your time.