By Prajit Nanu, CEO & Co-founder of InstaReM
Unless you’ve been hiding under a rock, you’ll be aware that Facebook has announced plans for its own cryptocurrency, Libra. All part of its ambition to transform cryptocurrency, and provide a substitute for cash, payment cards and bank transfers – within and across borders. With the help of its digital wallet Calibra, which is expected to launch in 2020, Facebook’s stated mission is to enable global financial inclusion. It’s a bold move, and one I’m not sure they’ll find as easy as competing with Snapchat.
Where’s the value?
The cross-border remittance market is currently worth US$ 680 billion and continues to grow. However, only 20% of cross-border remittances are digital, and this element of the market is well served with the likes of Transferwise, WorldRemit, Remitly and InstaReM all charging between 30 bps to 100 bps and delivering funds in anything from a few minutes to 24 hours (market coverage dependent). On that count, the Libra does not really bring anything new to the party.
The big opportunity for Libra is the 80% of the market where digital remittance methods are not the norm (but Facebook use is). Facebook expects to disrupt this market, leveraging their platform’s reach, with Libra making use of the platform’s potential to make payments between users (via Messenger for example). But just because their users can, it doesn’t mean they will. Today Western Union and MoneyGram can deliver cash all over the world, at an okay price. How will Facebook compete in what is a very price-sensitive market, when the conversion from Libra to Fiat is taken into consideration? Conversion cost will be a significant issue for Facebook, as this segment is hyper price-sensitive.
Facebook has openly stated that they hope to take on the challenge of financial inclusion with their cryptocurrency, a truly worthy cause, at a time when over half of the world’s adult population does not have an active bank account.
But how can you expect those that don’t use a bank to trust a cryptocurrency? The investment required to educate the market on the benefits of blockchain will be enormous, whilst all the time people still have the option of a Western Union outlet.
Regulation, Regulation, Regulation.
The most heavily regulated markets tend to be found in those places with the highest number of people without a bank account. Take India for example, regulators are extremely wary of crypto and top-up wallets and so likely to have an in-built prejudice against Libra. It will be interesting to see how Facebook will get around that!
While the announcement is big news, it doesn’t come as a surprise to see Facebook join the payments and cross-border transfers club. We’ve long predicted that the big tech players will look to enter the payments sphere. The Libra Association, the Swiss-based not-for-profit organisation that will service the Facebook’s cryptocurrency, consists of 28 members including the likes of Uber and Spotify. The big tech companies are coming, and I have no doubt that they will change the way we pay for things. But Libra won’t be an overnight success, sharing your money is harder than sharing your photos.