Would Facebook Libra Reach Areas Not Reachable By Traditional Banks?

Facebook’s new Libra digital currency is aimed at a huge potential market for financial services — entire developing world, with billions of people in areas such as India and Sub-Saharan Africa, where financial services are often less sophisticated and many people don’t use tritional banking accounts. 

Wher or t se billions will want to make switch is anyone’s guess. 

U.S., Europe and most developed ecomies alrey have large, efficient payment systems. se allow people to buy and sell goods in real time and send money person-to-person through services like Zelle, PayPal and Venmo. That’s why companies that joined Facebook’s Libra association, as well as nprofits involved with similar projects, say Libra’s potential lies elsewhere. 

In developing countries, many tens of millions still live far from a bank or money transfer center, or currently use a currency prone to inflation or volatility. Libra could dress this issue by providing a universal, stable currency that is easily transferrable between persons or businesses without involving setting up an entire payment infrastructure. It also potentially could work at a lower cost. 

In last dece, citizens of developing countries have widely opted cellphones as a way to store money, sending text mess-based payments eir to businesses or persons. It’s been a broly heralded development among policymakers and nprofits focused on poverty because bank accounts are hard to come by or are too expensive. 

“ entire continent of Africa skipped right over cards and went straight into mobile payments,” said Sanjay Sakhrani, an industry analyst with Keefe, Bruyette & Woods, who covers Visa, Mastercard, PayPal and Western Union. 

But se payment systems are often constrained by of cellphone carrier each person is using. It’s t uncommon in places like Africa to carry multiple cellphones in order to have necessary access to right money transfer system. 

Libra could solve this problem by creating a universal currency that can be transferred across multiple cellphone networks and across borders. re’s also issue of cost, which is cited by World Bank as being biggest issue with financial systems outside of developed markets. Facebook says Libra would have a near-zero cost attached to it. 

Colombian border city of Cucuta, is one of places where Libra could make a difference. 

Every day, thousands of needy Venezuelans cross into this sweltering town to buy food and medicines that are scarce at home. For many first stop is Western Union, where y line up for hours to pick up cash sent by relatives living in abro. demand for cash remittances is so big in fact that migrants sometimes line up outside Western Unions night before branches open, sleeping on sidewalk to keep ir place in queue. 

Digital currencies could make it easier to transfer funds to se migrants with bank accounts, and save m hours of ir time. Using m is also safer, says Typson Sanchez, a local software developer, because it prevents robberies. 

But despites its obvious benefits, merchants in Cucuta have been slow to opt digital currencies, and only a handful currently accept it. 

“Merchants worry about volatility” of currencies like bitcoin, says Sanchez, a software developer and co-founder of Panda Exchange, a digital payments start up. Or merchants find existing digital wallets difficult to use, and worry about its legality. 

Sanchez hopes that Facebook’s Libra could help to overcome some of those obstacles. “y alrey have a very powerful platform with lots of users” Sanchez says. “y will be able to reach everyday people who are t into techlogy. And that’s something that many companies haven’t been able to do yet.” 

Vodaphone, Europe-based cell carrier, has a large presence in Africa and or developing countries and operates its own mobile wallet system kwn as M-Pesa. Alrey a dominant carrier in Africa, Vodaphone sees potential in Libra to enable customers to send money across borders at a much lower cost. 

re’s a lot of room for improvement. aver fee on a cross-border remittance is around 7%, according to World Bank, with places in Sub-Saharan Africa charging as much as 10% to send a money transfer. 

Companies like Vodaphone and organizations involved with Libra like Mercy Corp and Women’s World Banking said y’ve joined at least in part to make sure y have a “seat at table” in case Libra does take off as a payment method. Libra’s real-life use cases are still at least a year off, and much likely longer. 

Some would argue that Facebook’s Libra is wrong solution to issue of accessing financial services in developing countries. In China, dominant way to pay are WeChat and AliPay, two mobile apps that use messaging to send money eir to a business or ar person, at extremely low cost. Both apps are used by more than a billion people. 

“That to me is simplest solution for developing countries,” said Nicholas Ecomides, a professor of ecomics at Stern School of Business, an expert in electronic commerce and payment systems. “You don’t need to create a whole new currency. You just need right app.” 

re’s a “well, why t?” factor into se companies’ involvement. Facebook asked for a minimum $10 million investment in Libra from its for-profit partners. For a company like Visa, which me more than $20 billion in revenue last year, Libra investment is pocket change. In exchange Visa gets insider access to Libra and its potential techlogies, as well as a seat at table. 

Visa declined a request for an interview regarding its involvement in project, but a spokesman pointed to a blog post one of its executives published Tuesday, in which company’s interest is described as reflecting “a spirit of openness and curiosity.” 

Mastercard has been looking into techlogy that underpins bitcoin and or digital techlogies for some time, said Jorn Lambert, executive vice president of digital solutions at Mastercard. company was attracted to Libra because it’s private, unlike bitcoin which operates on an open network, and it’s backed by reserve currencies. 

“This is a thing that could provide real consumer benefits, particularly in developing world,” Lambert said. 

Women’s World Banking, a nprofit focused on financial inclusion for women particularly in developing countries, also joined association. WWB wanted to make sure issues of women in developing countries — who are often less techlogically literate than ir male counterparts — were dressed. 

“Women are more than half of unbanked population in world. We wanted to be at table to dress women’s needs,” said Karen Miller, vice president of kwledge and communications. 

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