You might expect the woeful state of global financial inclusion to be a concern for the UN or a non-profit, but not necessarily a social media giant like Facebook. But banking the unbanked is now apparently a core mission-statement for Mark Zuckerberg’s baby, via its cryptocurrency, Libra.
“1.7 billion adults globally remain outside of the financial system with no access to a traditional bank, even though one billion have a mobile phone,” Facebook’s documents about Libra point out. It’s a statistic that is easy to forget in a world of ubiquitous ATMs and credit cards.
One country Facebook could be targeting when it launches the token in 2020 is Venezuela. According to The World Bank’s 2017 figures, 9.5 million Venezuelan adults are currently unbanked, just under 30% of the adult population. That proportion increases if you count their dependents. Meanwhile, those who are banked currently face extreme levels of inflation, meaning the worth of their bolivars, sitting in national vaults, diminish in value every day. No doubt, having access to a stable global currency could help encourage savings and accumulate wealth.
But it’s worth unpacking the practical reality at play. What would Facebook need to do to “bank” people, and get them using or storing funds? Or is this just so much PR bromide?
What it takes: on-ramps
The main question here is how the unbanked will get money on to the platform. In other words, if I have Venezuelan bolivars, how do I convert that into Libra?
One solution they might take inspiration from is “Mobile Money”, which launched in 2007 in Kenya, masterminded by Vodafone. Here, subscribers simply exchange cash for mobile credit (like from Vodafone) at one of thousands of telecoms kiosks located across host countries. Independent, small agents effectively act as cash depositors, allowing users to digitally store their earnings, receive wages and social welfare. They can also pay their bills with a simple text message thanks to a synergy between regional telecom giants and banks, which allows credit to be transferred into a working currency. In Kenya alone, where Vodafone initiated the service with the launch of “MPESA”, the percentage of unbanked citizens has halved in the ten years hence. In that time, it has spread to 92 countries and counting, with a reported half-billion people from Eastern Africa to Latin America granted banking access through its phones.
Perhaps Facebook plans to let users exchange their bolivars for Libra tokens at kiosk providers? Still, that doesn’t solve the issue for the most rural parts of the world however, which even mobile money providers are struggling to access.
Another theory is that Facebook will reward social media users with Libra, rather than having people solely “cash in”. If users can simply “earn” Libra for liking photos and other engagements, then theoretically Venezuelans can pay their local Caracas grocer digitally too – meaning users totally bypass cash and rely solely on Libra. Still, that doesn’t seem entirely realistic considering it would take a lot of Facebook engagements to feed a family.
The other option is to partner with existing fintech firms in emerging markets, who can simply integrate Facebook’s digital currency. It’s not totally crazy; Philippines-based Coins and dLocal, a b2b payments provider for emerging markets, already seem to be ready to embracing cryptocurrencies. Libra may be their next chosen solution, although it’ll be a slow process.
What it takes: friendly institutions
Although Facebook says that Libra will be global and therefore without regulation, there are limits to that sentiment, because their associates will have to ensure they implement appropriate KYC (Know Your Customer) procedures.
“It will be very hard for Facebook to launch something like Bitcoin. Think about it – they haven’t even done anything yet and they are already getting pushback from the U.S. Senate Banking Committee,” says
Are they going to operate a service that they maintain control of, which can be accessed anonymously by anyone, and withstand pressures from the government to add KYC and exclude high-risk users? Are they going to publish a decentralized system that works like Bitcoin, and then tell the government they should not be held responsible since they can’t change it anymore? Both of these outcomes seem unlikely,” he added.
That means Venezuelan residents without identification won’t be able to be KYC’ed if that’s the way local regulators swing. And regulation does have an impact even on the unbanked. Indeed, Mobile Money failed in India in part due to bureaucratic restrictions, where mobile subscribers were forced to register with banks. Conversely, PayPal now shuts down Venezuelan accounts with no warning because they are legally high-risk, according to Freeman.
The French government has already urged an investigation into the possible effects of Libra. Meanwhile, the ever-cautious Financial Times warns that “the very act of encouraging people to invest in Libra en masse, may spark…local currency depreciation”, which if true, could be used by states as a scapegoat or a reason to block it entirely.
Facebook hasn’t got all the answers yet, and that’s to be expected considering the news isn’t even 24 hours old, but there are clearly practical issues when it comes to the unbanked that no amount of idealism can ignore.
One possible answer here is that Facebook is trying to apply a sweeping solution to a global economy that is diverse in more ways than a single launch, app, or product can grasp.
“It seems likely that Libra will be the next generation of WeChat Pay – a fantastic and convenient product…for people who are already able to access financial services…But for people in countries with capital controls, people who don’t have government documentation  – it just won’t apply,” Freeman concluded.