Facebook’s Libra bets it can bank the unbanked
Firm aims to bring financial services to those who don’t have them
Facebook Inc. has an ambitious goal for its proposed cryptocurrency, Libra: to bring financial services to the hundreds of millions of people world-wide who don’t use banks or other traditional institutions. The cryptocurrency sector has for years tried to do the same and failed.
In the decade since bitcoin was born, cryptocurrencies have fascinated investors and speculators.
But the crypto industry has struggled to get consumers to use it for daily transactions, and the bar for reaching unbanked adults in particular could be even higher.
The unbanked represent a big potential customer base for crypto: Roughly 1.7 billion adults around the world don’t have an account at a financial institution or through a mobile money provider, according to the World Bank.
But getting people to use a new monetary standard requires more than just the underlying software. It calls for erecting infrastructure that allows people to easily use cryptocurrencies, working with governments and tailoring services to local cultures and customs.
Elizabeth Rossiello learned that lesson on the ground. She founded payments processor BitPesa in 2014 with a plan to use bitcoin as the underlying technology for a new, digital remittance business. With a background in microfinance and banking, she had experience, connections and backing.
The Queens, N.Y.-born Ms. Rossiello moved her company and family to Nairobi, Kenya, and tried to build her network from the ground up. She had staffers in London sign up Kenyan immigrants looking to send money back home. BitPesa launched through a partnership with M-Pesa, the local and dominant mobile money network. Ms. Rossiello’s company charged a flat rate of 3%, and users got their money nearly instantly.
But BitPesa struggled to gain popularity. Only a handful of businesses around the world accept bitcoin. Learning how to acquire, store and use it is still too convoluted for most people—and all but impossible for those who don’t have internet access.
“It’s very difficult to build frontier-market currency products,” Ms. Rossiello said.
Libra will have one big advantage: Facebook is the largest social network with more than 2 billion users, so the proposed cryptocurrency will easily be able to get in front of a huge pool of potential consumers.
It couldn’t be determined how many Facebook users are unbanked, but the opportunity “You have this vicious cycle in could be significant. Facebook which people are barely survivexecutive David Marcus, during ing, they can’t afford taxes, a July congressional hearing, don’t want to use bank acsaid fees were the biggest probcounts, and because of that, aclem for the unbanked. With Licept only cash,” said Adalberto bra, he said, “anyone with a $40 Flores, the chief executive of smartphone” would have acKueski, a Guadalajara, Mexicocess to affordable financial serbased financial-services startvices. up.
The unbanked aren’t a monoMoving those workers to a lithic group, though. Another digital currency where every issue is understanding local transaction can be recorded, conditions. That was a problem stored and taxed will be a chalfor many bitcoin promoters lenge. “They know the governwho wanted to infuse the crypment will track their expenses tocurrency around the world and demand taxes,” Mr. Flores but stay in Silicon Valley. said.
In Mexico, for example, more Governments themselves than half of all workers are in could be another roadblock. what is known as the “informal Facebook and the Libra Associeconomy,” according to Mexiation, the Swiss-based nonprofco’s National Institute of Statisit that will govern the currency, tics and Geography. They often have committed to expanding run or work for small, cashthe network only to countries based businesses. that allow the use of cryptocurrencies. The governments of some of Facebook’s largest markets, though, aren’t sold on crypto’s benefits.
While the U.S. appears to have a relatively open stance on cryptocurrencies, it hasn’t passed any comprehensive laws that would provide regulatory clarity. Two congressional hearings in July also made it clear that a number of lawmakers were very concerned about Libra.
Two other large nations, India and Indonesia, may be even harder to please. India has appeared eager to ban cryptocurrencies, and Indonesia outlawed them for payments, though they remain legal for trading there.
Those three countries are Facebook’s largest markets, according to research firm Statista.