The world’s largest social media platform is taking on a giant-sized project.
Facebook has stated its plans for Libra, a digital currency backed by a reserve of real currencies and assets, which it hopes will grow to become globally accepted and adopted. Put another way, Facebook wants to create a global financial network based on a digital currency it’s about to unveil.
The currency, due to be launched in the first half of next year, already has signed up partnerships ranging from, Uber, Spotify and Mastercard to Naspers—Africa’s most valuable company. Facebook hopes that 100 partners will have joined before the currency launches, strengthening both its credibility and reach.
The big-picture goal, Facebook says, is to “empower” unbanked people across the world by providing access to the global financial system. That’s an ambitious target given the sheer size of that population at an estimated 1.7 billion people—a bulk of which are in Africa. But then again, Facebook has 2 billion users across its network of apps and its fastest-growing regions include Africa and Asia.
While it’s unclear how adoption of Libra for everyday use in trade and payments will go, there’s an obvious opportunity for an immediate impact in Africa: remittances.
Significant African diaspora populations across Europe and North America who regularly send money back home to relatives and friends represent a major source of remittance flows to the continent. Remittances to sub-Saharan Africa grew to $37 billion in 2017 and are projected to reach nearly $40 billion this year, according to the World Bank. Given that those figures only track funds sent through formal channels and exclude remittances to North African countries, the total for the entire continent is likely much higher.
For some countries, these remittances have become economic pillars and an important contributor to national GDP—27% in the case of Liberia. But, broadly, remittances also burn a whole in pockets of senders as it costs more to send money to Africa than anywhere else. By extension, remittance receivers also end up with less cash given high costs.
That’s where Libra comes in. At least, that’s what Facebook hopes.
Here’s how Facebook puts it: “Success will mean that a person working abroad has a fast and simple way to send money to family back home.” In the company’s best-case scenario, Libra will serve as a more effective cross-border money transfer service based on the promise of speed, lower costs and increased convenience for both senders and receivers.
And that poses an existential threat to remittance companies, some of them being younger app-based players like Azimo and WorldRemit and could even hurt traditional behemoths like Western Union and Moneygram.
“Libra will cannibalize the business of traditional remittance companies, but it will not immediately replace them,” says Laolu Samuel-Biyi, director at SureRemit, a crypto-based remittance service that allows users send money for specific purposes through closed loop vouchers. “The risk arises when Libra gets saturated enough to the point that people are comfortable holding and accepting it, that they don’t need to buy with fiat or sell into their local currency.
They can just simply spend it. That will be truly disruptive, and not just for remittance companies.” However, for Michael Kent, CEO of Azimo, a remittance service supported in over 190 countries, there’s reason to be skeptical of Libra’s real-world application given that his company has experimented with cryptocurrencies for remittances. “It’s very early and hard to tell what it actually means yet,” he says. “[Azimo] has been experimenting with cryptocurrency and blockchain technology and for us, the use case is not yet proven.”
In the event that it works though, Kent says traditional remittance companies which aren’t technology-based will be the first to suffer. He argues existing tech-based remittance services like Azimo which are plugged into global financial networks will find opportunities to adapt.
Red-tape and rivalries
The economics of targeting African and developing markets with Libra make a lot of sense for Facebook. Given the much smaller advertising businesses in developing markets including Africa compared with North America and Europe, the social media giant earns significantly lower average revenue per user in developing markets.
The prospect of an adopted digital currency means Facebook could yet monetize the vast user bases it has garnered in African markets, partly thanks to its controversial Free Basics internet initiative.
But before any of that happens, Facebook will face some hurdles starting with confronting existing social behavior. Despite the rise of tech startups and ecosystems across the continent, there’s still some skepticism—in some cases, outright distrust—for digital payments and an enduring preference for cash.
“For an African regulator, Libra is slightly terrifying.”
Luckily for Facebook, there are two things in its favor in African markets: there’s a widespread use of its apps, particularly WhatsApp, and a strong mobile money culture. “We’ve seen people now willing to put money into a mobile account and use it because [companies like] MPesa (the global mobile money leader) has trust and credibility. Facebook can take some of those lessons,” says Vikas Raj, managing director of Accion Venture Lab, a seed-stage investment initiative focused on fintech in underserved markets.
But existing mobile money culture also begs the question of whether Libra will compete with or complement established services like MPesa which are optimized for local problems, are already embedded in regulatory frameworks and enjoy strong patronage. Ultimately, Raj predicts, the uptake of Libra among users in markets with more evolved mobile money services could be limited to cross-border payments and remittances.
Libra could also be hamstrung by government regulation. As Quartz Africa has reported, Africa is mostly a blank canvas when it comes to regulation, with governments playing a waiting game. However, the tendency for tight currency controls suggests governments are unlikely to be welcoming of an all-powerful digital currency which bypasses their systems.
“It’s hard to imagine African governments being friendly towards the initiative, because at its best, this takes a lot of power away from them,” Samuel-Biyi says. Zimbabwe has already played its hand and banned bitcoin last year.
“For a regulator, it [Libra] is slightly terrifying,” Kent says. Yet, regulation remains a thorny issue Facebook will have to contend with across several markets in what’s likely to be a painstaking process. “Regulators are not known for moving fast and are not known for embracing something new,” Kent adds.
In the event that Facebook’s Libra figures out regulation, it will also always face the ever looming threat of intermittent internet shutdowns which African governments, particularly dictators, have become notorious for.
While it deals with making Libra a long-term success, there’s a crucial “short term implication” of the digital currency innovation which cannot be ignored, Samuel-Biyi argues. “Facebook is a major voice challenging the core definition of money and what it takes to be a money issuer. It’s a mental barrier that many have found difficult to cross.” The company’s interest alone will likely result in “a new wave of believers in the cryptocurrency space,” he argues.
“What matters is user experience. If it works for the Nigerian with all her constraints—power, data, language and culture, people will use it.”
“Facebook getting behind a new technology will definitely allow it come to consumers faster,” Kent says, in agreement.
There’s already some evidence of what’s possible with regard to cryptocurrency adoption across the continent. Before it was banned there, at one point, Zimbabwe had the highest bitcoin prices in the world as the country’s unstable economy and depleted foreign exchange markets saw locals turn to the cryptocurrency as a storage of value. And despite the government’s stance on regulation and tight currency control, blockchain is birthing a new wave of startups in Nigeria.
The most important tool to boost local uptake and adoption of Libra though, like everywhere else globally, is simply proving that it works. Timi Ajiboye, co-founder of BuyCoins Africa, a Lagos-based cryptocurrency exchange, has first-hand experience of how Nigerians have adapted to digital currency technologies.
“The truth is that, if it’s genuinely useful in the sense it actually applies to our specific local use case, Nigerians will use it,” he says. “What matters is the user experience. If it works for the Nigerian with all her constraints—power, data, language and culture, people will use it.”
Given his experience with facilitating remittances to 49 African countries, Kent admits skepticism will give way in the face of efficacy. “Customers just want money services to be fast, simple and safe. So if that money is flowing through a cryptocurrency or a tied to the leg of a pigeon, as long it gets there safe, that’s what people worry about.”