Can Facebook's Cryptocurrency Libra empower the unbanked billions?

On 18 June 2019, David Marcus, the French-born American entrepreneur and former president of PayPal, announced the launch of his co-creation Libra, Facebook's new cryptocurrency to his almost 50K Twitter followers.
"Libra's mission is to enable a simple global currency and financial infrastructure that empowers billions of people…because it's time for the internet to have a protocol for money, and it's time to try something new for the 1.7 billion people who are still unbanked 30 years after the invention of the web." 
After this missionary zeal, he went onto explain the more mundane side of Libra – the partners involved, how they would build consumer trust, and how they would secure payments. 
The pitch was clearly rooted in a singular message – this is altruism writ large. 
Facebook has been here before with the launch of Free Basics in August 2013, an initiative that provides limited free internet access to billions of the "digital have nots" through strategic partnerships with global telecom companies. Along the way, net neutrality was relegated as trivial by Facebook as the need to connect the world's unconnected became more crucial. In the name of empowerment, Facebook was able to have the first mover advantage to harvest this enormous global data goldmine.
Given the recent spate of data violation and mismanagement scandals enveloping Facebook, it is no surprise that David Marcus faced a twitter storm of critique within hours. Indeed, it was audacious of Facebook to embark on an undertaking that demands trust at the core of its success. Their "move fast and break things" didn't quite pan out the way they envisioned.
So what should we make of this Libra initiative? Rather than spiral down the moral condemnation pathway, let's break this down as this is bigger than Facebook.

The tech industry across the world are singing a similar chorus of "making the world a better place" while cashing in. A plethora of AI for Good initiatives are already underway. This is fueled by government officials in developing countries jumping on the bandwagon, creating public-private partnerships. Jeffrey Sach's classic preaching of the win-win solution at the United Nations of "doing good" and making a profit has become reignited. Being the "good guy" is relative. When you have the much loathed banking industry that you promise to dismantle and disrupt, cryptocurrency appears as the more honest broker.

And what about the 1.7 billion unbanked as the supposed 'beneficiaries?'

According to the World Bank's latest Migration and Development Brief released on April 8, 2019, global remittances broke all records. In 2018, the annual remittances to low and middle-income countries reached €471 billion in 2018. It was found that banks charged the highest fees for such transactions, with an average fee of 11 percent in 2019. Given this is one of the most significant external sources of income that enable the global poor to survive and perhaps even mobilize themselves out of poverty, it is no wonder that there is little faith in these monopolistic banking models. 

If we are to follow the Venezuelan crisis and the devastating devaluation of its currency, one will realize that this is not an exception but has been the norm in many developing countries over these decades. Only the privileged few in the world have the ability to diversify their assets, and store their savings in relatively stable currencies like the Dollar or the Euro. Being "unbanked" thereby could partly be a choice. So it is indeed commendable if we are able to come up with more humane alternatives to these draconian banking practices. 

This establishes the first basis for innovation – an intrinsic and urgent demand by a critical mass of people. This is key to the make or break of adoption and sustenance of any novel intervention. 

The motivations indeed are intersecting – tech companies can harvest data to stay competitive in this digital economy, and low-income countries that have long grappled with citizens evading taxes can now formalize the vast informal sector by getting their citizens 'tracked' through digital banking. As for the unbanked, low to no cost transfer fees as promised by Facebook can be life changing.

With 2.38 billion users worldwide, is Facebook just the best positioned for cryptocurrency to be globally adopted? Through such as an advantage, are they the default leaders of this radical change?

Facebook clearly saw a market opportunity given that they could build on an already existing user base who are mobile users. The digital natives in these developing countries grew up with Facebook as their internet. Transitioning the "unbanked" to the "banked" is not just a matter of a new currency or new financial infrastructures. It is about building the culture and knowledge of banking practice among this vast population. It is about rethinking what it means to ethically bank in today's digital and global age, placing the user at the centre. The graveyard of failures in microfinancing in developing countries should give us reason to pause. At a glance then, Facebook seems like the likely fit as they promise to build on already existing digital practice by making Libra payments as easy to use as WhatsApp.

This is just one factor though. Facebook showcases its corporate buddies including that of Mastercard, PayPal, Visa, Booking Holdings, eBay, Farfetch, Lyft, Spotify, and Uber, to reassure everyday usage across these member institutions. In spite of this behemoth cozying up of sectors, there is far more formidable competition in this arena. China is a leading player in fintech worldwide, and is fast becoming a cashless society. Through Alipay and We Chat, it offers a digital ecosystem of products and services that is engaging and intuitive and is much loved by many of its citizens. This model is also being exported as a model of financial governance to other developing countries.

In India, the Reliance billionaire Mukesh Ambaini launched Jio phone in 2015 targeted at the vast low-income but eager consumers, with offers of 4G networks and some of the cheapest data plans worldwide. They claim that Jio is already the "world's largest data network" and will become the one-stop-shop platform for the everyday Indian. Simultaneously, the Indian government is cracking down on cryptocurrencies, giving further legitimacy and bandwidth for this platform to grow. Singapore is leading the way in smart cities and their state driven digital ecosystem will pave the integration of fintech in people's daily lives.

In short, there is no dearth of competition. At a global level, Facebook may stand far less of a chance given their low political capital with countries like India and China. Worth keeping in mind as we follow the Libra saga that these Western based tech alliances are competing not just with traditional banking institutions but also, and more importantly with powerful government driven and homegrown fintech initiatives in emerging markets. This may decrease Libra's odds for success.

We also need to move away from doing "good," making the world a "better" place, and "best" practice euphemisms. This implies that those in the West somehow know what makes everyone happy. More useful a task is to strive for interventions that can make society fairer, safer and more empathetic; where the common good is also in alignment with the global good.

The bottom line is that Facebook has broken our trust time and again. But so has the banking industry. While lack of trust in Facebook may be a reason for Libra's possible failure, it is other factors like their hubris. Libra launching without consulting regulators has already created a domino effect among regulators worldwide including in the United States to put a pause to its ambitions until further scrutiny. The indigenous fintech systems that are already in place in several "data rich" countries outside the West will pose an uphill challenge for Facebook to enter these markets. The continued masking of a business model as altruism deflects and diffuses their agenda which does not help in building trust. Silicon Valley needs to own up to their naked ambitions of data harvesting of low-income consumers and respectfully pose a genuine business model strategy that does not reek of a hero complex.
For us to have an ethical banking culture, we need to make sure these institutions, crypto or not, are not "too big to fail." The idea of bailing out Facebook may just be too much for the average person to stomach. 

Check out my book "The Next Billion Users"

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