Sorry, Facebook. The unbanked don’t need your help.
When Facebook officially announced its intentions to launch a global crypto-currency called Libra in June, it seemed on the surface as though the beleaguered tech giant, still scorched from the heat it faced over the 2018 Cambridge Analytica scandal, might actually be on the verge of doing some good in the world.
People picked up on Facebook’s claim that the Libra stablecoin would help the unbanked access financial services, while others relished the possibility of sticking a thumb in the eye of traditional banks. Propelled by all this goodwill and aspirational pronouncements, the project attracted 28 financial backers, including heavyweights like Visa, Mastercard and Uber.
However, it hasn’t taken long for that shiny new halo to get its first smudge.
“A danger to consumers.” That’s what France’s finance minister called the Libra earlier this month before pledging to block it from operating in the EU (he’s not alone). Meanwhile, hostile congressional hearings and the fast thumbs of an uncensored president have added fuel to the anti-Libra flames. And what about those 28 high-profile backers? Reports recently emerged that several of them are making plans to withdraw their support.
Each of these detractors shares at least some of the same essential concerns. They cite the risks of fraud, money laundering to aid terrorism, tax evasion, a destabilized global financial system, and (given Facebook’s notorious behavior) the possibility of compromised user privacy as reasons to pull the handbrake on this initiative.
Facebook is battling back. Mark Zuckerburg was in Washington this month, trying to placate policy-makers and restore goodwill in the US. Whether he succeeds in these Hail Mary attempts or not, the company says that the Libra’s launch will go ahead as planned early next year, backlash be damned.
While all of this squabbling in the wealthy West continues, we at Telepin are asking ourselves: What does this actually mean for the unbanked of the world, whose plight was listed as justification for Facebook’s latest venture?
The problem Facebook says it’s solving already has a better (and more mature) solution.
Facebook’s white paper about the Libra cites the high cost of remittance payments as a key challenge facing people “on the fringe of the existing financial system,” and positions the Libra as the Holy Grail these people need.
They aren’t wrong about the challenge, but they’re wrong about how to fix it. Another solution exists and (unlike the Libra) has proven itself to be secure, reliable, cooperative with regulators, and popular with users: mobile money.
Consider Africa, home to one of the world’s largest populations of unbanked adults. According to a 2018 report from World Bank, remittances to the continent grew by 9% (in North and Middle Africa) and 10% (in sub-Saharan Africa), representing a 2018 total of $108 billion—a substantial portion of which comes from family members earning a living abroad.
Using traditional money transfer services, those migrant workers would indeed face high fees, just as Facebook claims (the same report reveals that remittance costs across many African corridors remain above 10 percent, with banks and post offices as the most expensive service providers).
However, as the volume of remittances has climbed, so too has the penetration of mobile money. In 2018, Sub-Saharan Africa saw an increase of 17.5 million active mobile money accounts; the region is now home to nearly half of the world’s mobile money users, who rely on the service as a lifeline connecting them with a vital source of revenue.
To keep this lifeline strong and secure, mobile money operators and regulators around the world are working together to uncork the potential of low-fee, high-speed cross-border remittance payments, facilitated by interoperable systems and integrated payment solutions. This high level of cooperation has affected the lives of millions of people. According to the GSMA, “mobile money-enabled remittance services are available across 184 unique corridors, and there is growing awareness among governments, regulators and the industry itself that mobile money can lower the costs of sending international remittances.”
As many European leaders and much of the US Congress work to freeze out the Libra, it’s clear that Facebook doesn’t share this benefit of regulatory cooperation. And while the company breathlessly cites its 2.1 billion users as a reason to believe in its currency’s potential, it’s missing a vital ingredient: trust. Mobile money has a history of secure transactions and convenient access; Facebook has a history of screwups. Without the trust of their intended end users, it’s difficult to imagine how they will succeed.
There’s no telling exactly what will happen if and when the Libra launches next year. But as the global financial industry convulses with tech-driven change, it’s clear that we don’t need Mark Zuckerberg’s help to solve the global financial exclusion problem. The solution is already here, and it’s gaining more momentum every day.