Facebook's cryptocurrency Libra claims to solve a very serious problem: helping people without access to banks. I have my doubts about how useful Libra will be.
According to the White Paper, the entire Libra point is to "enable a simple global currency and financial infrastructure that provides millions of people." The company claims that LIbra will help give people access to a cheaper money transfer system. Facebook cites a statistics of 1.7 billion people worldwide who do not have access to financial institutions, a statistic derived from the World Bank's Global Findex Database 201
7. Of these, about 1 billion have mobile phones and 500 million Internet access. Insights that these have led to the M-Pesa telephone payment system, which already operates in more than 10 countries and does not use crypto competition.
Let's start with the obvious lack of statistics: We do not know how many people have Facebook accounts but no bank accounts.
According to the report, Facebook says that half of all adults who do not have bank accounts live in only seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan . In four of these countries it is difficult to see how Libra comes off the ground.
Facebook is banned in China. Some countries, such as Pakistan, Indonesia and Bangladesh, have temporarily banned Facebook for periods, possibly limiting the effectiveness of any money attached to the app. Facebook mentions this as a risk factor for its business in quarterly submission: "Public authorities in other countries may seek to restrict user access to our products if they consider us to be in violation of their laws or a threat to public security or for other reasons, and some of our products have been limited by governments in other countries from time to time. "
That's not all: Many of these countries have laws about cryptocurrency. (Yes, I know it's debatable whether Libra qualifies as a cryptocurrency or not. But Facebook calls Libra a cryptocurrency, so I'm going to assume that cryptocurrency laws will apply.) India's current regulations mean that Libra can't operate in the country . Pakistan assesses regulation for cryptographic curves, but at present they are prohibited. Cryptocurrency is also implicitly prohibited in Bangladesh and China.
The big win here is possibly Indonesia, which just legalized trading cryptocurrencies, and was also called out by Facebook in its last quarterly application as an area of growing daily active users. 19659009] It doesn't look like Libra has called for any local support yet in those places it matters most
But most countries have major obstacles to Libra adoption. This may explain why Libra's founders are not based in any of these countries. (MercadoPago, an online payment company that is also one of the partners, operates in Latin America and is based in Argentina.) No founders Libra partners seem to be based in Asia or Africa either – and this is where the people without bank accounts are, according to World Bank statistics. It is not impossible to see anything that Libra has recorded, but it will require local support; most countries have regulation of bank regulation. It doesn't look like Libra has called for any local support yet at the most important places.
The White Paper contains some detail on Libra's architecture. Nevertheless, there is little discussion about why people do not have bank accounts. According to data from the World Bank, Facebook says, almost two-thirds of people who don't have bank accounts say it's because they don't have enough money to open one. The wave does not solve that problem. One third of those who do not have bank accounts said they do not need one. Libra solves only the less popular reasons why people don't have bank accounts.
Libra solves only the less popular reasons why people do not have bank accounts. About a quarter of respondents said banks' high and unexpected fees were at least part of why they didn't have accounts. The distance to a bank was a barrier for another 20 percent. So these people seem to be Libra's target audience.
It's a bit of a subtle hitch here, though: to use Libra you have to buy Libra. I'm not the first to notice it; Financial Times Brendan Greeley has written about the same problem. The papers seem to consider their end-user to be someone like me, a lady with a bank account and a credit card. The process of converting to Libra is pretty much described how I will experience it: you sign in and give them a credit card number or bank account number.
The problem is that people who do not have banks do not have bank account numbers, and they may not have credit cards either. They have money. "There is nothing about how Libra will lower fees to convert fiat cash to Libra money, which is both the main challenge for consumer banking and an explicit part of Libra's issue ," writes Greeley. "Checkout redemption charges charge secret fees, but they are willing to turn physical checks into physical cash and physical cash in transfers."
When it comes to mobile banking, the recording has been patchwork. M-Pesa has been successful in Kenya. But in Nigeria, people still prefer money because they worry if their phones are stolen, their money will also be gone. This is a problem with social norms, not engineering. Clash between telecoms and banking hamstrung mobile banking applications in Nigeria. This is also not a problem you can solve through engineering. There are other, more mundane problems in mobile banking too, like the cost of having inactive customers.
It is not clear to me why a mobile payment service such as the one Facebook suggests requires cryptocurrency at all. It seems like a non-starter package in many of the markets where mobile payments can be most needed. And Libra does not address the main problem the documentation says it inserts to record.
From the documentation Facebook has provided, an inexpensive person can conclude that the issue only exists as a smoke screen. Libra is not meant for people without bank accounts; It is meant for people who already have money . Facebook is a business; businesses need to make money; As we have seen, people without bank accounts have the most money.
There is another kink in the documentation, as Coindesks Ian Allison first discovered: "A further goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite for financial inclusion and competition. "If Facebook's issue is a shame, then the portable digital identity is another plausible ending game.
Look, it's okay that Facebook builds the money app for the privileged class. It's typically Facebook, actually! But I don't think Facebook does this for the bigger the good . When you read the documentation, it is difficult to escape the conclusion that all Facebook does, trying to dream up a new way to fix their own pockets, whether it's Libra or an open identity standard. Or, you know, both.