(MENAFN - The Conversation) Facebook's Libra cryptocurrencyhas taken a lot of criticism fromWestern government officialsandmedia commentators– but it's not meant for them. A major target market for the Libra isusers in developing countries .
From researchingcryptocurrency ,blockchainandother technologiesin the context ofdeveloping countries , I can see that digital payment systems are already attractive. Libra maypotentially be even more so , because Facebook has the money and technological advances that could make Libra easier than many existing methods.
A huge market opportunity
Most of Facebook's2.4 billion users , and the1.5 billion usersof Facebook-owned WhatsApp, livein developing countries .
India is WhatsApp's biggest market, withmore than 300 million users . There are120 millionWhatsApp users in Brazil. In those two countries,80% of small businesses use WhatsApp as part of their business activities , such as exchanging bills and receipts with customers and suppliers.
WhatsApp has beentesting a new feature called WhatsApp Pay , which lets users send money directly to each other's bank accounts. It's only available in India, where there are1 million users– and it's not the only peer-to-peer funds transfer service in the country. In addition to sending each other money, people also use WhatsApp Pay forbuying goods and servicesfrom vendors.
However, WhatsApp Pay depends on theIndian government's Unified Payments Interfaceto handle the transactions. That meansbanks have to pay a feeto let their customers use the service. A demonstration of how WhatsApp Pay works.
Libra could be cheaper to use, and could expand WhatsApp Pay's reach far beyond India. Expanding the service across many countries could prove a huge opportunity for families with members working overseas. Many people who emigrate from developing countries to more developed nations send money back home to help their families get by. In 2018, people sentUS$689 billion to family members in other countries– and $529 billion of that money went to people in low- and middle-income nations.
The fees for those services are enormous –$25 billion a year , or 3.5% of the total amount sent. Facebook knows thatsaving money on these transfers , which the financial industry calls 'remittances,' would be a huge draw, letting emigrantssend home most or all of the fee savings , rather than paying it to middlemen.
In addition, Facebook's Libra is designed to be a place to hold users' funds, as well as allow people to exchange money. That could reduce, or even eliminate, fees for other transactions too. People who useother online financial serviceslike PayPal and Coinbase, could also connect to their Libra wallets, further expanding how useful a digital wallet could be.
Easier to use
There are other companies developing similar services. Humaniq, for instance, is a blockchain startup that offers its500,000 usersin46 developing nationsadigital wallet coupled with an online chatservice. Its customers can exchange money and messages through its app.
But Humaniq is a young company with more limited resources and a short track record of success and security. Facebook is much better positioned to dominate. In addition to its enormous user base, Facebook has the programming expertise to design user-friendly interfaces. For instance, WhatsApp already provides messaging in13 Indian languages .A World Bank expert explains the importance of mobile payment systems.
Libra is intended tointegrate with Facebook Messenger and WhatsAppso its users can also send money back and forth just as easily as they send text messages. Libra's other partners includefinancial and technology giantslike Visa, PayPal, Spotify and Uber, who are equally experienced at providing users with easy experiences.
Providing stability, efficiency and security
Cryptocurrencies, including the Libra,can prove attractiveto consumers and businesses in economies suffering from high inflation, high interest rates and unstable currency exchange rates. For instance, the Argentinian e-commerce companyAvalancha offers a 10% discount for payments in bitcoin . That makes sense because the Argentinian pesolost half its valuein the first eight months of 2018. If a customer pays with a credit card, Avalanchamay not get its money for a month– and that money may not be worth what it once was.
Libra also has the potential to transform the extremely inefficient microlending industry. For instance, the person-to-person microlending site Kiva has, over the past 15 years, let 1.6 million peopleprovide small-amount loans totaling more than $1 billionto more than 2 million needy entrepreneurs in developing countries. But Kiva doesn't lend the money directly to these budding businesspeople. Instead, it works with local microfinance institutions, most of which chargeexorbitantly high interest rates , averagingaround 40% .
Kiva is another backer of Libra , no doubt hoping to make its lending even more effective by directly transferring money from donors and investors to its entrepreneurs.Microlending may seem like a good idea, but in practice it's not always so great.
Cryptocurrency systems are attractive to people in developing countries because they have thepotential for greater security . Digital payment systems in developing countries,such as the M-Pesa , areincreasingly popular targets for hackers and cyber-thieves .Many users of India's UPIsystem have also beenvictims of financial cybercrime .
Libra has the potential to bring many benefits, but only if it can address a wide range of national and international concerns, from financial regulators and consumers alike. Facebook mustprove that the Libra system can combat money laundering and fraudboth at the sending end of a transaction and the receiving end.
At the same time, Facebook will have to convince its customers that it can keep their financial information private.Libra's integration with WhatsApp and Facebook, and potentially Instagram , suggests financial accounts will be linked to social media identities.Facebook has alarmed regulators and customersalike with its violations,and exploitations , of users' privacy.
On an even wider scale, some governments – in bothdeveloping nationsanddeveloped ones– are worried Facebook might become a ' shadow bank ,' a place to store money that's not subject to regulations regular banks are. Others have expressed concern about the sovereignty implications of aprivate company issuing its own currency .
Facebook has a lot of work to do before Libra can live up to its potential – and there's no guarantee that will happen. But it is clear that consumers and businesses in developing countries want technological help engaging in transactions and storing money.