Pilot Launch| Crypto wallet and remittance service for unbanked Venezuelan refugees

Mercy Corps Ventures invested in Valiu in 2019 as their product has the potential to make a significant impact, by improving cross-border remittances, savings rates, and even financial inclusion.

Now, Valiu and FinX are excited to announce a new pilot in collaboration with Mercy Corps Colombia, Innovations for Poverty Action (IPA), and the Lab for Inclusive FinTech (LIFT) — a soon-to-be-launched initiative of the Institute for Business and Social Impact at the University of California Berkeley. This pilot is FinX’s first aimed at rigorously evaluating the impacts of Valiu’s smartphone app that combines a stablecoin (cryptocurrency designed to have a relatively stable price) and a remittances service for vulnerable Venezuelan migrants and refugees in Colombia, in partnership with Mercy Corps’ VenEsperanza program.

From the pilot’s inception stage we have partnered with Paul Gertler (IBSI Faculty Director) and Laura Chioda (IBSI Director of Research), top academics in the field of development economics and impact evaluation. Generating independent and high quality evidence will not only permit us to deepen our understanding of the impacts of this technology, but also contribute to the industry debate with high quality, evidence-based insights.

Users will receive three payments of 4 Valiu dollars (USDv) each.

The Context

In Venezuela, the economic and social collapse has resulted in the worst mass migration in the history of the continent. As of November 2020, more than 6 million refugees and migrants from Venezuela have left their country, out of those, more than 1.8 million are in Colombia.

As an economist from Venezuela, I not only understand the causes behind this collapse, but I have lived through it, hunger included. Over the years, I’ve documented what’s happening in the country, while many of my relatives and friends fled. Earlier this year I emigrated to Colombia through dangerous guerilla-controlled passages. During my trip, I met a woman who was planning to beg on the streets once she arrived in Colombia. This is why I’m so passionate about leading this pilot operation on the ground for the FinX team.

Families cross the Venezuela-Colombia border at Paraguachón, Colombia.
© Ezra Millstein/Mercy Corps

For the people that stay in Venezuela, like my parents, remittances have become a critical lifeline to buy essential goods. In 2019, an estimated $4 billion was sent back to Venezuela — a record sum that’s projected to increase as the exodus continues. But there are a number of challenges associated with sending remittances — the cost of sending money is high and it often takes one or more days to arrive. In a hyperinflationary economy where money loses value daily, such delays are highly consequential and can erode significant value, quickly.

Furthermore, as highlighted by a recent IPA study, 56% of Venezuelan migrants in Colombia lack necessary identity documents to open a local bank account, a reality for many, including myself. For this population, one of the most common channels through which they can send remittances is the informal market, which can be quite risky, since delivery to the intended recipient is not guaranteed. Moreover, in the eyes of formal financial systems, migrants face significant barriers to entry: they don’t have the ability to build a credit history in their new country of residence, nor other requirements needed to access the financial services that could transform their lives.

For Venezuelans experiencing over 30% of monthly inflation, not having access to a stable currency has contributed to millions not being able to buy enough food (92.4% of households in Venezuela suffer from food insecurity — ENCOVI), and for life savings to vanish.

In this hyperinflationary environment, individuals have increasingly turned to USD or other ‘safe haven’ currencies for their savings. Currently, over 65% of transactions in Venezuela are conducted in U.S. dollars instead of the hyperinflating bolivar, however, cross-border remittances to Venezuela are almost always denominated in bolivars. Not only is it very difficult to send physical dollars in cash across borders, but digital access to dollars is also highly limited.

I know how hard it is to send money in a stable currency to elderly parents back home. Even though I know my way around cryptocurrencies and the myriad of alternatives that exist, my parents aren’t tech savvy. This is where Valiu’s service shines the most, it’s a way to send remittances in a digital stablecoin that’s easy to use.

FinX Hypothesis:

This pilot will measure the impact of the Valiu solution on a rich set of outcomes. We want to see if a product like this can help a largely unbanked population to achieve financial freedom, which means having the ability to save and move funds freely across borders.

We want to measure:

  • Take-up/adoption of the remittance service
  • Protection of purchasing power via Valiu’s stablecoin, USDv
  • Wallet retention over time with and without incentives
  • Transaction frequency
  • Speed of the service
  • Trust in the service
  • Referral behavior

This pilot will also help Valiu determine what interventions can improve retention of their app users.

Pilot Summary:

The pilot is being implemented as an at-scale randomized control trial (RCT). Over 3,000 study participants will be recruited from Mercy Corps Colombia’s VenEsperanza cash transfer program. Half of the participants — the treatment group — will receive three transfers of 4 USDv over 8 weeks directly into their Valiu wallets, for a total of 12 USDv. The other half, the control group, will receive the same funds via alternative methods.

Study participants in the treatment group will receive funds in USDv when they install the Valiu app on their smartphones, enabling them to send those funds to other Valiu users, or to store or convert them to Venezuelan bolivars with just a few taps. This means they can have both the financial protection of holding a hard currency and the liquidity of having the local currency of Venezuela.

Learning & Impact:

As regulators and policymakers across the globe debate the merits and risks of stablecoins, this RCT represents a significant opportunity to learn about stablecoin wallet adoption, utilization, and retention, as well as broader economic impacts of these technologies for vulnerable, low-income and unbanked populations sending money across the Colombia-Venezuela corridor.

Specifically, this study will allow us to measure:

  • Customer retention. We want to know the percentage of participants that continue to use Valiu with their own money after they’ve ceased to receive pilot funds.
  • Speed to complete transactions. We will measure how much faster Valiu is than alternative remittance methods.
  • Conversions/referrals to their networks. We will measure how likely participants are to recommend Valiu to other people.
  • Control over financial accounts and value retention in “stable” currency. Participants have the option to send the funds in USDv to other Valiu users instead of immediately converting them to the local currency. This means that their acquaintances in Venezuela have the ability to receive and store funds in a stable currency instead of being forced to use the hyperinflating bolivar.
  • Convenience and ease of use. We will measure the self-reported experience the users have with Valiu’s service, in terms of convenience and ease of use.
  • Reliability and trustworthiness. We will also measure how trustworthy and reliable users find Valiu’s service, as reported by them.
  • Value of holding stablecoin (USD). We want to find out how much people value having the ability to hold a stablecoin.

Stay tuned for our learnings in part 2 of this blog series — we can’t wait to share the full results!

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We invest in and fuel high-impact enterprises that increase the resilience of people and communities in frontier markets.

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