Facebook finally launched its most anticipated cryptocurrency project today. While fiery debates about value ensue on Twitter , here’s a few reasons on why the project could be a runaway success in no time.
1/Scale — Westerners have an aversion for new technology adoption. If you look at the trajectory of internet adoption over the past 30 years, it took the US more than 10 years to classify the internet from a scam, to a mystery, to a fad, to “oh its real” and then finally to grasp its mammoth potential.
But the still-developing world works differently. We’ve seen less innovation in contemporary times and when you put a remarkable foreign product on our palms we will spread it around at the speed of light. For evidence, look at the growth of the internet itself, or Facebook, Whatsapp, Instagram, YouTube etc. in South Asia and Africa. So much in fact that we reinvented use-cases for these products.
Similarly, Libra solves a key pain point. You may send money to anyone anywhere without any fees simply through a Whatsapp message. We can buy stuff, sell stuff, split bills, pay bills all inside of Whatsapp. Reminder — there are almost a billion Whatsapp users in South Asia while the financial systems are antiquated. And, there is no Venmo or Cash App.
While the internet facilitated global participation in the information economy, Libra could facilitate participation in the global financial system. But why only Facebook and not some other crypto project that is more independent? See next.
2/Network- Bitcoin is a remarkable innovation but it lacked the infrastructure for instant mass adoption. Coinbase had to build you an easy exchange, Square or somebody else had to build you the digital wallet. And even then after a decade, the utility is limited to early adopters. While BTC trading volume is increasing and all the good things considered what you need for a crypto project to succeed is mass acceptance, common standards and a seamlessly operating network of existing end nodes functioning smoothly, AND integration with existing products.
Facebook’s products are used by over 2.5B people globally. That’s more than 65% of the global smartphone population. In the developing regions, more than 90% of internet connected smartphone users are known to use Whatsapp, Instagram or FB legacy regularly.
In these regions, the end nodes are ready — they have the hardware as well as the mental will to participate. People regularly call and chat with each other anyway (in some cases more than necessary), now they can seamlessly send money too. No new apps to be downloaded, no new technology to be learnt, no need to explain the benefits of crypto and how it works and what is sovereign wealth.
While BTC came technology first and infrastructure later, Libra is infrastructure first (Facebook’s existing network) and technology later. The learning curve is practically non-existent.
3/Utility — Routine life in the US is fairly easy compared to underdeveloped regions of the world. Imagine making $100 a month in an African city and then paying $15 in fees to send that money back to your family in a remote village. Or worse, losing value of your currency rapidly like that in Venezuela. You may now hold your small wealth in digital format, send it to your people and not worry about gatekeepers.
Take the case of remittances. Natives of countries like India, China, Mexico, Vietnam, Indonesia etc. collectively send about $150 billion each year to their family back home. Now while the process is streamlined by Transferwise, Remitly etc. for some major regions, there still remain large number highly populated countries where the costs of transaction are just too high. For several African countries, every transaction costs over $25 — no matter how much you send. Considering many of these senders are daily wage workers or low income families, $25 fee on $100 for an international wire is unacceptable.
Now imagine the same use case, sending money to your family in Africa or India through Whatsapp for 20 cents or less which they can then cash into their bank account for no fees. If you consider even a 0.5% fee, that’s a $750 million dollar revenue stream for Facebook right off the bat. I’m confident in reality they would do a lot more.
Use cases of this extend beyond remittances to commerce, wages, cottage industries, government schemes (would be exciting to watch this unfold) etc.
4/Borderless banking — The most obvious direction for Facebook to proceed in would be to consider offering traditional banking products like a savings account, lending services, credit cards etc. to get people to use the service beyond vanilla payments. This can be fairly lucrative revenue-wise if all you to do is build the technical infrastructure and get a bank like JPMorgan, Wells Fargo etc. to service the accounts in the background. But more importantly, such products could help Facebook kick-start the digital economy on its platform by getting people to store their money digitally — thereby expanding the total value of Libra.
Also, in a similar broad market trend led by millennial users, neo-banks (mobile only banks) have been on the rise while traditional banks with brick and mortar branches are struggling to keep up with rising costs to acquire and service young users. This list alone has 49 mobile only banks available on App Store. Chime, Simple, n26 are the leaders and more recently with WealthFront, Betterment and even are Uber offering 2.5% APY savings accounts, I’m sure we’re far away from an inflection point in this space.
But I seriously doubt many of these will exist 5 years from now given how expensive it will be to incrementally acquire users over time. Facebook’s bank on the other hand does not need to acquire new users, just convert the existing ones.
Beyond plain banking, FB could offers small business payment solutions, online payment integrations, in-app gaming payments, marketplace purchase tokens etc. Buying and selling beyond borders could enable a new eCommerce use-case in true fashion. Although it seems like a financially challenging endeavor to pull all this off and at scale, having Visa, Mastercard, PayPal as partners should help given their expertise in global settlements. Facebook just has to build the end features — and I do not doubt their technical chops.
Facebook has dabbled with payments before with tepid response but what makes this time different is that Libra will allow for developer integration, is open source and is GLOBAL. Payments service in the past was local and fairly limited in developer integration.
Facebook could position this project as a middle-layer on top of which developers could build applications and get instant access to a user base of billions. The use cases in gaming payments, eCommerce, marketplace, remittances, predictions, betting, eSports etc. are endless. I wouldn’t rule out a future where Facebook becomes the invisible developer-transaction layer of the global internet — a vision the crypto community likes to sell.
Overall, the most immediate benefits of this project, for the 31% world population that is still unbanked, and for the almost 65% of global smartphone users in the undeveloped regions living their lives with inefficient financial systems are beyond enormous.
Also, the “operating in the background” nature of the project where it integrates with existing popular services, and “just a click on an icon” away benefit combined with open sourced standards, is an indisputable advantage versus mainstream crypto projects. While the western world might challenge success on grounds of privacy or control, the rest of the world will just adopt it. That should be enough for Facebook to get started on it’s big endeavor — internet money.