Facebook will be launching Libra in early 2020, a digital currency backed by a reserve of real currencies and assets. It hopes to grow to become globally accepted and adopted. In other words, they want to create a global financial network based on a digital currency and backed by financial reserves.
The currency has already signed up partnerships ranging from, Lyft, Kiva, Spotify and MasterCard to Naspers. According to the social media giant, they are looking to have 100 partners before the currency launches.
Facebook is committed to “empowering” unbanked people across the world by providing access to the global financial system. That is quite an audacious objective given the sheer size of that population at an estimated 1.7 billion people. The bulk of which are in Africa. But then again, Facebook has over 2 billion users across its network of apps. Its fastest-growing regions include Africa and Asia. So it is very achievable.
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Africa’s market size
Since Libra hasn’t taken off, we cannot ascertain its adoption on a daily basis. However, this creates a big opportunity for remittances in Africa. There is a huge impact to be made in that regard.
A large portion of African diaspora populations across North America and Europe more often send money back home to relatives and friends. This number represent a major source of remittance flows to the continent. According to the World Bank, remittances to sub-Saharan Africa grew to $37 billion in 2017 and are projected to reach over $50 billion this year.
Given that those figures only track funds sent through formal channels and exclude remittances to North African countries, the total for the entire continent is likely much higher.
In Liberia, these remittances have become economic pillars and an important contributor to national GDP. However, remittances also cost more to send money to Africa than anywhere else in the world. By extension, remittance receivers also end up with less cash given high costs.
Disruption in Remittance
That’s where Libra comes in. At least, that’s what Facebook hopes. According to their white paper, they intend to change the transaction fee element in remittances. They intend to drastically lower cost for both the sender and receiver.
This move by Libra poses an existential threat to remittance companies, like WorldRemit and could even hurt traditional behemoths like Western Union and MoneyGram.
“Libra will cannibalize the business of traditional remittance companies, but it will not immediately replace them,” says Laolu Samuel-Biyi, director at SureRemit, a crypto-based remittance service that allows users send money for specific purposes through closed loop vouchers.
“The risk arises when Libra gets saturated enough to the point that people are comfortable holding and accepting it, that they don’t need to buy with fiat or sell into their local currency. They can just simply spend it. That will be truly disruptive, and not just for remittance companies.”
Bureaucracies and Rivalries
One interesting things is that, Facebook makes more money in revenue on advertising from Europe and North America than it makes in Africa. In that way, they need to target Africa immensely. Therefore, the economics of targeting African and developing markets with Libra make a lot of sense for Facebook.
But before any of that happens, Facebook will face some hurdles starting with confronting existing social behaviour. Despite the rise of tech startups and ecosystems across the continent, there’s still some scepticism —in some cases, outright distrust—for digital payments and an enduring preference for cash.
Payments and mobile money culture
Facebook is extremely lucky. There are two things in their favour with regards for their presence in Africa. First off, Facebook and WhatsApp have a huge user base on the continent. Secondly, the mobile money adoption is always increasing every year. Platforms like MPesa have their transactions worth about half of Kenya’s GDP.
But existing mobile money culture also begs the question of whether Libra will compete with or complement established services like MPesa. These services, which are optimized for local problems, are already embedded in regulatory frameworks and enjoy strong patronage. However, some analysts predict that, the uptake of Libra among users in African markets with evolved mobile money services. Cross-border payments and remittances could also limit them.
On African regulators
Government regulation could also thwart Libra. The tendency by most African governments for tight currency controls suggests they are unlikely to be welcoming of an all-powerful digital currency which bypasses their systems. Ghanaian government for instance is dragging its feet in regulating the fintech space, Bitcoin was banned last year in Zimbabwe and so on.