Libra's top-down model doesn't match its financial inclusion mission
Long-awaited for the past year, the latest to join the existing pool of offerings to serve emerging markets is Libra. Beyond being differentiated by its immediately accessible market, enabled by the approximately 2.4 billion Facebook users around the world and the social media giant’s built-in Calibra wallet, Libra is also a “stable digital cryptocurrency."
Supported by the technical infrastructure of the Libra blockchain, the currency is also backed by a basket of assets that are characterized by their “stability, low inflation, wide global acceptance, and fungibility." Beyond the benefits of blockchain, however, to what extent is Libra poised to deliver on this promise of financial inclusion?
Having secured the (nonbinding) support of 28 leading conglomerates, ranging from e-commerce companies such as eBay and Farfetch, ride-hailing giants Uber and Lyft, as well as payment providers Visa, Mastercard, PayPal and more, the Libra Association seemingly appears to comprise a diverse group.
However, beyond an association to a positive cause, Libra is a prime opportunity for monetization and these businesses will certainly benefit from accepting Libra on their applications and websites while capitalizing on an additional entry point through Facebook’s social platforms. Though the use of Libra to pay for a Spotify subscription, an outfit on Farfetch, or a holiday on Booking.com is certainly an on-ramp for mainstream adoption, the appeal and necessity of such services to the underbanked, as part of the currency’s underlying mission, is mismatched.
In fact, rather than leveraging the participation of a majority of organizations in emerging markets from the get-go, the association’s seemingly top-down approach appears to exclude retailers and small business owners— the very commercial market that would stand to benefit the most from Libra’s social mission.
The Libra white paper argues that greater internet connectivity has empowered financial and knowledge mobility with a mere “$40 smartphone from almost anywhere in the world," arguing that this very ease of access underscores the currency’s accessibility. Reality would argue otherwise—though over 5 billion people in the world own a mobile device, only half are smartphones and in emerging markets, median ownership is at less than 50%. For payments startups that have looked to facilitate financial inclusion in such markets, traditional text messages are used for funds transfers instead, while leveraging a network of physical agents manage withdrawal and deposits.
Projects that opt to leverage non-smartphone messaging to mitigate the infrastructural barrier to entry are forced to contend with the regulatory hurdles that come in line with mainstream legitimacy and the resulting trade-offs that impact ease in implementation. For the Facebook, Instagram and WhatsApp users that hope to use Facebook’s Calibra wallet, a government-issued ID will be required to register for an account, leading to criticisms of the social media giant’s past track record of privacy compliance.
However, for 1.7 billion adults unbanked today, this very issue of formal identification is one of the major hindrances that impact access to traditional financial services, with 1.5 billion people in the world living without an official identity document. With this population of unbanked individuals forming the core part of the market that Libra hopes to integrate into a digital economy, more clarity will be needed to identify how the association intends to broach this gap as it simultaneously complies with know-your-customer (KYC) and anti-money-laundering (AML) regulations.
With digital literacy as a key enabler for digital transformation on a mass scale, Libra has a tall order ahead of itself as it competes with existing offerings in the market. Amid a flurry of regulatory criticism across the globe leading to dampening investor sentiments as well as an image to rehabilitate in the eyes of privacy and cybersecurity advocates, Libra will also need to first address the fundamental barriers to entry for those in need beyond the vague promises cited in its white paper.
As countries transition from developing to developed economies, one of the mutually shared goals that underscore such efforts pertains to financial inclusion.
Despite being essential to poverty alleviation and further economic growth, financial inclusion continues to impact a majority of the global population, with the World Bank estimating that 30% of adults today still lack access to a basic bank account.
Amid enduring undercurrents of financial inequality, the simultaneous rise in fintech payment solutions in emerging markets has come to play a pivotal role in accelerating the digitalization of economies, enabling predominantly cash-based populations to turn from paper to pixels. Alternative payment solutions, especially in Asia, with AliPay, GrabPay and WeChat Pay, have all capitalized on the continent’s high mobile penetration rate, and as a result, have each experienced unprecedented success.