Mark Zuckerberg’s Facebook is piloting a toll-free money transfer service through its Novi digital wallet that allows users in the United States and Guatemala to send money to each other, marking the tech company’s first foray into the global multibillion-dollar remittance market.
The pilot project will allow people to send and receive money across borders instantly and securely at no cost, Novi said in a statement on its website.
“We are running a pilot project to test core functions and show that our operational capabilities in customer service and compliance can serve people well,” he says. “We also hope this will demonstrate a new use case for stablecoin as a payment instrument beyond how they are typically used today.”
In October, the World Bank said remittances would fall 14% by the end of 2021, from pre-coronavirus levels in 2019. The Washington-based lender predicted global remittances would decrease by 7 percent to $ 508 billion in 2020 and 7.5 percent. cent to $ 470 billion in 2021.
The value of the mobile wallet industry is expected to grow 24% this year to $ 2.4 trillion, according to a report by finance and investment firm Finaria. The growth path is expected to continue, with the market estimated at $ 3.5 billion by 2023, according to the report.
Meanwhile, global cross-border payments are growing at an annual rate of around 5% and are expected to reach $ 156 billion by next year, according to a report by London-based consultancy Ernst & Young.
“Facebook already has a rich customer base of over 2.8 billion users on its social media platform. This roughly equates to over 30% of the world’s population, ”said Arun John, chief market analyst at Dubai-based Century Financial.
“By entering this space, the company is likely to face fierce competition against other well-established players in the digital space, including PayPal, Visa, and even some remittance-specific cryptocurrencies such as Ripple longer. term.”
The pilot was first announced on Twitter by David Marcus, director of Facebook Financial, who oversees the tech company’s payment and financial services products and experiences, including Facebook Pay, Novi, and its cryptocurrency project Diem. .
“We have the opportunity to help be a game-changer for so many people who have been left behind by the current financial system. I think we should take this opportunity and I can’t wait for us to start the journey,” said Mr Marcus said in a series of tweets on Tuesday.
Facebook’s remittance pilot project lets users send and receive money in Pax Dollars, or USDP, through a partnership with blockchain infrastructure platform Paxos and Coinbase, the world’s largest crypto exchange. – currency in the United States.
Mr Marcus, who was chairman of the online payments platform PayPal from 2012 to 2014, is a former member of the Coinbase board but stepped down in 2018 to “avoid the appearance of a conflict of interest “with its work at Facebook, Coinbase said on its website at the time.
When contacted for further comment on the company’s future plans for a global unveiling of its money transfer system, including in the United Arab Emirates, a representative from Novi said, “Regarding Concerning future plans or deployment in other countries, the pilot is limited to the United States. and Guatemala right now and we have nothing else to share on plans in other countries. “
Under the Novi pilot, one USDP equals $ 1 and recipients can withdraw the money in their local currency.
“They can keep the money in their Novi balance or withdraw it by picking up money nearby or transferring it to their bank account. These options vary by country, ”explains Novi.
The success of the US-Guatemala pilot project is crucial for Facebook’s Diem cryptocurrency project, as it aims to migrate Novi to the Diem payment network once it receives regulatory approval.
Facebook unveiled its cryptocurrency project in 2019. Originally called Libra, it changed the name to Diem, which means “day” in Latin, in December 2020.
However, it faced numerous regulatory delays and hurdles after receiving a frosty reception from politicians, especially in the United States where Facebook’s data privacy record has come under heavy criticism.
US regulators say this could potentially enable money laundering, terrorist financing and anti-competitive activities, and lead to “new coercive forms” of debt collection if a social media company goes into finance.
In May of last year, the tech company also renamed its Calibra digital wallet, designed to store cryptocurrency, as Novi.
“Our support for Diem has not changed. We see great value in the way Diem is designed, with robust protections for consumers and controls to fight financial crime,” Novi said.
“Novi’s goal has always been and always will be to be interoperable with other digital wallets and we believe that a blockchain specifically designed for payments, like Diem, is essential in providing solutions to the problems people face. with the current payment system. “
The company is likely to test the waters and wait to see how U.S. regulators react to ongoing developments in the cryptocurrency space, according to John.
“It would be interesting to see how Diem competes with established stablecoins in this space like Tether and USDC,” he says.
Facebook isn’t the first tech company to enter the multibillion-dollar remittance business.
In May of this year, the mobile wallet platform Google Pay partnered with money transfer companies Wise and Western Union to allow its US-based users to send money to India and in Singapore.
The service integrates the platforms of London-based Wise and Western Union, the world’s largest money transfer service, into the Google Pay app, the company said at the time.
Google, which was the first big company to introduce a wallet in 2011, is one of the many tech companies that are digging deeper into the financial world. In 2019, Apple launched a credit card in partnership with Goldman Sachs.
“Smaller operators in this space should be well aware of the monopoly powers of these tech giants,” John said.
“From Apple to Google, most of the US tech giants have one advantage that no other company has: economies of scale. From investments to research to their vast customer base, these technology platforms have the capabilities and resources to absorb and acquire any future small business. medium to medium sized competitors. “
Although the Facebook platform does not pose an imminent threat to the global remittance network since its pilot project is mainly focused on the United States, if the project proves to be successful, the company should seek regulatory approvals based on remittances for other countries. , too, says Mr. John.
“FinTech companies [are] revolutionizing the remittance industry in the best interests of consumers, ”said Rajiv Raipancholia, Managing Director of Orient Exchange.
“The need for convenience, easy access and speed is what drives the success of digital remittances. However, the physical model of remittances continues to grow, but digital technologies such as wallets and mobile apps are developing at a faster pace. “
Globally, about 1.7 billion adults do not have access to a bank account, according to the 2017 global Findex database, which publishes a comprehensive set of data every three years on how adults save, borrow, make payments and manage risk.
The Facebook Novi pilot project aims to help solve the problem of financial inclusion, he says.
“Being excluded from the global financial system has real consequences on people’s lives and it is often the most underserved people who pay the highest price,” Novi said.
“The costs are high and the waits long when people want to send money to their families abroad. They lack the current system and there is no digital financial architecture to support the innovation we need.
“These are the challenges that we hope to resolve in time with Novi… whether someone sends money from the US to a loved one in Guatemala or reimburses a friend nearby, it’s as easy as sending a message.”
However, Facebook’s money transfer pilot should be seen as the business leveraging its existing customer base rather than providing access to the unbanked population, John said.
Meanwhile, Novi has acted to allay customer fears about privacy and its association with Facebook, saying in a separate statement it has “strict controls in place to limit what is shared with other Facebook companies.” .
Novi accounts are separate from Facebook accounts, and a user’s money transfer activity is not published on their Facebook profile, according to the company.
“From day one, we make it our priority to provide you with simple, understandable and accessible explanations of when and how we collect, use and share your information, as well as the choices and controls available to you,” he says. -he.
“During this pilot project and beyond, our goal is to provide you with an application that is secure, easy to use and complies with applicable laws.
“Novi will only share information with other Facebook companies to help us keep Novi safe for everyone, comply with the law, provide basic functionality and allow us to advertise Novi services. Even then, Novi does not share your financial information with Facebook for Facebook’s own advertising purposes. “
Update: October 21, 2021, 3:30 a.m.