Leah Callon-Butler, a CoinDesk columnist, is the director of Emfarsis, a consulting firm focused on the role of technology in advancing economic development in Asia.
The recent update to the Libra white paper has re-ignited debate around Facebook’s digital currency ambitions, albeit not to summer-2019 temperatures. “Haven’t read it yet” or “not been following for a while” are common responses when I ask my peers how they feel about the latest developments. Given how many of them believe Facebook’s original ambitions have been muzzled under government hostility and regulatory pressure, the declining interest from the blockchain community is perhaps not that surprising. But for those remaining who have read it, it’s become cool in crypto circles to slag off the project as “just another PayPal.” A lazy comparison, really, which insinuates David Marcus isn’t capable of architecting much more than what he’s already done.
But given Libra’s purported focus on delivering financial inclusion for emerging economies, and now a new pledge to provide a set of fiat-backed stablecoins like pseudo-Central Bank Digital Currencies (CBDCs), I’d argue that now is not the time to look away from Libra. With 1.7 billion unbanked people around the world, and a global remittance market buckling under the pressure of a pandemic, Facebook and friends are saying they’ll pony up to deliver worldwide payment rails that could finally solve the challenge of onboarding the masses – banked or not – to the digital economy. Even with the remaining regulatory hurdles in their way, this could be an enticing proposal for central banks that lack the means to develop their own CBDC, or those looking to hedge their CBDC bets while they wait to see how the rest of the world moves to navigate this new frontier.
Take the Philippines as an example. I’ve lived here since 2018 and it’s not hard to imagine how fast libra could become the preferred tender of Filipinos everywhere. To paint you a picture: While very few are banked – only 22.6 percent of adults have a formal account – the number of mobile phone subscriptions is greater than the number of actual people who live here. Also, according to an annual report by Hootsuite and We Are Social, if a Filipino has access to the internet (that’s two-thirds of the 109 million population), that person is on Facebook. In fact, Filipinos have been the most active social media users in the world for five years running. At nearly four hours every day, they dedicate more time to social media than anyone else, anywhere. The global daily average is just two hours 24 minutes.
Now, overlay this mobile-first, tech-savvy culture with the reality that the Philippines is still a cash-based society struggling to include the vast majority of its citizens in the mainstream financial system. In 2018, digital payments accounted for just 10 percent of the total volume of payments in the Philippines. The Bangko Sentral ng Pilipinas (BSP) aimed to increase this to 30 percent by 2020, but we’re not there yet. Even with the rapid rise of e-commerce, 83 percent of Filipinos are known to search for what they want online, only to go into the store to purchase with cash. COVID-19 might force in-store behaviors like this to change but still, where items are home delivered, 93 percent of Filipinos will pay Cash on Delivery.
Amanda Dominguez worked closely with the BSP during her time as a senior consultant at the Philippines office for the Ethereum design studio, ConsenSys. Chatting with me from her new home in New York, she says a libra-peso could quickly iron out inefficiencies due to Facebook’s utility and libra’s likeness to cash as opposed to credit. “Libra has the potential to become mainstream because of Facebook’s large user base, which could positively impact the broader blockchain space,” she says, adding that the BSP has been crypto-forward since the early days, having committed to reaching the financially underserved through digital innovation.
“Definitely the most responsible approach is for Libra to come in and work directly with the central bank, because there are people there who have made it their mandate to ensure there are safer, cheaper and more reliable forms of payment and transfers for our population,” she says, via Zoom.
As a college student of political science and archaeology, Dominguez wrote her thesis about first century Pompeian graffiti as ancient social media. During those times people loved to scrawl their signatures and draw symbols on the outside walls of elite Roman villas. So when you went to visit someone’s home or office, you could make an assessment about their social standing by checking out who else had etched a sketch on the wall.
Dominguez recognizes similarities between this and the way people publish their connections on Facebook and LinkedIn to make their social networks visible today. She got into blockchain when she saw how her research into reputation-based peer-to-peer marketplaces was aligned with the crypto community’s thinking about the social aspects of digital identity and decentralized commerce.
Growing up in Manila, Dominguez experienced many unique and elaborate local workarounds to bridge the online and offline worlds. For instance, the over-the-counter option that allows you to reserve a flight booking or buy concert tickets via the internet, before paying in cash at the local 7-11. She says the lag in uptake of online payments is not because Filipinos don’t have the digital literacy or technical capability to go through with it. It’s more about the nature of cash. It moves fast and people live paycheck to paycheck. So if you’re unbanked and you spend the majority of your pay packet in cash, why would you go to the extra effort of traveling all the way to the bank, just to queue up and deposit your money and then get burned with account and transaction fees?
But for many people – such as the millions of vulnerable households that rely on money being sent home by family members who work overseas – the cashing in and out process is unavoidable. Making up nearly 10% of Philippine GDP, remittances are an exceptionally slow, clunky and costly business, locked in a paper-based era of bricks-and-mortar inefficiencies.
So this is where Facebook CEO Mark Zuckerberg’s vision really rings true: If it was as easy to send money to the Philippines as it is to send a photo via Facebook Messenger, and if recipients could pay for all they need within the app, they’d never have to cash out again. This is the real opportunity for Libra. Eliminating the need to cash in and out could eliminate cash forever.
Say that the BSP goes and airdrops “free money” libra-pesos to Facebook users, just how PayPal paid its customers to sign up back in the year 2000. The strategy was expensive but successful and something like this would be one helluva incentive program in a country where the average family income is around 22,000 pesos per month ($433). You could get millions upon millions of user registrations in a day.
The next step is to convince users to stop cashing out and start paying digitally instead. This is where the small and mid-sized enterprises (SME) that represent 98 percent of local firms in the Philippines, could bring real momentum to the mobile-first movement. It’s not fantasy to think of scanning my jeepney driver’s QR code to pay for a 9 peso trip. Or tapping a street food seller’s phone to pay for a pork skewer. Or scanning the mobile point of sale at the sari-sari store to buy a San Miguel Light. Maybe they’re running a promo where I can earn a libra-peso to spend next time if I post a selfie with my beer and use the right hashtag.
From a financial inclusion perspective, the flow-on effects of this could be huge. After accepting libra payments for a while and paying their suppliers in-app, a previously paper-based SME has the beginnings of a verifiable financial history. Combine this with check-ins and customer reviews on their Facebook pages and we suddenly have data to feed into an alternative credit scoring model to assess eligibility for a microloan. And considering the cost savings of doing all this digitally, and at scale, we can presume the loan would come at a much more competitive rate than the pawnshops and loan sharks have been pushing the trade for centuries.
If all this is so inevitable, and the potential benefits are so enormous, why hasn’t the local fintech community already delivered on the pipe dream? Theoretically, they could do it. Philippine companies like GCash (Chinese titan, Ant Financial, owns a stake) and blockchain-based Coins.ph have built great tech and demonstrated traction, particularly in allowing users to send and receive money, buy mobile data and pay bills online. But realistically, it’s hard work coaxing new users to download and learn a whole new app, and users have little incentive to stick with something if the critical mass isn’t there yet. The real shift will come when people have a reason to use their phones for even the tiniest of everyday payments.
This idea of libra’s digital domination requires little suspension of disbelief when you know how Facebook got its big break into the Philippine market in 2013. Seeing it as its mission to deliver digital inclusion to the millions of poor people who owned a mobile phone but couldn’t afford the data top-up, Facebook partnered with local telcos to offer free access to the app for smartphone users. Internet.org, as it was known, was so successful that in 2015 Facebook extended the initiative to include a curated selection of 24 websites delivering basic internet services related to education, health, employment, communication, information and news. They rolled it out to other developing nations, too, including Colombia, Ghana, Tanzania, Kenya, India and Zambia. For many, Internet.org was the only internet they knew.
In a poor country where Facebook is the internet, libra could be money. Which begs some serious questions about the fine line that exists between empowerment and exploitation. There’s no such thing as a free lunch and Dominguez describes it as “unsettling” to think of all the people who freely signed away their privacy rights to get free data from Facebook.
But she’s less worried about libra if the BSP are at the helm. Dominguez says she trusts the regulators, she trusts the central bank and Filipinos would be able to trust libra if the central bank were involved. This might be difficult for some CoinDesk readers to stomach but the BSP is generally well regarded among Filipinos. For some, it is the most highly rated and trusted institution among all government agencies.
“Trust, in a broader blockchain sense, won’t even be considered,” adds Dominguez, recognizing libra’s true selling point in the Philippines is its ability to provide fast, cheap and easy financial services to the currently underserved in a way that no other has been able to do (yet).
Capitalizing on the kind of consumer reach and distribution that other fintechs only dream about, libra could flip the switch that finally sees the Philippines go digital. Thus, insisting on comparing libra with the superior decentralization and privacy properties of other cryptocurrencies, is kind of missing the point. Libra is hitting on some deep, deep pain points for poorer economies and, frankly, the chance to onboard a formidable chunk of the unbanked may speak louder to those who call the shots. And that’s exactly why those who can understand the trade-offs should not be underestimating libra.