Today more details about Facebook’s cryptocurrency plans were revealed by the BBC. The social media giant plans to launch its GlobalCoin by the end of Q1 2020. GlobalCoin, the internal name of the currency which is part of “Project Libra”, will be based on a basket of international currencies such as the dollar, yen and euro.
Last month Facebook‘s CEO Mark Zuckerberg met with Bank of England governor Mark Carney to discuss the opportunities and risks presented by a cryptocurrency. The company has also been in discussions with the U.S. Treasury regarding identity checks and money laundering. Two weeks ago, the U.S. Senate sent an open letter to Facebook with queries about privacy and other concerns.
The social media giant is targeting a low-cost payment mechanism which will also cater to people without bank accounts. To that end, it’s even talking to Western Union. The likely initial vehicle is its WhatsApp messaging application.
Details about Facebook’s plans have been dribbling out for months. The company is likely to make an announcement in the summer. From the leaked fragments, it appears the strategy has evolved.
A large part of the excitement is that today, cryptocurrencies are a niche solution, and Facebook is viewed as a potential way to bring it into the mainstream.
Initially, it was thought Facebook would target remittances to India where Facebook has its largest user base. The challenge here is that charges for sending money to India are already far lower than other routes because of competition. The World Bank figure for the cost of remitting $200 globally is 6.94%. We analyzed nine online remittance channels from the U.S. to India, and the average price was just 1.37% with the four cheapest only 0.52% or less.
What’s more, very recently, India’s banks have banded together to explore the opportunity themselves.
Targeting the unbanked isn’t just a noble cause; it’s a classic disruptor tactic. This group is unbanked either because banks are too expensive or the customers are unattractive to banks because of small volumes, or there are issues in establishing identity. Remote areas where there’s a lack of physical banks might be one of the most promising targets. That way, the GlobalCoin might get used for p2p payments in communities.
At the same time, this group may sometimes need cash, and hence there’s a need for an offramp such as Western Union. The only fly in the ointment is that those offramps are expensive because cash handling doesn’t come cheap. It’s both risky and labor intensive. It’s notable that despite the excitement around cryptocurrencies, Western Union’s stock price has been relatively stable.
If Facebook’s coin started to get traction with the unbanked, Western Union (market cap: $8.4 billion) could become attractive for the social media company with it’s $516 billion market capitalization.
Apart from becoming a disruptor, by targeting the unbanked, it could also help to enhance Facebook’s reputation after numerous recent privacy issues.