Mark Zuckerberg’s Facebook is testing a toll-free money transfer service through its Novi digital wallet that will allow users in the US and Guatemala to send money to one another.
The pilot will enable people to send and receive money across borders instantly and securely with no fees, Novi said in a statement on its website.
“We are running a pilot project to test the core functional functions and show that our operational skills in customer care and compliance can serve people well,” it says. “We also hope this will demonstrate a new stablecoin use case as a payment instrument that goes beyond what is common today.”
In October, the World Bank announced that remittances would decrease 14 percent by the end of 2021, compared to pre-coronavirus levels in 2019. The Washington-based lender predicted that global remittances would increase 7 percent to 508 billion in 2020 US dollars and 7.5 per cents would drop to $ 470 billion in 2021.
According to a report by finance and investment company Finaria, the value of the mobile wallet industry is set to rise 24 percent this year to $ 2.4 trillion. The growth trajectory is expected to continue, with the market valued at $ 3.5 trillion by 2023, according to the report.
Meanwhile, global cross-border payments are growing by around 5 percent annually and should reach 156 trillion US dollars by next year, according to a report by the London-based consulting firm Ernst & Young.
“Facebook already has a rich customer base of more than 2.8 billion users on its social media platform. That’s about 30 percent of the world’s population, ”says Arun John, Chief Market Analyst at Century Financial, based in Dubai.
“By entering this space, the company is likely to create stiff competition for other established players in the digital space, including PayPal, Visa, and even certain remittance-specific cryptocurrencies like Ripple in the longer term.”
The pilot was first announced on Twitter by David Marcus, head of Facebook Financial, who oversees the tech company’s payment and financial services products and experiences, including Facebook Pay, Novi, and its Diem cryptocurrency project.
“We have the opportunity to change the game for so many people left behind by the current financial system. I believe we should take this opportunity and I look forward to starting the journey, ”Marcus said in a series of Tweets on Tuesday.
We have the opportunity to change the game for so many people left behind by the current financial system. I believe we should take this opportunity and I look forward to making the journey. More at https://t.co/RrNzq9wd7k 8/8
– David Marcus (@davidmarcus) October 19, 2021
Facebook’s remittance pilot enables users to send and receive money using Pax Dollars or USDP through a partnership with the blockchain infrastructure platform Paxos and Coinbase, the largest cryptocurrency exchange in the US.
Mr. Marcus, who was President of the online payment platform PayPal from 2012 to 2014, is a former board member of Coinbase but resigned from his position in 2018 to “avoid the appearance of a conflict of interest” with his work at Facebook, Coinbase. it said on his website at the time.
When contacted for further comments on the company’s future plans for a global launch of its money transfer system, including in the United Arab Emirates, a Novi representative said, “Regarding future plans or rollouts in other countries the pilot is only limited to the US and Guatemala at this point and we have no further plans to report in other countries. “
In the Novi pilot, one USDP is equal to USD 1 and recipients can withdraw the money in their local currency.
“You can keep the money in your Novi Wallet or withdraw it by picking up cash at a nearby location or transferring it to your bank account. These options vary by country, ”says Novi.
We have the opportunity to change the game for so many people left behind by the current financial system
David Marcus, the head of Facebook Financial
The success of the U.S. Guatemala pilot is critical to Facebook’s Diem cryptocurrency project as it aims to migrate Novi to the Diem payments network once it has regulatory approval.
Facebook presented its cryptocurrency project in 2019. Originally called Libra, in December 2020 it changed its name to Diem, which means “day” in Latin.
However, it has faced numerous delays and regulatory hurdles after receiving a frosty reception from politicians, particularly in the US, where Facebook’s record on data protection has been heavily criticized.
US regulators say this could potentially enable money laundering, terrorist financing and anti-competitive activity, and lead to “new forms of coercion” of debt collection if a social media company ventures into the financing.
In May last year, the technology company also renamed its Calibra digital wallet, which was designed to store cryptocurrencies, to Novi.
“Our support for Diem hasn’t changed. We see great value in the way Diem is designed, with robust consumer protection and controls to fight financial crime,” says Novi.
“Novi’s goal has always been, and always will be, to be interoperable with other digital wallets, and we believe that having a purpose-built blockchain for payments like Diem is critical to providing solutions to the problems people are facing the current payment system. “
It’s likely that the company will test the waters and see how U.S. regulators react to ongoing developments in the cryptocurrency space, John said.
“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 step into the multi-billion dollar remittance industry.
In May of this year, the mobile wallet platform Google Pay teamed up with money transfer companies Wise and Western Union to enable their US users to transfer money to India and Singapore.
The service integrates the platforms of London’s 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 large company to introduce an e-wallet in 2011, is one of many tech companies digging deeper into the financial world. In 2019, Apple launched a credit card in collaboration with Goldman Sachs.
“Smaller operators in this space should be aware of the monopoly powers these tech giants have,” says John.
“From Apple to Google, most US tech giants have an advantage that no other company has – that of economies of scale. From investing to research to their huge customer base, these technology platforms have the skills and resources to absorb and acquire emerging small businesses “- to medium-sized competitors.”
While the Facebook platform does not pose an immediate threat to the global remittance network as its pilot is primarily aimed at the U.S., if the project is successful, the company is expected to seek remittance-based regulatory approvals for other countries, too, says Mr John.
“FinTech company [are] revolutionize the remittance industry in the best interests of consumers, “said Rajiv Raipancholia, director of Orient Exchange.
“The need for convenience, easy access and speed is what drives the success of digital transfers. However, the stationary model for transfers is still growing, but digital technologies like wallets and mobile apps are growing faster. “
Around 1.7 billion adults worldwide do not have access to a bank account, according to the Global Findex Database 2017, 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 financial inclusion problem, it said.
“Being excluded from the global financial system has real ramifications for people’s lives, and it is often the most underserved people who pay the highest price,” says Novi.
“The costs are high and the waiting times are long when people want to send money to their families internationally. The current system is failing them, and there is no digital financial architecture to support the innovations we need.
“These are the challenges that we hope we can solve in time with Novi … whether someone is sending money from the US to a loved one in Guatemala or paying back money to a friend nearby, it’s as easy as sending a message.”
However, Facebook’s referral pilot should be viewed as the company leveraging its existing customer base rather than providing access to the unbanked population, says John.
Meanwhile, Novi has tried to allay customer concerns about privacy and the connection to Facebook, saying in a separate statement that there are “strict controls in place to restrict exchanges with other Facebook companies”.
Novi accounts are segregated from Facebook accounts and a user’s money transfer activities are not published on their Facebook profile, the company says.
Novi will only share information with other Facebook companies to protect Novi for everyone, comply with the law, provide basic functionality, and enable us to advertise Novi services
New statement
“From day one, our priority is to give you simple, understandable and easily accessible explanations about when and how we collect, use and share your data, and what choices and controls you have,” it says.
“During this pilot project and beyond, our goal is to provide you with a secure, user-friendly and legally compliant app.
“Novi will only share information with other Facebook companies to protect Novi for everyone, comply with the law, provide basic functionality and enable us to promote Novi services. Even in these cases, Novi does not pass on your financial data to Facebook. Facebook’s own advertising purposes. “
Updated: October 21, 2021, 3:30 a.m.
