In 1965, Co-founder of Intel, Gordon Moore, predicted that the number of transistors on a microchip will double every two years, increasing the capacity and speed of computers. Yet the cost of computers will continue to decrease. This postulation became what is remarkably known as Moore’s Law. It appears that this law is applicable to not just microchips but every piece of technology. The more sophisticated technology becomes, the cheaper and more accessible they become.
Folashade and her Mother
The year is 2025. The following conversation occurs on Whatsapp between Folashade (resides in Berlin) and her Mum (resides in Lagos).
Folashade: Hello Mum, how is your health now? You feel better?
Mum: I am better. How are my grandchildren?
Folashade: They are well, Mummy. My brother told me that your generator is faulty again.
Mum: Yes. But Ahmed will come and fix it later today.
Folashade: I think you should get a new one. It is too much trouble fixing it every time.
Mum: It is no trouble at all. I think we just need to change the plug.
Folashade: The same thing happened last week. I am sending you 200 Libra now. That should cover the cost of purchase and installation.
Mum: Thank you, my daughter. I have received it. God bless you.
Disrupting Global Financial Services
Payment and remittance services are about to be disrupted once again, courtesy technology (or should I say Brother Zuckerberg?). Banking and payment service companies are about to witness a new threat as Facebook rolls out its own cryptocurrency called Libra. Traditional banking and international remittance companies have for years existed, sometimes as competing entities, and some other times as collaborators; transferring trillions of dollars across the globe. They have constantly improved on speed and have continuously innovated to make financial services better and more secure. What have, however, been lacking are accessibility and affordability. Millions of adults have never operated a bank account; millions more have parted away with their hard-earned money paying for using financial services. This is about to change.
What’s Libra all about?
On the 18th of June, 2019, Facebook announced that it would launch a blockchain-based cryptocurrency named Libra in 2020. The intention, according to the white paper released, is to develop “a simple global currency and financial infrastructure that empowers billions of people.” Relying on blockchain technology, Facebook in partnership with the likes of VISA, Mastercard, and other global companies, will create a highly secure, flexible financial ecosystem. It will have the capacity to handle billions of accounts, perform trillions of transactions and ensure maximum security for users and their money. There are two major problems Libra intends to solve: financial exclusion and exorbitant fees associated with using financial services. According to the white paper, there are 1.7 billion adults in the world who do not have access to traditional banking services even though out of this figure, one billion have access to mobile phone with 50 percent having access to the internet. The intention is to bring these people into the financial system. Secondly, the report claims that “people with less money pay more for financial services.” Costs associated with using ATM, interbank transfers, international remittances and other financial services eat deep into the hard earned money of low-income earners. Libra will attempt to reduce this drastically thereby making financial services cheaper.
We all use Facebook, Instagram or Whatsapp
We may not be sure if Brother Zukerberg was clairvoyant and saw Libra in the future when he created Facebook or when he expended $19 billion to acquire Whatsapp or when he broke the bank to acquire Instagram. What is certain about Libra’s entrance into the financial services market is that it has a market with billions of people. It is just a matter of time before these people are converted into customers whose major means of carrying out financial transactions is Libra. Imagine buying corn and pear by the roadside and using Whatsapp to pay Mama Lasun 0.2 Libra. Awesome! Or Imagine sending 10 Libra to your grandmother in the village to help her fix her roof. With 4.9 billion combined active users on Facebook, Instagram and Whatsapp, Libra has what it takes to thrive and compete ruthlessly in a market already saturated with plethora of financial products and services.
Africa’s Remittance Market
Remittances to Sub- Saharan Africa from diaspora reached $46 Billion in 2018, according to the World Bank’s Migration and Remittances 2018 Report. The same report projects that Diaspora’s remittance to the region will reach $51 Billion by 2020. Africa does portend a huge market for Facebook’s Libra. The 2018 Digital Report by WeareSocial and Hootsuite asserts that Africa has 172 million social media users. It is also safe to assume that African social media users use Facebook, Instagram or Whatsapp or all. Secondly, part of the problem Libra envisages to eliminate is the huge cost associated with accessing financial services. The World Bank maintains that remittance cost remains high, with an average cost of seven percent. Sending money to sub-Saharan Africa, however, is 20 percent higher than the cost for remittance to other regions of the world. It will cost you $19 to send $200 to Africa. Bringing down the cost of remittance via the blockchain technology will see a shift in the remittance market. The ubiquitous nature of technology eliminates speed as a competitive advantage. Everyone will eventually be able to deliver instant and prompt payment services. The cost of using payment services and how secure the platform is, will therefore play a significant role in this market. Libra is ready to disrupt this market by significantly reducing the cost. How well the likes of Western Union, WorldRemit and many others will respond to this challenge remains a wonder.
Libra and Africa’s SMEs
It is important to also observe the impact Libra will have on SMEs in Africa who are involved in international trade. Many will be able to bypass the use of bank transfers and other money transfer services and simply conduct their financial transactions using Libra. Libra’s impending disruption will reduce the cost of doing business across borders. Africa’s SMEs can also look forward to doing more businesses regionally with the implementation of the African Continental Free Trade Area (AfCFTA) using the currency.
Temitope Adeyemo is the author of Young, Black and Successful and a banker. Follow him on Twitter @topeadeyemo