This article comes fromBloomberg, Original Author: Jenny Surane & Christopher Cannon

Odaily Translator |

Odaily Translator |

Worldwide, more than 1 billion adults own a mobile phone, but they do not have a bank account.

For Facebook, which has been coveting the financial technology service industry for a long time, what will they do in the first step? The answer has already come out: the introduction of digital currency. Why is Facebook so confident? Because they have one biggest advantage over other competitors: 2.4 billion users worldwide.

But relying on users alone may not be enough.

With Libra, Facebook and its partners are targeting the unbanked, eager to send money overseas at a lower cost. However, this market is already crowded with competitors, and many "novices" are strangled in the initial stage by "old fritters". But Libra is different. Their advantage is not only that they have Facebook as a big backer, but more importantly, the global cross-border remittance market is in a stage of rapid development-according to data compiled by the World Bank, the scale of global remittances in 2019 will grow to $714 billion, a 52% increase compared to 2010.

For the cross-border remittance economy, the following figure shows the five countries with the largest inflows of global remittance funds from 1980 to 2017: India, China, Mexico, the Philippines and France.

The following figure shows the five countries with the largest outflow of global remittance funds from 1980 to 2017, namely: the United States, Saudi Arabia, Switzerland, Germany and Russia.

(Data source: KNOMAD/World Bank, note: Russian data before 1994 are missing)

Talie Baker, senior analyst for retail banking and payments at Aite Group, argued in a recent report that the remittance market is a cutthroat business, but even so, there are still plenty of startups emerging. While the remittance market has long been dominated by the likes of MoneyGram International Inc. (MoneyGram), Western Union Co., (Western Union), a host of new players are becoming well-known, such as Remitly Inc., TransferWise Ltd., and WorldRemit Ltd. et al.

Facebook's current goal is to reach a partnership with 100 companies and non-profit organizations to form the Libra Association, which will oversee the development of the digital currency Libra. But Libra Association spokesperson Dante Disparte also acknowledged that the work is very complicated, she said:

Facebook hopes to reduce the cost of consumers transferring funds overseas, so when Libra chooses a market, it is likely to choose some regions with faster growth in Facebook's native business.

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competitors and partners

The transaction volume of world-renowned remittance companies in 2018 (left in the figure below): Western Union 287 million transactions, Transferwise 140.4 million transactions, Ria 107.6 million transactions, MoneyGram 95.2 million transactions, Remitly 15 million transactions, and WorldRemit 7.4 million transactions. From 2016 to 2019, the growth rate of Facebook's monthly active users (right in the figure below): 85.7% in the Asia-Pacific region, 19.2% in Europe, 11.4% in the United States and Canada, and 53.6% in other countries and regions.

(Data source: Aite Group and company filings)

The average cost of sending remittances globally has been high for years, at around 7% according to the World Bank: That means if a consumer wants to send $200 abroad, they will pay $14. The reality is not only this, the cost of cross-border remittances will also vary depending on the geographical location. For example, sending $200 from the US to Liberia costs an average of $19.31, but sending money to India costs just $6.24.

Libra can take advantage of its own "digital currency" to allow consumers to send small amounts of money overseas at a lower cost. Faisal Khan is a consultant for a cross-border remittance company. He revealed that some companies in the industry will set a fixed fee when providing cross-border remittance services to consumers. This method will force customers to send higher amounts of money. Around $250. Faisal Khan further explained:

So, why is the cost of traditional cross-border remittances so high? One of the reasons is that many cross-border remittance customers are low-income people, so they must use cash for transactions. In order to meet this market demand, many remittance service providers have to build a global agent network.

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market opportunity

Those countries with underdeveloped retail banking and low bank card usage may be the most suitable for Libra.

(Data source: World Bank G4S World Cash Report 2018, note: bank cards include debit cards, credit cards and prepaid cards)

As can be seen from the above figure, there are more than 2.5 billion people in the world living in countries with the least number of bank outlets and bank cards per capita, which is a huge market for Facebook. But at the same time, Facebook is also very aware that cross-border remittances are a challenging industry, one of which is regulation.

In July, Facebook's head of blockchain and cryptocurrencies, David Marcus, participated in two consecutive congressional hearings, answering a series of questions about how the company ensures compliance with global regulations.

Many banks have been cutting ties with cryptocurrency remittance operators in response to new regulations, both because cryptocurrency transactions are anonymous and because they often fail to meet anti-money laundering scrutiny. According to the World Bank, cryptocurrency remittances can in some cases add more costs to consumers.

In this case, Facebook may first choose to expand its business in more than 60 developing countries around the world. These countries are already using the US dollar and the euro to replace their national currencies, and some countries even directly link their legal tender to the US dollar. According to MoffettNathanson analyst Lisa Ellis, many developing countries are already accustomed to other forms of currency.

But Talie Baker, senior analyst for retail banking and payments at Aite Group, has a different view. She believes that convincing billions of people around the world to change their buying habits is not an easy task. For example, in the United States, people still often use credit cards. And debit cards are used as payment methods, but consumers in China and parts of Africa have become accustomed to mobile payment as their most common payment method.

"Maybe Libra can provide an affordable way to send money, but when you pay extra to cash out Libra, will it still be considered affordable? If you can't use Facebook's digital currency Libra to go to the grocery store, then put your What is the use of exchanging my money for cryptocurrency?"

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payment method

As of last year, China led the way in mobile wallet usage, while other countries still rely on paper currency, let’s take a look at the use of cards, e-wallets, cash and other payment methods in some of the world’s leading countries.

• United States: Credit and debit cards are popular in the United States, which also hosts two of the largest payment network service providers in the world, Visa Inc. and Mastercard Inc.

• Offline POS transactions amounted to USD 2.6T, of which bank card transactions accounted for 80%, cash transactions accounted for 15%, and e-wallet transactions accounted for 5%;

Online e-commerce E-commerce transactions amounted to US$444 billion, of which bank card transactions accounted for 68%, e-wallet transactions accounted for 20%, cash accounted for 4%, and others accounted for 8%.

• CHINA: Ant Financial's Alipay and Tencent Holdings Ltd's WeChat Pay mobile wallets dominate China's payments market, where they can be found everywhere from street vendors to big box retailers.
  

• Offline POS transactions amounted to US$1.9T, of which bank card transactions accounted for 39%, cash transactions accounted for 21%, and e-wallet transactions accounted for 40%;

Online e-commerce E-commerce transactions amounted to US$588 billion, of which bank card transactions accounted for 24%, e-wallet transactions accounted for 64%, cash accounted for 2%, and others accounted for 10%.

• Japan: Cash remains popular in Japan, where ATMs are plentiful and Japanese banks have been slow to adopt new forms of payment, such as electronic payments.
  

• Offline POS transactions amounted to US$872 billion, of which bank card transactions accounted for 29%, cash transactions accounted for 68%, and e-wallet transactions accounted for 3%;

The transaction volume of online e-commerce E-commerce was 87 billion US dollars, of which bank card transactions accounted for 65%.

• Germany: Germany, Europe's largest economy, is sticking with its switch to electronic payments, although concerns remain about trust and privacy.

• Offline POS transactions amounted to US$522 billion, of which bank card transactions accounted for 36%, cash transactions accounted for 60%, and e-wallet transactions accounted for 4%;

Online e-commerce E-commerce transaction volume is 66 billion US dollars.

• Brazil: Card usage is on the rise in Brazil as companies such as PagSeguro Digital Ltd. and StoneCo Ltd. have been working to attract merchants to accept new forms of electronic payments.
  

• Offline POS transactions amounted to US$230 billion, of which bank card transactions accounted for 46%, cash transactions accounted for 53%, and e-wallet transactions accounted for 1%;

The transaction volume of online e-commerce E-commerce is 19 billion US dollars.

• TURKEY: Cash remains the preferred payment method for Turks, but the government has committed to a cashless society by 2023.

• Offline POS transactions amounted to US$116 billion, of which cash transactions accounted for 75%;

Online e-commerce E-commerce transaction volume is 6 billion US dollars.

Source of above data: Worldpay Retail Global Payments Report. In the 2018 data, the payment method includes the following subcategories, namely: bank card (pay card, credit card, debit card and prepaid card), cash (cash, cash on delivery), and other (electronic invoice, postpay, prepay, others).