Consumers in emerging markets are willing to use a digital currency issued by a technology company, as long as that company isn’t Facebook, according to a new report.
The study, from Toronto-headquartered research firm Riwi and the FinHub at the University of Toronto’s Rotman School of Management, shows that 35 per cent of Indian and 58 per cent of Nigerian respondents would use non-traditional money, more than the 29 per cent of U.S. participants. But in all three countries, significantly fewer were willing to do so if the currency were issued by Facebook than by a generic tech firm.
The findings suggest that while there is a market for digital currencies like Facebook’s Libra, which is scheduled to launch in the first half of 2020, suspicion of the social media giant may present an opportunity for competitors — especially in developing economies.
Danielle Goldfarb, Riwi’s head of global research, said North American consumers are less eager to adopt tech firm-created currencies because they already have access to well-established financial and banking systems. “We experience fewer frictions in Canada and the U.S. … than people in emerging markets,” she said, citing “long-established legacy payment mechanisms like credit and debit cards.”
However, she said, “the test of the Libra project is really whether there’s a demand in emerging markets.”
Since it was announced in June, Libra has been plagued by controversy. It will be governed by the Libra Association, a Geneva-based non-profit, which was supposed to include 28 founding members. Last week, however, all the major payment firms involved — including Visa, Mastercard and PayPal — dropped out following pressure from members of the Senate and the U.S. Treasury Department’s inquiries about the companies’ respective anti-money-laundering practices.
As Libra Association members quit, “increasingly it looks like Facebook is still in charge, and it always was,” Goldfarb said.
The association still aims to grow to about 100 members before Libra launches. The sole current Canadian participant is the Creative Destruction Lab, a startup incubator headquartered at Rotman and one of four founding “social impact partners.”
Riwi surveyed 5,068 respondents in India (3,040), Nigeria (1,200) and the U.S. (828). Half the respondents answered questions about whether they would pay for products and services with a Facebook-issued currency, and the other half about a currency from a technology company in general. The survey did not ask specifically about Libra because the “name does not yet enjoy widespread awareness,” the report states. Participants were also asked which of four concerns about using such coins was their highest priority: data privacy; the money failing to keep its value; a dislike of Facebook or technology companies; and the idea that only governments should issue money.
There is a particular opportunity for digital currencies in emerging markets, where economic and political volatility can make new financial technologies like Libra more attractive to consumers, said Goldfarb, who co-authored the paper with Andreas Park, an associate professor at the University of Toronto Mississauga’s management department. In India, mobile-wallet app downloads and transactions soared after the government suddenly removed high-value banknotes from circulation in November 2016, although some users have since gone back to cash.
“Places like Nigeria have basically skipped over this credit-card, debit-card period,” said Goldfarb. “They’re leapfrog economies, and they’re really moving toward some of these newer payment systems.” According to the World Bank, there were 4.1 credit cards per thousand adults in Nigeria in 2015, compared to 172.5 e-money accounts — prepaid wallets, often offered through mobile services.
Calibra, Facebook’s new financial services division, is also building a mobile wallet that it will integrate with its Messenger service and its subsidiary WhatsApp to allow users to transfer money at lower rates and to make purchases within the apps. The firm is already working on payments infrastructure in emerging markets — WhatsApp plans to launch a service in India by the end of 2019.
A white paper published by the Libra Association cites high remittance fees as another problem the digital currency is supposed to address.
The study asked half of the participants whether they were willing to use money issued by a tech company, and the other half about a digital currency issued by Facebook specifically. In each of the three countries, the survey found fewer participants were willing to use the Facebook-issued coin. The company has a “very significant image problem,” the report states.
The gap was largest in India. Facebook’s reputation in the country remains damaged by its attempt to launch Internet.org, which gave users access to a limited number of apps and websites separate from their mobile-data allowances. The Indian government banned the service in February 2016. In the Riwi-Rotman survey, more Indian respondents listed dislike of Facebook as their main concern about using non-traditional money, rather than worries about data privacy; among Nigerian and American respondents that finding was reversed.
Overall, consumers were most concerned about what the firms developing digital currencies would do with their personal information. Far fewer believed the coins would not retain their value, or that only governments should have the power to issue money.
But policymakers have focused heavily on that last issue. EU governments have expressed “strong concerns” that digital currencies could undermine their sovereignty; in September, Calibra head David Marcus tweeted to clarify that Libra is not meant to replace national currencies after he faced questions from the representatives of 26 central banks.
Across all three countries in the study, “there’s quite a bit of a backlash against Facebook,” Goldfarb said. The authors found that was true even for respondents who already had a Facebook, Instagram and/or WhatsApp account — they were 1.5 times more likely to be willing to use a currency issued by a generic tech company as users asked about one from Facebook.