The completion of the pilot project will also signal the end of the libra stablecoin experiment, which began three years after Facebook’s crypto payments network was introduced.

Ten months were spent testing the cryptocurrency-powered payment mechanism with participants from the United States and Guatemala.

This announcement was added to the website’s home page so that visitors would be aware of the situation. The website announced that as of July 21 users will not be able to deposit funds into their accounts.

The users have been requested by the corporation to remove their funds from the site, and they have been instructed to do so “as quickly as possible.” Additionally, they were told to retrieve and save any pertinent data because Novi’s WhatsApp account and Novi app will also be shut down.

Once the experiment is over, users will also no longer have access to their transaction history and other data.

As of June 2019, Novi, formerly known as Calibra, served as Meta’s wallet for the libra stablecoin (later renamed Diem). As the stablecoin project changed course due to regulatory concerns, its purpose changed.

The Novi project envisioned starting a test for crypto-based remittances in 2020, however, the wallet’s functions were never extended outside of the United States and Guatemala.

The Novi pilot was shut down just five months after Silvergate Capital Corporation purchased Meta’s stablecoin project, Diem.

Diem was intended to be launched as the native currency of the Novi wallet and serve as the stablecoin that powered the Meta ecosystem.

The Novi pilot came to an end after Mark Zuckerberg, the creator of Meta announced on his open Facebook profile on June 22 that Facebook Pay would be replaced by Meta Pay.

The post Will shut down digital wallet Novi in Sept: Meta appeared first on International Finance.

There is also this growing prospect of central bank digital currencies (CBDCs). Many countries such as China and Japan have reached an advanced stage in their quest to have their own CBDC. Currently, around 20 countries are working on their own CBDC projects. Social media giant Facebook also made news with the launch of its stablecoin Libra, now known as Diem to take on cryptocurrencies. All these development do point out that cryptocurrency does have a role in the financial landscape of the future.

 Can bitcoin help secure a future for cryptocurrencies?

 Bitcoin is probably the most famous cryptocurrency currently. It was also the first cryptocurrency to be ever created in 2009 by presumably pseudonymous developer Satoshi Nakamoto. Recently, bitcoin, the most popular cryptocurrency to date, has caught everyone’s attention as its value increased over 300 percent during the last one year. However, staying true to its volatile nature, bitcoin’s value also dropped by about 15 percent from a record high of about $41,800 to $34,645.  To add to this, US-based multinational investment bank JP Morgan has made a bold prediction when it comes to bitcoin.  Comparing Bitcoin to the traditional store of value assets such as gold, lead analyst Nikolaos Panigirtzoglou suggested that Bitcoin’s current market capitalisation of around $580 billion would have to rise by 4.6 times which would create a theoretical price of $146,000.

Entrepreneur and business magnate Elon Musk, who is also one of the richest men on earth, recently tweeted that he would accept his salary in bitcoin, suggesting that he sees bitcoin being a success in the future. Many businesses in some developed countries have also started accepting bitcoin as a source of payment. While we are staring at the unknown, we do know for sure that if cryptocurrencies has a future, bitcoin will play an important role in securing and sustaining that future.

Will cryptos be a success in the future?

 For cryptocurrencies to be a success in the future, it will depend on factors such as consumer demand and an amenable regulatory environment. For cryptocurrencies to be a success, it has to reach a wider public and it needs a widespread acceptance by consumers as a viable form of money. However, for this to happen, cryptocurrencies have to overcome numerous technical and regulatory challenges. Cryptos will also have to eradicate the lack of trust among authorities which will ultimately lead to trust among consumers. Value fluctuation and volatility are challenges that cryptos need to overcome to become a viable payment option. It will also need to preserve user anonymity without being a conduit for tax evasion, or money laundering. When it comes to the technical aspect, cryptocurrencies have to be technically sound to avoid fraud and threats such as cyberattacks. They also need to be decentralised but with adequate consumer safeguards and protection.

Currently, those who invest in cryptocurrencies such as bitcoin are only focused on speculative trading, driven by price and volatility. Also, investors who dare to put their money on cryptocurrencies are significantly lower, when compared to traditional investors. Also, cryptocurrencies are still illegal in some parts of the world and the chances of a legal status change in those regions remain slim. There are some formidable challenges that lie ahead of cryptocurrencies, however, we believe, with time, cryptocurrencies will get to the position where it wants to be, that is to become a viable payment option across the globe.

Will crypto ever replace fiat money in the future?

For cryptocurrencies to replace fiat money, a lot has to change, and by a lot, we mean a lot. The very first thing that needs to happen is cryptocurrencies becoming legitimate in the eyes of regulators.  Replacing a financial system that has dominated for nearly 50 years is not an easy task as it requires a profound overhaul of the world’s financial infrastructure. Policymakers across the globe would need to amend laws and come up with a proper framework for cryptocurrencies to be able to operate in a similar manner as fiat money. Authorities need to draft regulations pertaining to the use, trade, and storage of digital currencies. As regulatory hurdles are surmounted, cryptocurrencies may become legitimate substitutes for fiat money. However, so far, authorities has often been dismissive about the potential of cryptocurrencies to become a viable monetary system.

The post Can bitcoin surge guarantee a future for cryptos? appeared first on International Finance.

The rebranding by Facebook from Libra to Diem is part of a move to emphasise a simpler, revamped structure, Stuart Levey, chief executive officer of the Geneva-based Diem Association said.

He said, “The original name was tied to an early iteration of the project that received a difficult reception from regulators. We have dramatically changed that proposition.”

“The Diem project will provide a simple platform for fintech innovation to thrive and enable consumers and businesses to conduct instantaneous, low-cost, highly secure transactions,” he said in a press release.

By the end of last year, Facebook announced its ambiguous plan to disrupt the global financial system by launching its own cryptocurrency. The social media giant announced that it will launch the services in June 2020 and users will be able to use it through Facebook’s digital wallet Calibra. Libra is, essentially, a mainstream cryptocurrency that could be spent online or offline, much like the dollar. However, since the announcement, many global leaders and regulators raised concerns about the usage of personal and financial data by Facebook.

After criticism from various regulators across the globe, a quarter of Libra’s original backers including payments giants such as Mastercard and Visa have abandoned the programme. Vodafone too back out earlier this year.

The post Facebook rebrands Libra as Diem to get regulatory approval appeared first on International Finance.

The report observed that African countries share key similarities and trends despite the continent being so diverse. Economic problems ranging from high inflation rates and volatile currencies to financial issues such as capital controls and lack of banking infrastructure create a fertile ground for alternate developments. Apart from Bitcoin, other cryptocurrencies such as Dash and Lisk are used in African countries including Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe. That said, there is a long way to go for cryptocurrencies in Africa.

Cryptos are becoming popular in Africa
Mobile money has been a revolution in Africa and investors across the globe are recognising its scope. On the back of formidable success of mobile money in Africa, a race to capture the African crypto market is driven by increased investment interest in cryptocurrencies. More recently, Twitter’s CEO Jack Dorsey announced his interest in the cryptocurrencies market in the African continent.

Nicolo Stoehr, host of the prestigious Crypto Finance Conference (CFC) which was held in January this year in St Moritz talked about Africa’s potential in cryptocurrencies. In the last few years, African countries such as the Seychelles, have been actively positioning themselves as global crypto hubs — quite like Zug in Switzerland and offshore island states like Malta, Gibraltar, Jersey and the Caymans. All of them are known for their progressive stands on this front and have offered positive regulatory frameworks for cryptocurrencies and blockchain in a tax-neutral setting.

In light of the growing popularity of cryptocurrencies, South Africa’s top financial regulators released a policy paper with 30 recommendations for the regulation of cryptocurrency and related service providers earlier this year. The purpose of the policy paper is to comply with the cryptocurrency standards set by the Financial Action Task Force (FATF).

According to a BBC report published last year, many Kenyan businesses have started accepting bitcoin as payments for their services and products, despite warnings issued by the Central Bank of Kenya in regard to the volatile nature of cryptocurrencies. Last year, the total number of bitcoin transactions in Kenya was estimated to be worth more than $1.5 million, according to the Blockchain Association of Kenya. The number is expected to significantly increase as cryptocurrencies gain popularity on the continent.

Even Nigeria is experiencing a surge in the adoption of cryptocurrencies. Interestingly, the country has a number of local platforms that support purchases and sales of cryptos with the national currency. One such notable platform is Nairaex which is the largest local cryptocurrency exchange supporting several payment methods to buy and sell BTC including bank transfers and bitcoin remittance platform Bitpesa. According to buybitcoinworldwide.com, a growing number of Nigerian companies already accept payments in cryptocurrency.

Bitcoin drives crypto adoption in Africa
Bitcoin is a digital or virtual currency created in 2009—and has evolved to become one of the most widely used cryptocurrencies over the years. The popularity of cryptocurrencies in Africa has much to do with the popularity of bitcoin. Also, since the inception of bitcoin, over 6000 different alt-coins have been created similar to it. What makes bitcoin interesting and risky is the fact that the digital currency is run by a decentralised network of computers owned by private individuals and not by a centralised system such as a bank. This means that no single institution controls the currency in contrast to other physical currencies such as the dollar or the pound.

While central banks around the globe regulate and oversee the process of currency creation, bitcoins are created in a process called mining. Mining is a process where privately held computers provide processing power to the network to verify transactions that occur directly between users. In this process, these computers build a publicly available list of transactions called blockchain. As a reward for verifying this blockchain, miners are issued with a small number of newly created bitcoins released incrementally based on the original code.

Bitcoin’s decentralised system is based on encryption and verification which means regulators or central banks have little control over it. That was one of the main reasons why many countries have banned the digital currency. According to reports, around 100, 000 businesses across the globe accepted bitcoin in 2015—and of the most notable companies include Microsoft. These factors have contributed heavily to the popularity of bitcoin in Africa. Over the last few years, a few African countries have seen exponential growth in cryptocurrencies.

To them, bitcoin is seen as an opportunity and not as a threat. The digital currency’s characteristics provides Africa with a platform to reduce corruption, promote development and good governance. It is reported that 15 cryptocurrency-related operations began in Africa in the past year. Luno Exchange which was established in 2013 in South Africa is now boasting 1.5 million customers in over 40 countries worldwide. Luno Exchange was the first of its kind to be based in Africa.

Others, particularly cryptocurrency-based remittance services, are sprouting across the African continent. Launched in 2013, Kenya’s BitPesa facilitates virtual remittances transfers to both African and international locations, to and from individuals’ mobile wallets, where cryptocurrency is stored. LocalBitcoins.com in Kenya reported trading volumes in excess of $1.8 million as of December 2017, underlining the lucrativeness of the business.

Industry experts believe that cryptocurrency will be around for years. With that, bitcoin users can send money to just about anywhere there is an internet connection for relatively small fees and with no third-party interference is an advantage that standard government-issued currencies cannot offer.

Another recommendation is that transactions are anonymous, and users’ information is private and safe. It appears that there is a little possibility of identity theft which is common with other forms of digital payment. As of December 2017, the global demand for cryptocurrency had increased to an extent that each bitcoin was sold for $20,000. Its value had been $1,000 in the previous year.

The start of crypto renaissance in Africa
Cryptocurrencies have been around for more than a decade now, but what’s really driving the crypto renaissance in Africa now? This has to do with various factors such as the willingness of Africans to adopt new technological changes when it comes to finance. The fintech sector has been growing in Africa and this is especially true in sub-Saharan countries such as Nigeria, Kenya or even South Africa.

The popularity of cryptocurrencies also has to do with Facebook’s Libra. This stems from the fact that Facebook is seeking to disrupt the global financial system by launching its own cryptocurrency. services in 2020 and users will be able to use it through digital wallet Calibra. The cryptocurrency app will allow Facebook users to send, receive or withdraw money by just tapping on their devices’ screen. The users will also be able to pay bills, share tabs in restaurants, buy a cup of coffee and ride the local public transit without the need to carry cash.

Libra, which is a type of stablecoin, is backed by traditional money and other securities. While Libra is a cryptocurrency like bitcoin, the latter is not backed by traditional money and is more volatile in nature. Facebook launched Libra in collaboration with 27 other companies and says the digital currency would be overseen by a Switzerland-based independent non profit organistation called the Libra Association.

Considering that a large number of Africans still use Facebook in Africa, the announcement of Libra has helped the concept of cryptocurrencies gain popularity in Africa. Facebook recorded 139 million users a month in Africa in 2018, of which, 98 percent were connected to the social media platform through their mobile phones.

Costly remittances and cross-border payments is also another factor plaguing many Africans. Cryptocurrencies, on the other hand, can enable lower-cost and faster remittance payments. It is estimated that over 25 million people are expats from sub-Saharan countries as of 2017. Remittances also account for a large share of gross domestic product (GDP) in sub-Saharan Africa countries.

Remittances below $200 to sub-Saharan countries cost an average of 9 percent compared to the global average of 6.8 percent, while payments between countries are expensive. These higher percentages are attributed to inefficient and uncompetitive banking markets — and are reliant on legacy financial communications systems such as SWIFT.

Lack of crypto infrastructure is a challenge
Even though Africans are opening up the ideas of cryptocurrencies, the continent lacks adequate infrastructure on this front. If the adoption of cryptocurrencies were to be fast tracked in Africa, what it needs is the government to declare its stance regarding cryptocurrencies. As things stand, over 60 percent of the African regulators are yet to clarify their position on cryptocurrencies, given many non-African nations have placed a ban on bitcoin and other cryptocurrencies. According to a report titled The State of Crypto in Africa, 20 of the 10,267 bitcoin nodes worldwide are located in Africa. For Ethereum nodes, the number is even smaller, with only 12 of them existing on the continent. Of the existing nodes, a vast majority of them are based in South Africa and are not equally distributed. Bitcoin’s Lightning Network is also immature. Africa accounts for just 0.24 percent of BTC Lightning nodes, contributing just 0.07 percent of total network capacity, with almost all contributions stemming from South Africa. Also, a report by CoinShares shows that there is zero meaningful bitcoin mining activity across Africa.

Internet penetration in Africa: When it comes to internet penetration, Africa has an average of 39 percent, compared to a global average of 59 percent. For cryptocurrencies to boom in African countries a greater section of its population needs access to good internet. As of last December, only Kenya and Libya had good internet penetration at 87.2 percent and 74.2 percent. Other developing economies in Africa such as Egypt have an internet penetration rate of only 48 percent, according to Internetworldstats.com. It is noted that Madagascar has topped average broadband speed rankings among African countries in 2019.

However, the internet landscape in Africa, especially in emerging economies is swiftly changing. Telecom companies such as MTN are leading the internet revolution in countries such as Kenya, South Africa and Nigeria. Also the fast paced adoption of mobile money in Africa is pushing telecom companies on the continent to improve internet penetration. Africa does seem to be moving in the right direction, as digitalisation is also picking up pace on the continent, especially in emerging economies. With greater internet penetration, cryptocurrencies could possibly have a bright future in the African continent on the back of regulator’s approval and positive public sentiment.

Competition from mobile money services: Even though mobile money is influencing internet penetration on the continent, it has emerged as a hindrance in the path of crypto adoption. It is no doubt that mobile money has been a revolution in Africa.

In recent times, mobile money has brought in a revolutionary change on the continent and countries like Kenya have embraced that change. Data released by the Central Bank of Kenya revealed that mobile money transactions in the country stood at $38.5 billion in 2018, a 10 percent increase compared to 2017. The face of Kenya’s financial sector has also changed with the establishment of M-Pesa in 2007. By the end of 2017, 83 percent of Kenya’s population had access to financial services, according to its apex bank. Cryptocurrency adoption may struggle in the face of such dominance due to business moats and network effects that have developed around these services.

Given the fast-paced adoption of mobile money in Africa, it may be difficult for alternative mobile solutions such as cryptocurrencies to boom in such an environment. However, when compared to mobile money, cryptocurrency solutions can compete on cost. While mobile money services rely on a centralised business model to operate, extracting fees from customers of up to 11 percent, cryptocurrencies can often function with negligible costs to users.

The use of mobile money has significantly surged in Africa in the last few months as the continent has joined forces to curb the spread of Covid-19. In fact, the widespread use of mobile money has stopped the use of cash in Africa — a conduit for the spread of the disease as pointed out by the World Health Organisation (WHO). According to experts, mobile money has also played a huge role in curbing the spread of the Covid-19 in Africa. Also, it has facilitated the continuous functioning of the African retail sector by allowing its citizens to shop digitally. Mobile money provides an easy way of completing a financial transaction and has also led to a rise in online shopping in Africa amid the lockdown.

It also has the potential to accelerate financial inclusion in African countries. By definition, what mobile money can do is tap into underbanked or unbanked African populations which the banking sector failed to bring under their financial umbrella. The growth of mobile money in Africa is expected to help the continent tackle unemployment issues as well. It appears that more players will foray into the mobile money market and will lead to the creation of various jobs within the sector.

Low smartphone penetration: Most cryptocurrency wallets only work on smartphones unlike mobile money services which operate on more basic devices. In recent years, as digitalisation picked up pace in sub-Saharan Africa, mobile phone penetration has increased dramatically. According to GSMA, an association of mobile network operators worldwide, there are 747 million SIM connections in sub-Saharan Africa in 2019, representing 75 percent of the population. However, it can be difficult to predict how many people own a smartphone among the populous. In 2013, 58 percent of Kenyans who did not own a mobile phone said that they shared one, causing difficulty to predict exactly how many Africans own a smartphone.

In 2017, a survey was carried out pointing to the fact that around 51 percent of South Africans owned a smartphone. However, the penetration is relatively low in emerging economies such as Nigeria and Kenya. Around 32 percent of Nigerian population owned a smartphone according to the survey, compared to 48 percent who owned a basic mobile handset. In Kenya, the figures stood at 30 percent and 80 percent respectively. Overall, smartphone and internet penetrations need to increase for greater crypto adoption on the continent.

The post The rise of crypto adoption in Africa appeared first on International Finance.

The stablecoin, proposed by China will be expected to stimulate trade between China, Hong Kong, Korea, and Japan. The stablecoin will also improve cross-border payments and clearing services with a new payment network and digital wallet services for businesses in these regions.

The stablecoin would also reduce currency conversion costs, improve transaction settlement times, and serve as a test case for other national digital currencies. It would also help in rejuvenating the economy in the region, which has been dampened by the coronavirus pandemic.

Reportedly, the project would be headed by the People’s Bank of China (PBoC) and the basket of underlying collateral would follow the special drawing rights (SDR) model of the International Monetary Fund (IMF), where each country’s currency is assigned a different weight based on its economy.

Shen Nanpeng, a global managing partner at Sequoia Capital and also a member of the Chinese People’s Political Consultative Conference, proposed the digital currency during a national session held earlier this week.

The stablecoin won’t be built on blockchain, and would be more comparable with Facebook’s Libra rather than cryptocurrencies.

Besides the stablecoin, China is also working to launch its own digital currency in the coming years. The project has been under development since 2017, and earlier this year it received an additional boost in the form of fresh funding.

China has also accelerated the digital currency process in light of the coronavirus pandemic, which originated in the Chinese city of Wuhan.

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The head of the banking and finance systems research commission at Japan’s Liberal Democratic Party, Kozo Yamamoto recently revealed that the digital version of yen could go online in the next two to three years.

The launch of digital yuan could help China establish itself as a leader in the digital economy. With a population of around 1.3 billion and quick adoption of the digital yuan in emerging economies could make this a reality.

Kozo Yamamoto told the media, “The sooner the better. We’ll draft proposals to be included in government’s policy guidelines, and hopefully, make it happen in two to three years. If each country manages to control flows of money with their own digital currencies, that could prevent a big swing at a time of crisis and stabilise their own economy.”

The plan for digital yen is expected to be a part of the government of Japan’s mid-year policy guidelines.
Recently, lawmakers in Japan raised their concerns with regard to China’s digital yuan and called on the government for central bank digital currency (CBDC) in Japan.

Japanese finance minister Taro Aso also voiced the same concerns recently.

In April 2020, members of central banks from Canada, Switzerland, and Sweden are scheduled to meet at an inaugural brainstorming event, discussing the possibilities of launching their respective CBDCs.

A spokesperson from European Union (EU) also suggested that the European Central Bank should explore the possibility of launching a digital currency as well, not only to counter China but also counter cryptocurrencies such as Facebook’s Libra.

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Vodafone is the eighth member to exit the Libra Association, the media reported. Previously, members such as eBay Visa, Mastercard, Mercado Pago, Stripe, Booking Holdings and PayPal left the Libra Association. 

Vodafone’s representative told the media that, “Vodafone Group has decided to withdraw from the Libra Association. We have said from the outset that Vodafone’s desire is to make a genuine contribution to extending financial inclusion. We remain fully committed to that goal and feel that we can make the most contribution by focusing our efforts on M-Pesa. We will continue to monitor the development of the Libra Association and do not rule out the possibility of future cooperation.”

Members of the Libra Association were expected to invest $10 million to launch Libra. Other members including Lyft, Uber, Coinbase and Spotify are still a part of the association. 

Facebook’s debut in cryptocurrency has stoked fear and criticism among  central banks and regulators, stalling the project’s progress. They have expressed concerns on various platforms regarding privacy, money laundering, consumer protection and economic financial stability. 

However, Dante Disparte, head of policy and communications for the Libra Association, reassured that the association is working to ensure transparency and security in the Libra payment system. Last year, founding members of the Libra Association eBay and Strip dropped out on a neutral note. 

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Many neobanks or challenger banks have popped up in several economies around the globe. However, these fintech startups or challenger banks are comparatively small in size, with limited funding and resources to cause major disruption in the global banking sector. Moreover, the focus of neobanks have been on underserved markets left out of the banking system by mainstream banks.

The entry of technology behemoths such as Google and Facebook could change the very face of the banking system. So why are these big techs jumping into the banking space? Is it the trillion-dollar banking sector and financial services margins that are attracting them? Not really. The main reason Google and Facebook are entering the banking and money transfer is for data.

They already have volumes of data on users personally, but not on what users spend, when they spend it, and general consumer behavior. Of course, these companies sell advertising, and they can be more successful if they can see whether their advertising is working, and whether users are purchasing products which their targeted ads are pushing at them.  In short, they want consumer’s financial data to improve their existing offerings.

Google steps into banking with Cache

When the Wall Street Journal first reported that Google is stepping into the banking scene, it shocked many. The announcement was a source of major speculations as Google is battling various legal cases related to data privacy in the courts of law.

The project, called Cache, will see Google take on banks in the consumer finance segment. Its services will be available in the US next year, however, it is unknown if Google will extend its services across all continents anytime soon. Google will offer the current account services in partnership with CitiGroup – the third largest bank in the US and a credit union based at Stanford University. Google’s Cache, is projected as an extension of Google’s ewallet digital payment system called Google Pay.

So the big question in everyone’s mind is, will Google’ Cache bring in a change to the global financial services landscape? With regard to this, Bjorn Cumps, Professor of Digital Banking at Vlerick Business School told International Finance that, “I think the launch of this will make the traditional banks wakeup, and become more digitally savvy at a faster pace. Financial services firms see the need to digitally transformed, and companies like Google entering the market encourage the industry to become more digital, more quickly. Not only this, but I think it is likely to accelerate the decrease in physical branches, which we have already begun to see.

The role of financial companies and their employees will change, with traditional employment likely to go down, and new skills needed for employees, and even new jobs being created. Financial companies may also look to enter more markets, not just focusing on banking, but also on insurance and market strategy too.

From a consumer perspective, I think the financial services landscape is likely to become a lot more confusing, with so many more services and products available. There will be increased ways for consumers to purchase products, and various payment systems, which of course will have an impact on consumers.”

Even though Google has not disclosed much about the new services as of yet, we may see collaborations between traditional banks and tech companies as a result of it, and banks might be forced to massively invest in AI. Therefore, thanks to AI, and big data, financial solutions would probably better suit the customer by being able to anticipate each individual’s future financial needs. The only thing unknown is the cost of the individuals ability to control his or her data.

More banks to partner with Google in the future?

While there are many advantages for a commercial bank to form a partnership with Google, we may see other banks getting on board with Google to launch Cache in other countries. But since Google is new to the banking scene and Cache is a new product, only time will tell whether other banks will collaborate with Google.

But when Citi Group decided to partner with Google, other banks must be considering or at least carrying out a feasibility study. Collaborating with Google could provide a tremendous competitive advantage compared to other banks. However, on the other hand, the very DNA of banks is their commitment to customer privacy. The biggest risk for Citi Group beyond privacy is if Google’s real motivation is to acquire expertise, retaining new costumers, testing algorithms on financial data, and finally reaching enough market power to dictate the rules, squeezing partners’ profits, or even becoming ultimately a fully autonomous financial institution.

The decision will also come down to the bank’s strategy and its motto. If a bank is customer-centric and focused on the experience of customers, they may not decide to partner with Google, as they will then become a provider to them, and have little influence on customer-facing services. Firms that value providing this side of their service to customers are not likely to partner up with big tech.

However, some banks may decide to partner with Google given its popularity and customer reach. Another factor that a bank might consider is Google’s international presence. The majority of banks act on a national basis, and big tech firms could allow them to reach a much wider audience. Some banks may want to relinquish a bit of control in order to become more international. This could mean, them having control in their local markets, but offering international services, which would be controlled by big tech firms.

Facebook’s formidable attempt to change the financial system

While Google is partnering with traditional banks to venture into the banking space, Facebook announced its ambiguous plan to disrupt the global financial system by launching its own cryptocurrency. Called Libra, the social media giant announced that it will launch the services in June 2020 and users will be able to use it through Facebook’s digital wallet Calibra. The cryptocurrency app will allow Facebook users to send, receive or withdraw money by just tapping on their devices’ screen. The users will also be able to pay bills, share tabs in restaurants, buy a cup of coffee and ride the local public transit without the need to carry cash.

Libra, which is a type of stablecoin, is backed by traditional money and other securities. While Libra too is a cryptocurrency like bitcoin, the latter is not backed by traditional money and is more volatile in nature. Facebook launched Libra in collaboration with 27 other companies and says the digital currency would be overseen by a Switzerland-based independent nonprofit organistation called the Libra Association.

However, Facebook’s announcement of Libra was met with skepticism and lambasted by global leaders and regulators. While Facebook claims it is building a better payment network, broadening access to essential financial services, and lowering costs for billions of people, many central bankers, lawmakers, and top data protection officials from the US and Europe voiced their concerns about the usage of personal as well as financial data by Facebook, and about the regulatory challenges of Libra. Many even fear that the launch of Libra could dampen the global fight against money laundering, terrorism financing, and global financial stability.

After being bombarded by constant criticism, a quarter of Libra’s original backers including payments giants such as Mastercard and Visa have abandoned the programme. As things stand, only time will tell whether Facebook’s Libra has future or is set to be one of those big projects which were meant to change the world but never actually took off.

When we asked Samuel Ouzan, assistant professor of Finance at NEOMA Business School the same question, he told International Finance, “I don’t think so. Particularly because of the increasing public mistrust of the Facebook platform, and the massive governments’ opposition we observe all around the world, following Libra announcement.  The success of Facebook’s cryptocurrency would depend on how decentralized Libra really is. Facebook data dominance is a real concern. Therefore, in the short term, I have a hard time imagining Facebook planning to propose checking accounts to its customers.”

Bjorn Cumps, however, thinks otherwise. He told International Finance, “Yes, I do think there is a future for Facebook’s Libra. I, in fact, saw them present in Brussels just last week, and I think that the way they are navigating the industry means that they do have a future. They are actively working with regulators in the industry, to ensure that Libra is legitimate, something very different from innovative Fintech companies we’ve seen enter the market recently, who’ve boasted about ‘smashing the industry’ and ‘not caring about the banking rules’.”

Facebook Libra is actively working with regulators, answering the questions that they have over the currency, and ensuring that it meets their expectations. They are changing their model because of this, actively adapting and coming up with new solutions to fit in with the legalities of the industry – this is why I think that there will certainly be a future for the currency.”

But Libra’s troubles are multiplying and those who reject Libra in its current form are powerful people. The president of Switzerland where the cryptocurrency is seeking regulatory consent said in late December that Facebook’s Libra project has failed in its current form and needs reworking to be approved. “I don’t think (Libra has a chance in its current form), because central banks will not accept the basket of currencies underpinning it,” Ueli Maurer, who is Switzerland’s finance minister and outgoing president, was reported as telling Swiss broadcaster SRF.

In October, French Economy Minister Bruno Le Maire sharply criticised Libra, saying, “Libra is not welcome on European soil.” “We will take steps with the Italians and Germans, because our sovereignty is at stake.” In November, a US Federal Reserve official expressed American reservations. “Without requisite safeguards, stablecoin networks at global scale may put consumers at risk,” Fed Governor Lael Brainard said in a speech in Frankfurt. Among those who have criticised Facebook’s unrestrained expansion into all aspects of users Iives through Libra is the chair of the powerful US House Financial Services Committee Maxine Waters.

What is the impact of big tech’s entry into the banking system

Besides announcing the controversial cryptocurrency Libra, Facebook has launched its payment platform Facebook Pay in the US. According to Facebook, the service will be available in Messenger at first; however, it will soon be rolled out to other social media platforms owned by Facebook such as WhatsApp and Instagram.

So what impact will the entry of these tech giants into the banking system have? Firstly, there will be a huge amount of activity increase on behalf of regulatory bodies, who will be working overtime in ensuring that Facebook and Google’s practices are legal and correct. Also, companies currently in the market will act either one of two ways; clubbing together to challenge and compete against Google and Facebook, or actively working with them to provide solutions. Clubbing together to fight Facebook and Google could be fighting a losing battle due to companies like Google and Facebook’s international reach and funding.

Bjorn Cumps told International Finance that, “I foresee big tech companies entering the market impacting current banking services to rapidly increase their digital transformation. Firms will need to be as digitally savvy as possible to compete, and the introduction of tech companies in the market will force traditional banks to change and adapt at a quicker pace.”

What will be the impact on fintechs and challenger banks?

Bjorn Cumps too believes that niche players such as fintechs and neobanks should be worried. According to him, Cache is offering financial management services to a number of consumers, something banks had not traditionally offered, and fintech startups often plugged the gap for. Financial advice, purchasing tools and so on, was something we were likely to see offered digitally by traditional banks in one to two years’ time, but this is likely to accelerate with big tech firms also beginning to offer these services. Of course, companies like Google have an international reach in offering these services, whereas banks do not – that makes big tech firms more of a threat in this area to fintech startups.

When we asked the question to Samuel Ouzan, he too agreed that fintech startups must think proactively and prepare for battle with the big techs. He told International Finance that the tech giant hasn’t disclosed yet what would be the new analytical tools and smart features of Cache’s checking accounts. He believes, given Google’s position in the Artificial Intelligence landscape, it may provide its consumers with smart budgeting tools and new features that will strongly disrupt user experience in personal finance.

Should Google and Facebook venture into banking after all?

In the last couple of years, both Google and Facebook have been part of major controversies. Despite its popularity, Google has been taken to court numerous times with matters related to privacy, advertising, patent, as well as gender discrimination. Recently, it was alleged that Google tracked the personal data of four million iPhone users. The Federal Trade Commission (FTC) found Google liable for misrepresenting ‘privacy assurances to users of Apple’s Safari Internet browser’. Even way back in 2010, Google was accused of breaching several electronic communications laws with the launch of its new product Google Buzz.

The Facebook–Cambridge Analytica data led to Facebook losing more than $100 billion in market capitalisation. So how willing will be consumers to share their personal as well as financial data with these big tech companies? Bjorn Chumps believes this really is something that should be left up to the consumer to decide.

He told International Finance, “Some consumers may object to handing over so much of their financial data, including what they purchase, how much money they spend and so on. Of course, this may be due to these big tech companies already having amassed a huge amount of other personal data on us, which coupled which our financial data could make these companies much more powerful. This is something we need to reflect on as consumers when deciding which company to give our data to.”

Underpinning all concerns is the ethical dimension of Facebook and Google, companies controlled by a select group of individuals who are already powerful enough to challenge democratically elected governments, controlling even more granular user data and, more importantly, how people perceive reality. The power this will give to these individuals over ordinary human beings is frightening.

Samuel Ouzan told International Finance that, “I am not sure if it is judicious for our societies as well as for big tech companies, who already have more power than many countries, to have access, for example, to account balances of individuals and businesses. Any scandal involving this kind of financial data might have an irreversible impact on public trust. “

He added, “I expect new political forces will emerge very soon against this kind of control. The rise of totalitarian technology controlled by very few individuals represents an unprecedented threat to democracy. Cognitive science provides plenty of evidence that people tend to react very strongly when behavioral freedoms are at risk. Altering or controlling how people all over the world perceive reality is certainly unconsciously by far one of the biggest threats to our freedom.”

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