Facebook's Novi Cryptocurrency Project Moves a Step Forward
We haven't heard anything new regarding Facebook's Diem/Novi cryptocurrency initiative, via which the company hopes to enable fee-free payments on its services by bypassing existing banking institutions. Many regions have refused to endorse the campaign, and some of the project's initial big-name proponents have backed out owing to potential controversy.
Despite the hurdles, the project is still moving forward — albeit at a slower pace than Facebook would prefer. Today, Novi CEO David Marcus announced the next important step forward for Facebook's crypto payments, announcing the start of a trial of its Novi digital wallet in the United States and Guatemala, allowing users to send and receive money between the two countries.
They're running a test to see how well their primary features work, as well as their operational capabilities in customer service and compliance. They also expect that this will show a new use case for stable coins (as a payment instrument) that is different from how they are now employed. The main use case in this experiment will be remittance, with people from each region transferring money back to their families.
The corridor for remittances is crucial. Despite having nearly 100% of mobile phones, 56 percent of Guatemalans do not have access to banking services. Money sent from relatives and friends overseas accounts for more than 14% of GDP, with 90% of remittances coming from the United States. With Indian citizens moving more dollars through remittance than anybody else in the world, there's a huge monetary motivation for Facebook to go forward with the initiative to construct a crucial financial platform that may draw many more users in key developing regions.
And once individuals can transfer money within Facebook, it will be much easier to support eCommerce and other payment methods, making Facebook an even greater part of the digital infrastructure in these areas. But it's not there yet — in fact, it's not even close, with this initial experiment mostly targeted at proving the use case and demonstrating Facebook's ability to manage digital payments, as Marcus points out. However, the long-term goal is to expand payments and transactions. Their business strategy is apparent beyond the pilot. They are a payment challenger. We'll use Novi to provide free person-to-person payments. They'll offer lower merchant payments and earn a profit on merchant services once they've built up a substantial customer base."
The crypto market is still largely untested, and there are many critics of digital payments, some of whom are protective of legacy systems, while others simply don't see it as being much different from current processes in the long run – except for a gap in the critical area of insurance and protection. Because cryptocurrencies work on a digital ledger that can't be readily updated, any mistakes can be problematic, as there's no easy way to undo a transaction after it's been performed, other than requesting for the funds to be returned. This is one of the reasons why scams are so common in the industry; there are also concerns about administration and control, which have made authorities wary of the potential, creating a significant hurdle to wider adoption.
Cryptocurrency projects promise that they expand financial possibilities, particularly for communities and places that lack functioning banking infrastructures. This is something Marcus emphasizes again here, and there is a lot of potential here. However, it remains to be seen whether Facebook, as a private organization, will ever gain widespread support for this. Still, given the potential benefit, it's clear to see why Facebook is staying with it, and it might become a crucial feature for the app in the future.