It’s been a while since we’ve heard any updates about Facebook’s Diem/Novi cryptocurrency project, through which it’s hoping to facilitate fee-free payments on its services by side-stepping traditional financial providers.
The project has faced a range of setbacks, with many regions refusing to support the initiative, and initial big-name backers, pulling out due to potential controversy.
But despite various challenges, the project is still moving forward – slower than Facebook would like, but it is progressing nonetheless. And today, Novi chief David Marcus has announced the next major step forward for Facebook’s crypto payments, with the launch of a pilot of its Novi digital wallet in the US and Guatemala, enabling users to send and receive money between the two regions.
As explained by Marcus:
“We’re doing a pilot to test core feature functions, and our operational capabilities in customer care and compliance. We’re also hopeful this will demonstrate a new stablecoin use case (as a payments instrument) beyond how they are typically used today.”
The key use case in this test will be remittance, with people sending money back to family from each region.
“The remittance corridor is an important one. In Guatemala, 56% of people lack access to financial services, despite nearly 100% having mobile phones. Money sent from family and friends abroad contributes more than 14% of GDP and 90% of those remittances come from the US.”
That’s long been the key feature highlighted by Facebook in this respect, and with Indian citizens transferring more funds through remittance than anyone else in the world, there’s a significant business incentive for Facebook to push ahead with the project with a view to building a key financial platform that could attract many more users in key developing markets.
And once people are moving money around within Facebook, that’ll make it much easier to encourage eCommerce behavior, and other payment types, making Facebook an even bigger part of the digital infrastructure in these regions.
But it’s not there yet – in fact, it’s nowhere near, with this initial trial, as Marcus notes, really aimed at proving the use case, and showcasing Facebook’s capacity to manage digital payments.
But the long-term aim is, indeed, broader payments and transactions.
“Beyond the pilot, our business model is clear. We’re a challenger in payments. We’ll offer free person-to-person payments using Novi. Once we have a solid customer base, we’ll offer cheaper merchant payments and make a profit on merchant services.”
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, eventually, to current processes – with the exception of a shortfall in the critical area of insurance and protection.
Because cryptocurrencies operate on a digital ledger, which cannot be easily changed, that also means that any mistaken transactions can be problematic, as once a change is made, there’s no simple way to roll it back, other than asking for the funds to be returned. Which is one reason why scams are so prominent in the sector, while there are also questions around management and oversight, which have made regulators uneasy about the prospect, posing a significant impediment to broader take-up.
The promise of crypto projects is that they open up more financial options, especially for communities and regions that don’t have effective banking systems in place. Which Marcus highlights again here, and there is indeed a lot of potential in this respect. But whether Facebook, a private corporation, will ever win broad-scale approval for such remains to be seen.
Still, given the potential value, it’s easy to see why Facebook is sticking with it, and it could still become a key option for the app.
We’ll know more soon, based on the results of this latest experiment.