DN Intersect 2019: Libra is the “biggest greenfield opportunity” for banks
Libra has been called one of “the biggest greenfield opportunities” for banks despite no banks appearing on the Libra Association list.
In a panel of speakers at Instersect 2019, Crone Consulting’s CEO, Richard Crone, showed his incredulity at who wasn’t listed as a founding member of Libra.
“It’s just bizarre that not a single FDIC-insured deposit-taking, debit and credit card-issuing financial institution is listed as an initial participant,” says Crone.
The opportunities which could come out of exploring Libra, which would see each withdrawal and deposit considered a ‘foreign transaction’ entailing a going market fee of nearly $5, may be missed by all banks, Crone fears.
He sees Libra the same way as Apple Pay – if you’re not in it, then there’s no way you can compete. When talking about Libra more broadly, Crone dispels the myth that it fits under the “cryptocurrency” label.
Libra essentially works the same way as any other private label prepaid or general purpose reloadable (GPR) prepaid account, so if Libra was stopped, regulators would have to stop these too.
Diebold Nixdorf’s senior director, Douglas Hartung, believes that “Libra is fundamentally different to bitcoin because it has value.” However, the speakers had no clear answers to the broader issues facing Libra.
The first issue highlighted in the talk was that Libra will still need to be funded somehow as it’s been purported to be a very low cash option. The second problem was its intentions, which Facebook has said is to bank the unbanked. But as Hartung says, “I have a hard time believing that’s all that’s happening there.”
If half of Facebook’s 2.7 billion users activate Libra, then Facebook would rank among the top 20 banks in the US.
Although Libra may partner with financial services, Facebook has re-iterated time and time again that it will not become a bank.
The main value for the unbanked is in being able to receive funds from families or other sources around the world in a cost-effective, secure manner. Typically remittances cost around 7% on average, but often much more for unbanked recipients. With Libra this can come down to 1% or even no cost at all, thus changing the whole dynamic of this $1 trillion market.
The aspect which is being missed is that Libra simplifies the transaction flow – but it does not mean governments cannot stipulate the necessity to convert to the local fiat currency at the end of the day of receipt. If that is their decision at the start, they can always allow some flexibility at a later stage; for instance, permitting microloans and insurance to be based in Libra will make such services more available.