META Meta Platforms Inc

By Paul Vigna 

Facebook Inc. has an ambitious goal for its proposed cryptocurrency, Libra: to bring financial services to the hundreds of millions of people world-wide who don't use banks or other traditional institutions. The cryptocurrency sector has for years tried to do the same and failed.

In the decade since bitcoin was born, cryptocurrencies have fascinated investors and speculators. But the crypto industry has struggled to get consumers to use it for daily transactions, and the bar for reaching unbanked adults in particular could be even higher.

The unbanked represent a big potential customer base for crypto: Roughly 1.7 billion adults around the world don't have an account at a financial institution or through a mobile money provider, according to the World Bank.

But getting people to use a new monetary standard requires more than just the underlying software. It calls for erecting infrastructure that allows people to easily use cryptocurrencies, working with governments and tailoring services to local cultures and customs.

Elizabeth Rossiello learned that lesson on the ground. She founded payments processor BitPesa in 2014 with a plan to use bitcoin as the underlying technology for a new, digital remittance business. With a background in microfinance and banking, she had experience, connections and backing.

The Queens, N.Y.-born Ms. Rossiello moved her company and family to Nairobi, Kenya, and tried to build her network from the ground up. She had staffers in London sign up Kenyan immigrants looking to send money back home. BitPesa launched through a partnership with M-Pesa, the local and dominant mobile money network. Ms. Rossiello's company charged a flat rate of 3%, and users got their money nearly instantly.

But BitPesa struggled to gain popularity. Only a handful of businesses around the world accept bitcoin. Learning how to acquire, store and use it is still too convoluted for most people -- and all but impossible for those who don't have internet access.

"It's very difficult to build frontier-market currency products," Ms. Rossiello said.

Libra will have one big advantage: Facebook is the largest social network with more than 2 billion users, so the proposed cryptocurrency will easily be able to get in front of a huge pool of potential consumers.

It couldn't be determined how many Facebook users are unbanked, but the opportunity could be significant. Facebook executive David Marcus, during a July congressional hearing, said fees were the biggest problem for the unbanked. With Libra, he said, "anyone with a $40 smartphone" would have access to affordable financial services.

The unbanked aren't a monolithic group, though. Another issue is understanding local conditions. That was a problem for many bitcoin promoters who wanted to infuse the cryptocurrency around the world but stay in Silicon Valley.

In Mexico, for example, more than half of all workers are in what is known as the "informal economy," according to Mexico's National Institute of Statistics and Geography. They often run or work for small, cash-based businesses.

"You have this vicious cycle in which people are barely surviving, they can't afford taxes, don't want to use bank accounts, and because of that, accept only cash," said Adalberto Flores, the chief executive of Kueski, a Guadalajara, Mexico-based financial-services startup.

Moving those workers to a digital currency where every transaction can be recorded, stored and taxed will be a challenge. "They know the government will track their expenses and demand taxes," Mr. Flores said.

Governments themselves could be another roadblock. Facebook and the Libra Association, the Swiss-based nonprofit that will govern the currency, have committed to expanding the network only to countries that allow the use of cryptocurrencies. The governments of some of Facebook's largest markets, though, aren't sold on crypto's benefits.

While the U.S. appears to have a relatively open stance on cryptocurrencies, it hasn't passed any comprehensive laws that would provide regulatory clarity. Two congressional hearings in July also made it clear that a number of lawmakers were very concerned about Libra.

Two other large nations, India and Indonesia, may be even harder to please. India has appeared eager to ban cryptocurrencies, and Indonesia outlawed them for payments, though they remain legal for trading there.

Those three countries are Facebook's largest markets, according to research firm Statista.

Write to Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

August 22, 2019 07:14 ET (11:14 GMT)

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