Banking the unbanked in rich countries
The Libra white paper conflated the unbanked in developing countries with the unbanked in developed countries — specifically, the US. This is a completely different local problem.
The poor have enormous trouble getting bank accounts in the US. Banks will often refuse customers who they think might cause the slightest regulatory trouble. And if you’ve ever had a bank account shut, you might not be able to get a new account.
The practical solutions that work to get the US unbanked into the system are sociological, and involve one-to-one on-the-ground work — walking people through basic financial literacy, and how to find an account that works for them. In many countries, banks are required to offer no-fee basic accounts.
And there’s nothing wrong with the US dollar for banking the US unbanked — creating a new currency is not in any way a necessary step. If Facebook really cared about banking the unbanked, it could have set up a foundation to do this any time in the past ten years.
Banking the unbanked is a social process. Marcus and the white paper speak as if any of this is a technology problem — and none of it is.
Banking the unbanked in poor countries
The poor are poor, not stupid — and their living conditions are different in each country. You can’t impose a system top-down from your office in Menlo Park — you need to work locally.
The Libra white paper figure of 1.7 billion unbanked comes from the World Bank report The Global Findex Database, 2017: Measuring Financial Inclusion and the Fintech Revolution. Chapter 6 is “Opportunities For Expanding Financial Inclusion Through Digital Technology” — this is where Facebook read up on the problem.
But page 89 points out that a mobile phone isn’t enough — you need financial infrastructure on the ground, and a reliable system to cash out through. Page 93 notes that three-quarters of those 1.7 billion people don’t have Internet access, even if they have a mobile phone — and whether it’s a smartphone that can run apps, such as the Calibra/Novi wallet, isn’t specified in the Global Findex Database.
Consider M-Pesa — a service from mobile phone provider Vodafone, one of the initial Libra Association members. M-Pesa started from the ground up in Kenya in 2005, for a customer base with 2G mobile phones with no data and no apps, and a 72% adult literacy rate. M-Pesa’s slogan was “Send money home” — domestic remittances. Users of Vodafone’s local operator Safaricom could put money on account at a Safaricom shop, send a text message, and the receiver could show the message to get the cash from another Safaricom shop.
This sounds simple — but an easy system for users always has a complicated system at the back end. As well as technology, the project had to deal with finance, culture, politics and regulation — running a network of agents, giving agents incentives that worked and didn’t distort the system, balancing and redistributing cash on hand, and limiting fraud.
M-Pesa worked because it started from what its users needed — rather than starting from a solution, like “bank accounts” or “blockchains,” and trying to find a question that solution could answer.
By 2019, M-Pesa had 37 million customers. But it never really took off in India or South Africa because banks already had good market penetration — and it failed in Romania and Albania because the informal, off the books, cash in hand economy was around 30% of GDP, and people relying on shadow economies aren’t so keen on electronic trackability. Local conditions are local.
Another issue for the unbanked is paperwork. The Global Findex Database reports 20% to 49% of adults without a bank account don’t have the documentation needed to open one. Others report just … not having enough money to use a bank account. A Silicon Valley app and a blockchain aren’t going to solve either of these.
Cash, privacy and banking the unbanked
Physical cash has the advantage of privacy — the bank and the tax office can’t trace the movement of every note and coin. Only large transactions require notification to the anti-money-laundering (AML) authorities.
People with money, who benefit from being part of the system, don’t worry nearly as much about traceability — they care much more about convenience than whether their bank has a copy of their entire financial life. The promoters of schemes to bank the unbanked tend to be from this social class.
Privacy of cash is a feature for the poor and marginalised in the informal economy, not just for the crooks that AML rules are supposedly intended to block — because being poor is treated by the middle-class as inherently suspect, and things the poor do may be criminalised because it’s the poor doing them.
The poor would mostly love to be part of the system — they want more secure and stable material circumstances, and to feel like respectable members of society. But often, they can’t get into the system even when they want to. So the poor and marginalised need the informal and marginal economy — that isn’t fully legible to the authorities — to survive.
Making people visible to the system, but not giving them power and security within the system, is a direct threat to them. The greatest day-to-day enemy of the poor is the middle-class bureaucrat who contemptuously treats them as data to be processed, without care to their needs or circumstances.