How Libra will compete with Paytm, WeChat?

  • By Christine St Anne

Facebook’s cryptocurrency’s features distinguish it from other digital forms of money making it a serious contender in tackling financial inclusion but issues around trust will still need to be tackled. 

A recent report from KPMG head of blockchain services Laszlo Peter and associate director Max Soyref assessed what Libra means for blockchain technology and financial inclusion. 

Indeed when Facebook launched Libra, it said that its target was the unbanked

While Libra will use blockchain technology, the authors clarified that the digital wallet does not actually use bitcoin. 

“Unlike bitcoin, which is not backed by any real world assets, Libra will be fully collateralised by a basket of currencies and short term debt obligations,” the authors said.

“This is one thing that makes it different from any other digital form of money available today  - for example Paytm in India, WeChat and AliPay in China - as Libra will derive a value from several fiat currencies rather than represent a single currency digitally  - effectively what our bank accounts currently do,” they said. 

Furthermore, Peter and Soyref added that from the Libra user perspective, they will be less exposed from one single currency volatility, present lower counterparty or settlement risk and as a result benefiting from discounts. 

Acknowledging that Libra still faces regulatory hurdles, the KPMG authors see the offering as a strong contender. 

“For developing nations this will be a serious contender to enable the population to access the financial systems (micro-credits) and implement trust by reducing settlement risk. 

“It will also enable cheaper and easier payment options with the convenience of using familiar mobile applications (like chat apps).” 

For the KPMG authors while “some may view the lofty goals of giving access to financial products to the unbanked with cynicism, there is no denying that a product like Libra makes it much easier to enter the global financial ecosystem” adding that successes like M-Pesa in Africa is a case in point. 

Matters of trust 

“We are likely to see growth of industries that are enabled by broader community of those with payment methods, empowering local economies, peer to peer transactions and growth in developing and developed countries,” they said 

RFi Group general manager – Asia, Amit Khan also believes that Libra has the most potential in emerging markets, especially among the unbanked, however, its success will be underpinned by consumer trust and awareness. 

Describing Facebook’s Libra offering as a bold move, Khan notes that digital wallet adoption is already high in China and India, and growing across the rest of Asia especially  - especially in the ASEAN markets. 

“However we are not just talking about digital wallet adoption here, but a new currency. So there will be trust barriers Facebook will need to overcome,” Khan said. 

Here he notes that the Facebook brand is under fire, so brand distinction will be key. 

“Consumer trust and regulation will be the two biggest barriers to overcome,” he said. 

On trust, RFi Group data from 10 markets shows when it comes to maintaining the privacy and security of personal information customers were most likely to trust banks, card schemes and government agencies. Facebook ranks lower down. 

“There is a lot of work to do here. Although having a separate brand in Libra, backing up the currency with fiat money and support from a number of tech companies should help,” Khan said.