Even as advancements continue to occur in the cryptocurrency market, it has largely devolved into a speculator’s game. These crypto-coins and tokens still fulfil the function of transferring money across borders for little to no fees.
Now, companies are beginning to adopt the technology to address the pain points that they face today. More specifically, relating to cross-border payments for multinational conglomerates. Even JPMorgan created a stablecoin, a cryptocurrency that is equivalent in value to a fiat currency like the USD, to facilitate easier cross-border payments.
Facebook seems to be the latest to jump on the blockchain bandwagon, with their testing ground being India, one of their strongholds. The creates a unique environment, due to many contributing factors in the world’s largest remittance market.
The Background Of Remittances In India
As the world’s second-most populous country, India has a rich diaspora of family and relatives working abroad looking to send money for their families in India. This creates one of the biggest markets for inwards remittances; a number that is only growing as the number of Indians working abroad increases.
The market has been pegged at $69 billion late last year, and continues to increase as more and more Indian talent is picked up in countries abroad. While this creates a healthy space for India in the world’s economy, the cost of sending money home is high for many Indians.
The World Bank has set a target for the Sustainable Development Goal program that sets the price of sending money at 3% charges. However, the average cost was at 7.1% in 2018, with rates going up to as high as 9.4%.
This creates a market that is ripe for the picking, which is what Facebook has recognized with its need to create a cryptocurrency for one of its biggest markets. However, there are hurdles in this particular sector.
Nascent Cryptocurrency Regulations In India
India has had a very negative attitude towards the regulation of cryptocurrencies, mainly due to its use in illegal activities. Moreover, the subcontinent also has an existing issue with black money and money laundering, and adding cryptocurrencies to the mix would compound the problem.
Recognizing this, the Reserve Bank of India made an announcement on April 6th last year that banned banks from dealing with companies that deal with cryptocurrencies. They filed a petition for the illegality of the technology in India.
In this petition, they stated that cryptos are used for anti-national, illegal and nefarious activities, such as money laundering, tax evasion, payment of ransom. The regulators also mulled over taxing cryptocurrencies, with 18% being levied on them under the Goods and Services Tax.
Currently, any move forward is mired in bureaucracy, mainly due to a scheduled hearing not taking place. This is the environment that Facebook wishes to enter.
Facebook Looks To Take A Big Step Forward
The company is already facing issues with some of its financial products in the country known as WhatsApp Pay, which has been embroiled in a data localization complication. Indian law requires that companies keep their data in the country, which is especially true of financial data.
However, Facebook’s refusal to localize the data and store it overseas has caused them to not be compliant with the RBI’s ruling. To solve the aforementioned problem of inward remittances, Facebook aims to launch a cryptocurrency that is worth $1 in value, removing friction from the cross-border payments.
This will allow NRIs to easily send money home and support their families. Backed by the connection that Facebook offers, it will be integrated into the messaging app completely. This will also fit in nicely with Facebook’s plans of taking a piece of the FinTech pie, as a cryptocurrency project is a big undertaking that will be profitable for the company.
Towards this end, they have even conducted hiring at the top level in the past, getting PayPal founder David Marcus on board the company. When asked about this, they said in a statement to Bloomberg:
“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share.”
A cryptocurrency product will be extremely useful for users across the world, and integration with the existing banking system using the United Payments Interface will create a seamless exercise. If Facebook manages to operate in a murky and unsure regulatory environment, they will be able to offer the service to its users.
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I am an AI enthusiast and love keeping up with the latest events in the space. I love video games and pizza.