Last week, Facebook
Currently launched as a pilot, Novi will initially allow users to send money from the US to Guatemala, using the stablecoin digital currency Pax Dollar, which they can hold in a digital wallet and convert into the local currency. Facebook ultimately plans to use its own cryptocurrency Diem for the service, although cannot do so until it receives approval from US regulators.
While the initial pilot limits the company to this one corridor, it is expected that Novi will be expanded to other corridors – and some investors are already concerned about the impact it will have on more established players in the remittances space.
Facebook’s Novi: How the pilot compares to remittance competitors
The share prices of Novi’s main publicly listed rivals, Remitly, Western Union
The use of the Pax Dollar for the pilot significantly limits how many users can either hold the digital currency or engage in transactions using it on a given day, with the total number capped at 200,000. As a result, Facebook already has a waitlist for Novi, and has put in place a variety of limits, including a $300 cap per transaction; a $1,000 daily send limit and a $2,500 daily maximum on adding or withdrawing from each account.
At present, Novi is providing its remittance service free of fees or FX margin, as would be expected in a pilot and similar to many launch strategies of other money transfer services. A service being free, however, does not in itself guarantee success. Whilst Revolut is a great example of a company that grew its user base offering free FX, Santander subsidiary PagoFX tried the same and was unable to gain enough traction in the market.
And while there is some concern in the market that free could be a long-term approach for Facebook, the company’s own language indicates that this is likely a temporary situation. The company’s website specifically states that it is free “today”, while job adverts for the company describe it as planning to provide a “low to no cost” service.
How the market reacted to Facebook’s Novi announcement
Novi’s future development: Pricing pressure and beyond
There are the obvious concerns, however, that the low-cost remittances approach that Facebook appears to be pursuing with Novi will result in increased pricing pressure for the industry as consumers increasingly expect lower prices to send money abroad.
However, Ria owner Euronet’s CEO Michael Brown dismissed such concerns during the company’s recent Q3 2021 earnings call, saying that although remittances “is a dog-eat-dog business”, the company hasn’t “really felt much pricing pressure”.
“This idea that all of a sudden we’re under the gun on pricing, I don’t think is accurate,” he said.
Beyond pricing, the prevalence of Novi may provide a challenge for its competitors, with job adverts indicating that the digital wallet will be available not only through its standalone app, but also through Facebook Messenger and WhatsApp.
If eventually rolled out across Facebook’s platform of brands, it would place the digital wallet in front of an unparalleled potential customer base, with WhatsApp alone having around 2 billion monthly active users.
Facebook takes on remittances: Novi’s offering
Beyond remittances: Long-term plans
Looking long-term, Facebook also appears to be planning to apply Novi to applications beyond remittances, stating in job adverts:
“Over time, Novi will support additional use cases such as commerce transactions and support other financial services.”
This indicates a desire to make the digital wallet a competitor to super-app PayPal, rather than just competing in the core remittances space. However, in order to get to this stage, Novi will need to be available in its final form – namely running on the Diem blockchain and cryptocurrency, rather than the current Pax Dollar stablecoin.
The launch of the Novi pilot indicates that Facebook has some confidence that Diem will soon be approved by regulators, although it is not without its detractors. For example, the pilot prompted a group of Senate Democrats, including Brian Schatz and Elizabeth Warren, to write an open letter to Facebook CEO Mark Zuckerberg expressing concerns over the pilot’s “aggressive timeline” and arguing that Novi was “incompatible with the actual financial regulatory landscape” and presented risks to the US’s financial stability.
Overall, there is little doubt in Facebook having the user base, product and strategic capability to execute and take market share in remittances. What is much harder to assess is what political and regulatory headwinds Facebook may continue to face, some unique to Facebook, some industry-wide. Plus, there are difficult questions around whether US dollar stablecoins should be treated the same as fiat US dollar, not just in the US but in each overseas market Novi enters.