It’s no secret that Libra has already ruffled some feathers with multiple central bank chairmen and government officials across the world.
Australian authorities have also commented on their opinion about the new project, saying that regulatory clarity is absolutely essential for Libra to work in Australia. But, as it stands right now Facebook doesn’t really require too much regulatory clarity with its Libra project. The only thing it requires is a banking license, which isn’t that hard to get in Australia as long as the applicant has sufficient capital.
How can Libra overtake local banks?
The first thing that comes to mind when thinking about the Libra project is, of course, the blockchain platform it is built on. This means that payment processing and at least a little bit more decentralization than a normal private bank in Australia is guaranteed.
Although payment speed may not be the sole focus of the Australian consumer, the fees at which people are forced to make those transactions could play a massive role.
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But what fees? Aren’t fees for transferring funds between Australian banks minimal? Well, yes, but the fact is that Australia has quite a lot of outflowing capital as well, especially towards developing countries.
There are hundreds of thousands of migrants currently working in Australia, most of them are people who support their families abroad in developing countries such as India. Therefore, it’s up to them to transfer funds from local Australian banks to Indian banks abroad, which:
- Takes a long time
- Is connected to large fees
Naturally, nobody wants to wait for five business days before their transaction reaches their loved ones, and more importantly, they don’t want to pay 10% of their hard-earned money just to be able to send it.
Libra would provide the perfect solution for migrants like these as the transactions will most likely be instant, and the commission will number in cents at most.
Outpaced bank innovations
The next argument about Libra’s relevance in the region would be that they’ll tap into the unbanked customers market much easier than banks could ever dream to. Although this will mostly happen outside of Australia, it’s still relevant for local banks because of increased competition and the capability of Libra to provide better conditions in order to win over banks’ user base.
The direct effect for Australia would be in the far future though, around a decade or so, where the current unbanked population of Australia (the underaged citizens) will have much more exposure towards Facebook’s financial platform than anything else the banks can offer.
It’s no secret that the sooner you start marketing to your future customer base the more likely are you to beat your competitors, and Libra is indeed a very strong competitor.
The banks’ only hope
The only hope that bank has at the moment is Libra being outright banned in Australia and all the major countries from which people emigrate from.
Such a notion has already been heard in India, from where Australia gets most of its migrants, in skilled jobs like medicine and etc.
Although Australian banks did mention that Libra poses a threat, it’s not guaranteed that the government will implement laws to bail banks from their misfortune.
At this point, even politicians are starting to understand that traditional financial institutions are starting to feel much more comfortable than they should and don’t dedicate enough effort to innovation and the maximization of efficiency.
As long as Libra can offer a more comprehensive and transparent KYC and AML rules to the government, alongside tax processing and payments, why would governments bank outdated banking platforms? Corruption? In Australia? Doubtful.
Maybe people won’t be interested?
Another way that banks can go about wishful thinking is that maybe the user base will not be interested in Facebook’s attempts at becoming the world’s largest bank?
In fact, there is a basis for this assumption, as there was a survey conducted in Germany which shows that the local population isn’t too keen on trusting Facebook with their funds. An overwhelming majority of surveyed people said that they’d much rather have banks take care of their savings than have it all saved on a platform that’s been fined for mishandling user data.
Furthermore, there’s always a chance that Libra’s blockchain can be hacked, which is quite common in the industry. The reason why this poses as the biggest threat is the volume that the hackers can get their hands on.
Pretty much every hack before now has been on individual crypto exchanges, which mostly hold a very small chunk of available cryptos.
Having Libra hacked, which could potentially hold the funds or information of more than 2 billion people would be disastrous, but basing an argument about a possibility isn’t going to take the banks too far.
What can Australian banks do?
One thing that banks can work on to avoid being overtaken by Libra is implementing an innovative platform themselves. It doesn’t necessarily have to be on the blockchain. Pretty much anything that would provide similar advantages as Libra does, things like instant transactions and low fees is enough to render Facebook’s project obsolete.
One example that Australian banks can use is when Monex Securities implemented a commission-free platform for tapping into the local market. It introduced a completely new product for an already existing customer base, which is still in the process of “stealing” customers from other financial service providers in the country.
The only difference was that Monex Securities didn’t have as many controversies behind it, therefore it managed to win the trust of the exiting user base much easier. With Facebook, it’s going to be different thanks to all the user data shenanigans the company has been caught red-handed in.
The user support is still there for the banks, therefore they don’t need to hide behind arguments that Libra will disrupt the global economy. In fact, it has the capability of fixing it and making it better.
All that banks need to do to participate in the new trend, is to catch up and try to replicate the new market standards.