Will Facebook’s Novi Change The Way We Send Money?

Novi is a digital wallet that will help people send money instantly without fees. The race to make money move faster, cheaper, and safer is becoming more competitive as traditional banks, blockchain startups, FinTech startups, governments, and social media giants are rushing to get a piece of the pie.

Digital Money Transfer: Problem Well Stated Is Half Solved

This statement by Charles Kettering, who was head of research at General Motors from 1920 to 1947. The problem in the cross-border industry is clear.  When it comes to sending money:

• Exchange rates markups are high
• Money transfer fees are high
• Lacks convenience and security 

Novi Financial, a subsidiary of Facebook, is on a mission to make money work better for everyone. Novi digital wallet designed for Diem, which was previously Libra, is a new payment system that is built on blockchain technology. 

Digital currency group Diem Association, formerly known as Facebook Inc. (FB.O)'s Libra project, comprises 26 financial firms and non-profits.

Interestingly, instead of riding on Diem's blockchain network, Facebook is partnering with Paxos and Coinbase to let users send and receive USDP. 

USDP, which is a stablecoin tied to the USD,  formerly known as Paxos Standard (PAX). A stablecoin is a crypto asset backed by a reserve asset such as currencies offered by central banks and commodities such as gold. The two most popular stablecoins - Tether and USD Coin have a combined circulating supply of more than $100 billion right now. 

Throwing some light on Novi's future in cryptocurrencies, project lead David Marcus said, "I do want to be clear that our support for Diem hasn't changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live. We care about interoperability and we want to do it right,"

Can I Send Money From The U.S.A. To India Using Novi? 

No. Novi is still at a piloting stage. It is only available for some users in Guatemala and the U.S. (except Alaska, Nevada, New York, and the U.S. Virgin Islands). 

Considering India is the highest recipient of remittances from the U.S., it is safe to assume that would be a focus market for Novi's future. There are currently several digital money transfer companies including San Francisco-based Xoom and Seattle-based Remitly, which recently went public. 

How Does Novi's Digital Wallet Work? 

Novi digital wallet uses digital currencies to process your remittances instantly and securely, "that makes sending money as easy as sending a message". You can send money through Novi in 4 simple steps: 

1. Download the Novi App from the App Store and the Google Play Store
2. Sign up with your phone number
3. Add money to your Novi account
4. Send money to your recipient 

Currently, Novi allows users on a waitlist to send Pax Dollars between the United States and Guatemala.

Which Exchange Rate Will Novi Be Using? 

Novi uses USDP. USDP is backed by USD cash and cash equivalents, and 1 USDP is equal to 1 US dollar. Stablecoins are considered stable and offer price stability compared to other popular cryptocurrencies like Bitcoin. 

Novi wallet holders are still exposed to the ebb and flows of both the market exchange rates and cryptocurrencies.

So, Novi has to pick an exchange rate, which is affected by multiple factors such as geopolitics and inflation, among other things. In addition, Novi has to create fiat-to-crypto on-ramps and off-ramps across all the currency corridors they intend to expand in the future.

Our recommendation would be to always compare the exchange rates offered by multiple money transfer companies before you send money internationally. 

 

Does Novi Offer No-Fee International Money Transfers?

When you add money in USD to your Novi account, it will be converted to USDP (Pax Dollar) without any fees. When you send money using Novi, you are basically sending USDP to your recipient.

It is unclear what fees and charges the recipients will have to pay to convert the USDP to their local currencies. Currently, international money transfers are available between the U.S. and Guatemala. 

The World Bank estimates that the global average cost of sending $200 is high at around 7 percent, it can go up to about 20 percent in the Southern African regions. Money transfer facilitators make money through exchange rate markups, currency conversion fees, and/or money transfer fees.

Emerging FinTech companies such as Wise and Remitly have been able to offer transparent exchange rates and fees, but entirely making money transfers free is not commercially viable.

If the cost of running a business is not covered by the subscription or fees, there will be a different kind of cost. After all, there is no such thing as free lunch.

Fee-free transfers have become a common practice in pilots for money transfer companies and digital wallets. Revolut and Skrill are great examples of brands that gained market traction by offering fee-free transfers. 

Is Novi Safe? 

The trade-off between convenience and security is one of the biggest dilemmas of the digital economy. While most of us hate having to go through multiple-authentication, we are also the first ones to condemn security leaks. This is especially true when it comes to financial services and the healthcare industry.

Novi has kept security a top priority. Here are key factors that prove Novi's commitment towards security: 

Identity or ID verification: To users are verified with a valid government-issued photo ID. and when needed, Novi will ask for a video selfie.

Anti-fraud protection: Novi has a built-in protections against fraud to detect and flag suspicious activities

Refunds: Dedicated teams to investigate customer claims and illegal activities. If any of the transactions are deemed unauthorized, a full refund back to your Novi balance.

You can file a claim up to the 120th calendar day from the date the transaction was first posted to your transaction history.

Protecting your personal information: Two-factor authentication and encryption of sensitive financial information.

Limitations Of Novi 

• Only for users in the U.S. and Guatemala
• The total number of users who can either hold or engage daily is capped at 200,000 
• $300 cap per transaction
• $1,000 daily send limit 
• $2,500 daily maximum on adding or withdrawing from each account

Bottom Line 

Defying all predictions and odds of a near economic collapse induced by the Coronavirus pandemic - people sent $540 billion in 2021, according to the World Bank.

For a long time, the remittance industry has been missing out on the digital innovations that had enthralled the other sectors.  This could be largely attributed to legacy technologies, high barriers of entry, and complex regulations around anti-terrorism and money laundering.

The trajectory changed course during the pandemic. We saw a rise in cashless transactions in domestic payments and with most physical money transfer agents being shut due to social distancing norms, we saw a rise in online international money transfers. Online money transfers are safer, cheaper, and faster than traditional ways of sending money. 

Novi with its strategic focus and a world-class product team behind the mission will likely change the way we send money, much like it changed the way we connected with people. In addition, if Novi is eventually rolled out across Facebook's brands - Whatsapp, Instagram, and Messenger, there is little doubt that Novi will shake up the global remittance industry.