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Beware the Metaverse: How Novi Money Transfer Could Make the Industry Less Competitive

MOVING MONEY POLITICS--2021 has been a disastrous year for Facebook (now Meta) – and deservedly so. Thanks to ex-employee Frances Haugen, we know this monolithic tech giant repeatedly put profit before the world’s well-being.

According to Ms. Haugen, Meta had done extensive research into the effects of their platforms on teenage girls. For instance, these teams knew Instagram had a profoundly negative impact on those suffering from mental health challenges.

And yet, Facebook did nothing.

But that was just the tip of the iceberg. In many countries embattled by civil strife, hate speech filters were nonexistent, fuelling racist hate. And here in America, automated post regulators only managed to take down 2%-5% of content promoting “Stop the Steal” efforts.

Amid this level of controversy, any moral company would make sweeping changes. But not Facebook – on October 28th, they opted to change the channel instead. At Connect 2021, CEO Mark Zuckerberg announced that the Facebook family of companies was rebranding to Meta.

While the name refers to the dawn of “The Metaverse,” the timing of this announcement was just a bit too convenient.

Yes, I’ll say it – this dramatic spectacle was nothing more than a distraction. And if we allow Zuckerberg and Co. to get away with it, they’ll continue to do self-serving, profit-maximizing stuff that’ll only make the world worse. 

Get Ready to Pay More for Money Transfers: Introducing Novi by Meta 

They’re already making their next move. For years, Facebook had been working on a money transfer service. And one week before Connect 2021, they finally showed their hand. On October 19th, they announced the launch of Novi Money Transfer. 

On the surface, Novi by Facebook promises a remittance revolution. In their promotional material, Novi Money Transfer touts fee-free, peer-to-peer remittances, delivered in seconds rather than days. As the service rolls out, we imagine that initial Novi Money transfer reviews will be quite positive. 

But don’t be fooled: there’s no such thing as a free lunch. In our research for this piece, we uncovered some eyebrow-raising comments from Novi by Meta chief executive. According to David Marcus, they plan on making money by monetizing customer/merchant transactions, starting in 2023. But even after that date, they plan to continue offering free peer-to-peer transactions.

In other words, Meta plans on using its monopoly power to undercut the entire remittances market. The reaction of money transfer veterans tells you everything you need to know. On the day that Novi Money Transfer launched, stocks of many remittance and money transfer firms tanked.

In particular, Western Union and Moneygram took the news hard. But Remitly, who has given many migrant workers a cheaper alternative to the financial establishment, took the worst plunge.

But the launch of Novi by Facebook is even worse news for our working-class heroes. Gaze five years into the future – Western Union and Moneygram, through their largess, have survived the disruptive tactics of Novi Money Transfer. But sadly, smaller players like Remitly and WorldRemit, lacking deep pockets, have perished.

In this environment, nothing would stop Novi by Meta from suddenly introducing oppressive fees. Then, after a few brief years of no fees, overseas workers would have to pay more oppressive fees than ever before.

It’s scary, but this scenario is disturbingly possible when there are no checks on monopoly power. 

No Angels: How the Remittance Market Currently Works 

To understand why Novi by Facebook’s entrance to the international remittance market could be devastating, we need to understand how remittances work.

 As a whole, the world is an uneven playing field. In many developing countries, a combination of labor disempowerment, a lack of good opportunities, and weak currencies make it tough for everyday people to survive. So once they scrape together enough money, many emigrate to developed nations.
 
After they get settled, they find employment wherever they can. Despite exploitation and low pay, these workers can save significantly more than they ever could back home. And so every month, after covering their own needs, they send as much cash home to their families as possible.

This arrangement is hugely important to many developing countries. According to the International Fund for Agricultural Development, more than 70 countries rely on remittance flows for more than 4% of their GDP.

But wherever money flows, capitalists look to maximize profit. Over the past century and a half, that’s exactly what Western Union and Moneygram has done. After getting their start operating telegraph networks, Western Union recognized the profit potential of sending money over their wires.

In the 1940s, they were joined by Moneygram, and the remittance duopoly of the 20th century was born. With no other competition, these companies set up offices in nearly every country on the planet – and charged their customers obscene rates.

On average, fees take a 7% bite out of every remittance. But in some African nations (where Western Union + Moneygram dominate), these fees often exceed 10%. Thankfully, international organizations are trying to drive rates down to 3%. And to their credit, steady progress has been made towards this goal. 

But Novi by Meta Threatens Those Plans 

But thanks to Meta flexing its monopoly muscles, this objective is now in doubt. As mentioned earlier, Meta chief executive David Marcus committed to providing indefinite fee-free P2P transfers between Novi Money Transfer users.

But why not just charge a fraction of what Western Union/Moneygram/Wise charges? That way, they would still make waves and a decent profit. 

Read between the lines – Meta plans on using its immense financial resources to muscle out as many competitors as possible.

Meta is an immense corporation. In the 2020 financial year, they reported an annual net income of over 29 billion dollars and had 62 billion dollars in the bank. With these resources, they can afford to operate Novi by Facebook at a loss for an indefinite period.

Doing so would cause an unprecedented migration of customers to Novi Money Transfer. Of course, the lower rates would draw them in, but the role of Novi by Facebook within the Metaverse will keep them hooked.

Much like China’s Wechat, Meta is building an ecosystem of apps where it is unnecessary for users to use another company’s services. Already, Meta users can connect with loved ones on Facebook, chat over Messenger, text/call on Whatsapp, and share beautiful photos on Instagram. 

Adding a money transfer service to that stack would make switching from competitors quick, easy, and most likely, permanent.

Now, it’s true a price war would drag remittance fees down in the short term. As you might imagine, the Novi Money Transfer reviews will be glowing at first. But in the aftermath, there would be no financial incentive for survivors to keep rates low. So instead, they will hike rates as soon as Meta does.

If this scenario comes to pass, Meta would quickly undo years of progress on lowering remittance rates. 

Monopolies are Dangerous: Break Up Meta Now 

Back when Washington had the guts to do the right thing, monopolies weren’t tolerated. In years past, Standard Oil, American Tobacco, and Ma Bell (AT&T) met the regulatory ax. But today, corporate influence in government has dulled its blade.
 
Companies like Amazon, Google, Apple, and Meta have crippled our democracy. Establishment politicians on both sides of the aisle have failed us. Only by electing principled progressives can we right the ship.       

 

 

 

 

 

 

 

 

 

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