Bloomberg Businessweek - USA (2020-11-16)

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BloombergBusinessweek November16, 2020

WhenFedericoSuárezmadeanover-

nighttriptoValencialastmonthtovisit

hisboyfriend,the24-year-oldCaracas-

based lawyer was in the moodto

splurge.Overthecourseofa weekend,

thecoupleenjoyedanempanadabreak-

fast,shoppedforimportedcheesesand

pasta,andthenwentoutfora roman-

ticsushidinner.

AllwerepurchasedusingZelle,the

money transferserviceownedbya

groupofsevenofthelargestU.S.banks.

“Icanpayforthingseverywhere.The

onlyproblem is,I buymorethanI

should,”saysSuárez.

PayPal and Venmo may have

achieved thestatusof verbs inthe

U.S.,butinVenezuela,it’sZelle—or

“Zell-ey”—that’s oneveryone’s lips.

AcrossCaracas,homemadesignsthat

readAceptamosZelle(WeacceptZelle)

dangleinstorewindowsandoffpro-

ducestands.Computerprintoutsof

thepurplecompanylogoaretapedto

cashregistersinsupermarkets,some

ofwhichhavededicatedlinesforcus-

tomerspayingwiththeapp.Theimpro-

visedsignageis a hintthatVenezuelans’

useofZelletoproviderelieffroma rap-

idlydepreciatingcurrencyandrunaway

inflation,whilenotprohibited,could

certainlybedescribedasoff-label.

Itworksforimpulsebuys,likea

candybarora newpairofsneakers,

as wellas formoreessential needs.

“WithoutZelle,wewouldhavefewer

patients,”saysDr.AntonioFarfán,a

surgeonata privateclinicinCaracas.

“Iknowit’smeantforoccasionalpay-

ments,buthereit’severything.”

Zelleallowscustomersofitsmem-

berbankstosendmoneytofriends

andmerchants,oftenatnocharge,via

a mobilephoneapp.Itsowner,Early

WarningServices,basedinScottsdale,

Ariz.,hasneverpromotedit abroad.

It’shardtoconceiveitsowners,which

includeJPMorganChase& Co.andBank

ofAmericaCorp.,wouldhavepickedas

a testmarketa countryruledbya vehe-

mentlyanticapitalistgovernmentand

whoseeconomyis inshambles.

Useofmobilepaymentappsis surg-

inggloballyamidthecoronavirus out-

break, spurred by lockdowns and

shoppers’ concerns about becoming

infected through the use of cash or

credit card readers. Zelle, a leader in

the U.S. peer-to-peer payments market,

logged 842 million transactions totaling

$217 billion through September, a 64%

increase from a year ago. Early Warning

Services declined to make executives

available to be interviewed for this story.

Ecoanalítica, a local consulting firm, esti-

mates that 17% of transactions at retail

establishments in Caracas go through

the app and that other Venezuelan cit-

ies are seeing similar usage levels. The

actual figure may be larger, considering

the data do not include smaller shops.

Venezuelans’ embrace of digital

money is less a matter of choice than

of necessity. Their own currency, the

bolívar, is now about as valuable as

Monopoly money, a casualty of misman-

agement by Nicolás Maduro’s socialist

government, which since taking office

in 2013 has presided over seven consec-

utive years of economic contraction.

Gross domestic product is one-fifth what

it was when his tenure began, accord-

ing to estimates by the International

Monetary Fund, while inflation, as mea-

sured by a Bloomberg index pegged to

the price of a café con leche, is running

above 4,000%. The largest currency

note, the 50,000-bolívar bill, is equiva-

lent to less than a dime.

A disastrous 15-year experiment with

capital controls gave rise to a thriving

black market for dollars. Maduro’s gov-

ernment initially turned a blind eye

when corner stores, restaurants, and

hair salons began accepting greenbacks

as tender. Then last year the president

publicly endorsed use of the gringo’s

money, partly in the hope that it would

help tame inflation and help stabilize

a crumbling economy. “I don’t see it

as a bad thing ... this process that they

call ‘dollarization,’ ” he said during a

November 2019 TV broadcast, adding,

“thank God it exists!” Ecoanalítica esti-

mates that more than 60% of all trans-

actions in Venezuela are now in dollars.

Several countries have officially

adopted the U.S. dollar as their cur-

rency, including Ecuador and Turks

and Caicos Islands. Venezuela, on

In Venezuela,

money

transfer

services are

enabling

what may be

the world’s

first digital

dollarization

By Andrew

Rosati, Alex

Vasquez, and

Jenny Surane

⊳ Javier, in Miami,

helps his parents, Luis

and Gabriela, complete

payments in Caracas

THE NEW ECONOMY