One nation, under hyperinflation
For decades, Venezuela’s ownership of the world’s richest oil reserves made it one of South America's wealthiest nations, but recent economic turmoil under President Nicolás Maduro tanked the country’s currency. Annual inflation rates of 200,000% (not a typo) left Venezuelans holding banknotes scarcely more valuable than monopoly money. Once the equivalent of 10,000 USD in 2016, 100,000 Venezuelan bolivars is now worth just 15 cents. Hyperinflation has devastated trade in countries like Zimbabwe and Yugoslavia, leaving citizens unable to make even tiny purchases with their ever-devaluing currency. But Venezuelans are finding ways to pay for everything from basic groceries to medical care with a tool that could make them the world's first “cashless country.”
Zelle, the money transfer service owned by seven of the largest US banks, has achieved verb-status popularity among Venezuelans that Gretchen Weiner could only dream of. Signs that read “Aceptemos Zelle” hang in store windows while customers throw around the phrase “Zell-ey” like Americans do “Venmo”. Even doctors accept Zelle payments for treatment. Nearly 1 in 5 retail transactions in Venezuela happens in the app, but this rate is likely a major underestimate because it doesn’t include smaller shops and stands where Zelle is even more popular. As many as 40% of Venezuelans hold foreign bank accounts, and hundreds of thousands who’ve fled to the US can use services like Zelle to wire money back to their relatives. In a time where the bolivar is useless, dollar-based Zelle acts as a lifeline for purchases of all sizes.
By using US dollars, Zelle allows citizens to trade goods and services with the peace of mind that their currency won’t lose value overnight. And unlike citizens of Cuba or Iran, Venezuelans still have access to the US financial system, despite some economic sanctions. In fact, there’s been a thriving black market for USD ever since Venezuela began experimenting with its own currency 15 years ago. But Zelle offers a platform for payment that’s more secure than any underground market.
But Why Zelle?
Compared to mobile pay peers CashApp and Venmo, Zelle offers an air of national bank-backed legitimacy and allows customers to move cash directly from one bank account to another, rather than a “middle place” in the app. And Zelle processes far more cash than the competition. As of 2019, Zelle was moving $119 billion in transactions annually compared to Venmo’s $62 billion.
Will Venezuela stay cashless forever?
Probably not thanks to the dollar (and Venezuela’s central bank). In 2019, President Maduro endorsed the use of US currency, but true “dollarization” (official recognition of USD as a medium of exchange), had not taken place. As a result, informal US currency usage was full of more gray areas than a cement factory, putting citizens at risk of being prosecuted for an illegal transaction. But Venezuela’s central bank officials are now making key first steps towards creating a clearinghouse for US dollars. Eventually, this could allow dollarization to take place, allowing Venezuelans to trade confidently with the stabler USD without sacrificing the chance for bolivars to become the de facto currency again as their economy recovers.
For US users, a future where we can help with a tap
Zelle’s ability to act as a lifeline for Venezuelans hints at a growing opportunity for people to use finance apps as a tool to help others globally. By making a stable currency available to people who can’t count on their own country’s, money transfer apps can democratize access to the goods and services an economy needs to keep growing. For us, it could mean a future where our money apps have the ability to send cash across the globe to people who need it, without worrying about exchange rates or politics. And while many specialized charities already exist, services like Zelle could one day offer us the chance to make an even more direct, targeted impact by sending money straight to individuals who need it.