Knee-deep in a terrible financial crisis, Lebanese citizens leverage new technologies to circumvent a broken banking system.
Less than an hour’s drive north of Beirut, in Byblos, retired schoolteacher Nour Salma went from a comfortable middle-class life to poverty in just two years. Her $1,300 pension fell to less than $100 under the effect of devaluation.
Lebanon faces one of the world’s worst financial crises in recent history. Between 2019 and 2021, its gross domestic product contracted by 58%. The local currency lost over 90% of its value on the black market, causing a triple-digit inflation rate. In January 2022, the minimum monthly wage fell to an all-time low of $22; while according to figures released in February by the government’s central statistics department, food and beverages, transport and health care prices went up 483%, 541% and 444%, respectively.
Moreover, the Lebanese don’t have access to their savings. When the crisis started, banks imposed arbitrary capital controls on all accounts, essentially confiscating client deposits.
“The banks robbed us! I can’t buy anything anymore,” says Salma.
She relies on her children, who are living in Europe, for money to eat and pay her bills. Every month, they send her about $100 through Western Union.
Like Salma, most Lebanese have family members in foreign countries. Lebanon has one of the largest diasporas globally: About 15 million Lebanese live abroad versus 6.7 million at home. These expatriates provide a lifeline in times of crisis. According to the latest data compiled by the central bank, the Banque du Liban (BDL), Lebanon’s remittance inflows reached $6.3 billion in 2020—an average of $1,260 per person back home. And that is only the tip of the iceberg, as many remittances now travel as cash to avoid getting stuck in the banks.
During the early days of the pandemic, Karl Naïm was working as a managing director at Cedar Oxygen, a Paris-based economic recovery fund for Lebanon.
“Every time I traveled back to Beirut, people would ask, ‘Do you have extra space in your bag?’ I ended up carrying the maximum allowed—€10,000 [about $10,900]—and distributing it to family and friends. Clearly, there was a problem,” he says.
The problem is that Lebanon is the second most expensive country in the world regarding the cost of remittances. Money transfer companies like Western Union or MoneyGram, and their respective local agents OMT and CashUnited, charge between 9% and 12% depending on the corridor, plus an additional 2% on the beneficiary, compared to a global average of 6.3% to send $200.
In 2021, Naïm and two other co-founders set up Purpl, a fintech that integrates with global remittance players and cash-out partners in Lebanon to gradually bring down costs to 3%.
“We want to democratize remittances and enable financial inclusion, because most people in Lebanon are now de facto unbanked,” says Naïm.
Cash Remains King
With the banking sector at a halt, Lebanon is now a cash economy. By September 2021, the stock of currency in circulation increased 73% year-on-year. Cash doesn’t fit wallets anymore.
To address that issue, Purpl also applied for a digital wallet license from the BDL to allow users to store value and pay with their phones at partner shops.“It will take time for the Lebanese to trust again and leave money on a wallet, but we think this is the future of payments,” says Wissam Ghorra, chief business development officer of Purpl, who hopes to launch the wallet this fall with more than 2,500 merchant partners. “Supermarkets, pharmacies, gas stations … that’s where the remittances will be spent.”
Digital wallets have been allowed only recently in Lebanon. In 2020, Maher Mikati, CEO of e-payments company Areeba as well as the son of Lebanese prime minister and billionaire telecom mogul Najib Mikati, was the first to obtain a license.
It is one of the many products offered by his company, set up in 2017 to provide payment services to banks, other financial institutions, merchants and individuals. Initially, e-wallets had to be tied to a bank account, but the BDL extended the service to the unbanked due to the crisis. Mikati now sees an opportunity to tap into remittances and recently applied for a money transfer license.
“In the past, this was not part of our strategy; because there were dominant players in the market that did it far better than us,” he says. “But now we believe that using the wallet infrastructure for remittances inbound to Lebanon would be an interesting business.”
Other entrepreneurs prefer to operate from abroad, like Fadi Chidiac, a Lebanese expatriate living in Spain and CEO of MillionBridges, a Barcelona-headquartered peer-to-peer money transfer business founded in 2020.
“I wanted to send food containers to help my country, but customs and shipping were going to be a hassle; so I thought of creating a platform where Lebanese expats can transfer money for their loved ones in Lebanon to buy daily necessities from a network of merchant partners without the need for a bank account or cash and at no cost for them,” he says.
Using the service, senders load money on the app linked to bank accounts in Spain. The beneficiaries in Lebanon then receive notifications with the amount available. They can then go to more than 200 partner stores to buy essential goods and pay using an SMS code. The money stored in Spain is then transferred to the merchants’ accounts in Lebanon or elsewhere, which they can use to pay their suppliers.
Although a growing number of Lebanese abroad are adopting fintech platforms to send money back, the Lebanese at home are looking for ways to secure what is left of their savings. An increasingly popular solution is cryptocurrency. There is no official data on the crypto market, but industry players assure it is worth millions of dollars.
In the southern suburbs of Beirut, Nader Dirany, cryptocurrency consultant and co-founder of BuyBitcoinLeb, has a shop where customers can buy and sell cryptocurrencies for cash over the counter.
“When the bank crisis happened, people were seeking alternatives,” he says. “I started seeing new customers bringing money from under their mattresses to invest online.”
In some cases, Lebanese banks let clients withdraw their savings—but at an effective loss, typically between 30% and 70% of its value in devalued national currency. Some of Dirany’s clients accepted that deal for fear conditions would further deteriorate and then tried to make their money back by investing in bitcoin. However, the vast majority of clients are reluctant to gamble and prefer to invest in stablecoins like Tether, also known as USDT, a digital currency pegged to the dollar as a way to store value.
In Lebanon, cryptocurrencies fall in a legal gray zone. Shops like Dirany’s are part of a de facto network where tokens are usually bought abroad, sent to Lebanon, distributed to dealers and sold for cash without licenses or regulations. One of the consequences is that traders can’t check who their customers are, where the money comes from or what it is used for.
“You could be CIA, Mossad, ISIS, Cosa Nostra or just a scammer … we have all the players in Lebanon!” says Dirany. “I ask clients for ID. I take a copy of it and save it in a WhatsApp chat. I know it doesn’t cover AML [anti-money laundering regulations] properly, but it’s the best I can do. If anything happens, at least I have your ID; and if the authorities ask, I’ll hand them my mobile.”
About 15 miles north of Beirut, 38-year-old Mario Awad is another of Lebanon’s crypto dealers. He says his clients range from “the butcher to high-ranked officials.” Most of them want to store value, but some also receive salaries or family remittances; and sometimes they buy real things like apartments or cars from other community members, he says. In every transaction, however, the lack of regulation poses a risk.
“It worries me now to know my customers,” he says. “I don’t ask what they do. Terrorism, money laundering, drug dealing … I have no idea. If the sector were regulated, it would be good for me. I’d even like to help the government draft new laws.”
“To boost my business and integrate with traditional institutions like banks or PayPal, I need some sort of license. That will put more responsibilities on me, but I want to grow the community and make it safer,” agrees Dirany.
The BDL declined to comment.
In early 2022, Lebanon resumed talks with the International Monetary Fund to come up with a financial recovery plan; but the international community is asking for structural reforms the Lebanese authorities are not willing to make. While the May parliamentary elections might help break the deadlock, the banking system is far from becoming functional again.
“The financial sector is highly impaired, and we expect a considerable downsizing,” says Wissam Harake, a senior economist at the World Bank.
After providing solutions to customer needs in a time of crisis, Lebanese fintech entrepreneurs are now part of the financial sector and hope to play a crucial role in their country’s economic recovery.