For Facebook to lose one payments provider, to paraphrase Oscar
Wilde, is a misfortune; to lose two looks like carelessness. Yet over the
weekend Facebook lost four companies who had signed up to its Libra
cryptocurrency project – with the vast majority in the payments space.
On Friday, they fell like dominoes as Mastercard, Visa,
eBay, and Stripe all pulled out. The Financial Times first reported eBay’s
exit, while Bloomberg editor Joe Weisenthal first noted the Stripe and
Mastercard moves.PayPal had pulled out the previous week.
The statements from the companies leaving were relatively
optimistic. eBay said it ‘highly respected the vision’ of Libra but wanted to
focus on rolling out its managed payments offering. “Stripe is supportive of
projects that aim to make online commerce more accessible for people around the
world. Libra has this potential,” a Stripe statement added.
The domino effect came about for two primary reasons. As
reported by Ars Technica, the first official meeting of the Libra Association
is scheduled for October 14 where members will be asked to make binding
commitments to the project. Perhaps more ominously, the US Senate last week sent
letters
(pdf) to Patrick Collison, Ajaypal Singh Banga and Al Kelly, the CEOs of
Stripe, Mastercard and Visa, warning of regulatory action if they proceed with
Libra membership. The companies did not reference the letters in their departure
statements.
“Facebook appears to want the benefits of engaging in
financial activities without the responsibility of being regulated as a
financial services company,” the letter read. “Facebook is attempting to accomplish
that objective by shifting the risks and the need to design new compliance
regimes on to regulated members of the Libra Association like your companies.
“If you take this on, you can expect a high level of
scrutiny from regulators not only on Libra-related payment activities, but on
all payment activities,” it concluded.
From Facebook’s perspective, the company is seeing the
decisions as a temporary blip.
“Special thanks to Visa and Mastercard for sticking it out
until the 11th hour,” Libra co-investor David Marcus wrote on Twitter. “The
pressure has been intense (understatement), and I respect their decision to
wait until there’s regulatory clarity for Libra to proceed.
“I would caution against reading the fate of Libra into this
update,” Marcus added. “Of course, it’s not great news in the short term, but
in a way it’s liberating. Change of this magnitude is hard. You know you’re on
to something when so much pressure builds up.”
There are some positives to be taken from this. One payment
provider remains and is committed to the cause. According to South African
website Tech
Central – albeit two days before the withdrawals – Naspers, of whom Libra
member PayU is a subsidiary, the company is ‘still committed to the project.’ “What
attracted us to it is still valid,” said Naspers CEO Bob van Dijk.
Investment site ZeroHedge was rather more brutal in its
assessment. “The decisions by these anchor companies, whose departure effectively
kills Libra, are a death blow to Facebook’s plans for Libra,” Tyler Durden
wrote in the aftermath of the news. “Without a strong network of financial
partners that could help transfer currencies into Libra and global retailers to
accept it as a form of payment, its reach would be non-existent.”
So what happens from here? One could make an argument that Facebook hasn’t been given a fair crack of the whip from the critical media. On the publication of the Libra whitepaper, for instance, The Atlantic opened with: “One of the world’s must distrusted companies wants to trust its new Libra cryptocurrency… we shouldn’t.”
Martha Bennett, VP and principal analyst at Forrester, warned of the regulatory concerns and that responses from the Libra team were ‘thin on detail in that regard.’
Regarding the letters from the Senate, Bennett saw it as ultimately immaterial. “There’s been a lot of talk around the intervention on the part of the two US Senators writing to payment networks, and what impact that had. Whether or not those letters were appropriate is a separate discussion,” said Bennett.
“In my view, the companies in question would have pulled out anyway, for the same reason PayPal did: insufficient visibility on how Libra was really going to come to grips with compliance, and the associated risk of reputational damage, and potentially worse, [such as] impact on those organisations’ relationships with regulators.
“Will Libra survive? I wouldn’t write off the initiative yet, but the Libra Association’s work has become much, much harder,” Bennett added.
Good news certainly appears to be in short supply right now – and it will keep going this way until Facebook can provide answers on the transparency and regulatory front. According to the BBC, an upcoming report from the G7 group – whose taskforce included senior officials from central banks and the International Monetary Fund (IMF) – will recommend Libra ‘must not go ahead until [Facebook] proves it is safe and secure.’
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Credit: Blockchain News