Update as on 16 Oct 2019
It’s been a very bad week for Facebook’s planned stable coin – Libra. Throughout the initial push Facebook has asserted that Libra is a part of a larger group beyond itself and that Facebook is nothing more than a founding member among 28. Well events over the last 10 days have completely derailed that argument.
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Visa, Mastercard, Stripe, Paypal, Mercado Pago, Ebay and Booking Holdings all announced their departure from the Libra alliance. While there were no official reasons, media reporting on these indicate that it was the threat of increased regulatory scrutiny issued by American Senators – not just for Libra but on various other operational aspects of these financial services and ecommerce behemoths. This direct threat from the US Senators in addition to the various public pronouncements by multiple European regulators proved too much for these Libra coin partners.
These departures are body blows for Libra as they have essentially taken away the entire payments expertise at one go. All plans regarding the structure, rollout and uses for the currency will need to be completely redrawn.
This also impairs Facebook’s regulatory positioning for Libra. Without the payment partners, this will be treated even more as a “Facebook” currency. In that scenario, it is extremely unlikely to get a green light from any of the major to launch in any of the major markets – either in the US or in the EU.
The best bet is for a watered-down basic version to be launched, launch pilots across the developing world to prove it can actually help the underbanked. Achieving some success in that may convince regulators especially in emerging markets of it’s positive intentions.
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Earlier this year, Facebook announced the details of its Libra cryptocurrency venture, including details of the founder members of the Libra Association.
Team of Rivals
It is a truly impressive cast. Besides the big daddy Facebook itself, fierce industry rivals – both new and old have pledged to work together. Uber – Lyft, Visa – Mastercard and Ebay / Paypal – Stripe. In addition to these, the consortium also includes industry leaders such as Booking.com, Spotify and Vodafone. It is notable that Apple, Amazon, Google and any of the banks – large or small are not involved at this stage. While there must surely be significant political and financial considerations for this, we will leave the speculation of their non-particiaption for another time.
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| The Libra Association |
So why has Facebook assembled this all-star cast?
To conquer the global currency market and replace it with their shiny new currency – Libra. Financial networks are information networks, just as social networks are. Libra’s (read - Facebook’s) vision is that the financial network will be modeled on the social network. Eventually the two will merge, creating a single network to transfer money, cat photos and political diatribes.
Lack of Trust
However, unless you have been living in an off the grid cave in the Galapagos Islands, you will know that Facebook is deeply disliked and distrusted. This has been fuelled primarily by Facebook’s role in recent political scandals around the world, rumour mongering on Whatsapp and unabated privacy breaches of user data.
It is a question of trust and integrity. If you don’t trust Facebook to manage your News Feed, why would you trust it to construct a financial system?
The strong warnings from regulators from both sides of the Atlantic, only confirmed that the Libra launch planned in the second half of 2020 will face stiff challenges.
Grand Designs
Along with it’s partners such as Mastercard and Visa, Libra ATMs will spring up all over the world. Merchant ecosystems will be created where people will initially trade cash for Libra – and eventually only Libra! And, it will have its own programming language and smart contracts. It will be an end-to-end social-commercial-social loop along the lines of WeChat with some major twists. It will be cross-border, multi-currency and multi-platform. No wonder regulators around the world are deeply suspicious of their intentions.
Facebook's stated motto of “moving fast and breaking things” will certainly be met by strong regulatory resistance in the payments arena.
With all the headwinds both in the marketplace and regulatory, it is highly unlikely that you will get a Libra payment request on your phone anytime soon!
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