Facebook’s effort to create a cryptocurrency was dealt a blow on Friday after several key partners, including Mastercard, Visa, eBay, Stripe and Mercado Pago, abandoned the project. The defections followed fierce criticism from global regulators and lawmakers, and have prompted some industry watchers to question whether the libra programme can survive.
The news comes days before the Libra Association, the group that will oversee the digital currency, prepares to convene its members and ask them to sign a charter agreement. The meeting is slated to take place on Monday in Geneva. A Libra Association spokeswoman said on Friday that the gathering will proceed as planned, and that it would announce the first list of official partners once a formal charter is signed.
In a statement, the spokeswoman said the group was “focused on moving forward and continuing to build a strong association” as it worked to create “a safe, transparent, and consumer-friendly implementation of a global payment system that breaks down financial barriers for billions of people”.
When Facebook launched plans for Libra in June, a critical part of its pitch was that major players in the payments and tech industry were supporting it. The cryptocurrency would be run out of Geneva by the organisations that comprised the Libra Association, not solely by Facebook. But now that that alliance appears to be eroding, the project’s future is uncertain.
“I don’t think Facebook can do this by itself,” said Michael Pachter, an analyst for Wedbush Securities told Bloomberg TV. “Short of a big bank stepping in like JPMorgan, I don’t think this could ever happen.”
In a tweet on Friday, David Marcus, the Facebook executive spearheading the effort, said that the exit of six partners would not derail the effort. “I would caution against reading the fate of libra into this update,” he wrote. “Change of this magnitude is hard. You know you’re on to something when this much pressure builds up.”
Extreme challenges
Whether or not libra implodes, the exits highlight the extreme challenges that lie ahead for the project, which if successful could have a sweeping impact on the global financial system. “It may very well fail completely,” said Lisa Ellis, an analyst at MoffettNathanson. Even if it survives, progress will take much longer and “it’s likely to fall into some level of obscurity”, she added.
Facebook has faced fierce backlash since the company announced plans for libra. Politicians and regulators around the world have called on Facebook to halt its progress, and some have suggested libra could be used for illegal money laundering or trafficking schemes.
Read: Naspers committed to libra despite global controversy
Despite the scrutiny from public officials and the exodus of partners, Facebook remains committed to libra, according to a person familiar with the matter who asked not to be identified because they were not authorised to speak publicly. Some people inside the company think the defections are partly driven by established payments providers worrying about a new entrant encroaching on their turf, the person said.
In the months since its announcement, Facebook has frequently found itself in the spotlight over the cryptocurrency. Marcus went to Washington in July to testify before congress about Facebook’s plans. Later this month, CEO Mark Zuckerberg is scheduled to appear before the US house financial services committee to answer even more questions about libra.
Earlier this week, two US senators cautioned Visa, Mastercard and Stripe to reconsider their involvement in the project. Senators Sherrod Brown of Ohio and Brian Schatz of Hawaii said that libra poses a risk to not only the financial system, but the payments companies’ broader business. “We urge you to carefully consider how your companies will manage these risks before proceeding,” they said a letter to the companies.
Mastercard said in a statement that it will “remain focused on our strategy and our own significant efforts to enable financial inclusion around the world”, adding: “We believe there are potential benefits in such initiatives and will continue to monitor the libra effort.” Visa said the company would also continue to evaluate whether to join in libra in the future, and that the company’s “ultimate decision will be determined by a number of factors, including the association’s ability to fully satisfy all requisite regulatory expectations”.
In a statement on Friday, eBay expressed its support for the project, but said it would focus on rolling out its own payments products. “We highly respect the vision of the Libra Association; however, eBay has made the decision to not move forward as a founding member,” an eBay spokesman wrote in the e-mailed statement. “At this time, we are focused on rolling out eBay’s managed payments experience for our customers.”
Payments giant Stripe, one of the most high-profile start-ups to sign onto the project, signalled it remained open to working on it in the future. “Stripe is supportive of projects that aim to make online commerce more accessible for people around the world. Libra has this potential,” said a company spokesperson. “We will follow its progress closely and remain open to working with the Libra Association at a later stage.”
The Libra Association is composed of about two dozen organisations, including Facebook. A Lyft spokeswoman confirmed on Friday that the ride-hailing company remains a member. Other companies that have not signalled plans to leave include Naspers unit PayU, Uber Technologies, Spotify Technology, Coinbase and telecommunications providers Iliad and Vodafone Group. PayPal Holdings dropped out last week. — Reported by Kurt Wagner, Julie Verhage and Jenny Surane, with assistance from Candy Cheng, Lizette Chapman, Spencer Soper and Lydia Beyoud, (c) 2019 Bloomberg LP