Libra’s future is on the line at high-stakes Geneva summit
The Libra Association is scheduled to meet on Monday in Switzerland, and its remaining stakeholders — under very public pressure to abandon ship — will potentially find strength in numbers.
The meeting’s primary goal is to name directors, though the political pressure is bound to come up based on how close Facebook is tied to the Libra project. Much of the opposition comes from the perceived threat that Facebook’s international scale and data management power will be tied to a payment system that operates outside of central government control.
Facebook’s Libra cryptocurrency project has been under almost daily scrutiny since its announcement in June, with the most recent blows being the departure of PayPal and announcements from Mastercard, Visa, Stripe and eBay that they would not join the venture at launch.
Additionally, Sen. Brian Schatz, D-Hawaii, and Sen. Sherrod Brown, D-Ohio, sent letters to Mastercard, Visa and Stripe. The senators are pressuring the payment companies by linking them to Facebook’s general risk as an international social network and its reputation for data management and privacy issues. It’s at least a veiled threat, given the senators’ joint letters tie Facebook to election interference, discrimination, online child abuse and other crimes — and allege Facebook is deflecting risk to the members of the Libra Association.
Stripe, Mastercard and Visa did not return requests for comment by deadline and Calibra’s media representative did not comment beyond confirming the Geneva meeting will take place and saying there would be communications to the media after.
“The meeting is critical, especially as PayPal just pulled out, and I don’t expect them to be the last,” said Rachel Woolley, global AML manager for Fenergo, a financial services regulatory technology company, adding there’s a general trend in global regulation toward “personal accountability regimes,” meaning appointments designed to appease regulators while scrutinizing other senior roles inside organizations. Woolley's interview, which came before Stripe, eBay's and the card networks' departures, proved to be prophetic.
“My biggest concern with Calibra continues to be who is responsible for anti-money laundering and know your customer compliance,” Woolley said. “For an undertaking of this scope and magnitude, Calibra needs to make some high level appointments to help assure stakeholders and regulators that this is being taken seriously and addressed.”
One of Facebook’s goals at the Geneva meeting is to further separate itself from Libra, much like Ripple has tried to create a distinction between its blockchain company and its XRP token.
The nonprofit Calibra is overseeing Libra, which will have as many as 100 members with voting power. Monday’s meeting will likely be part of a strategy to provide more detail about how Libra's operation will be distinct from Facebook, the roles of the existing and new partners, how the Libra network will grow, and how Facebook’s overall risk will not impact the virtual currency.
But it’s a hard sell in at least two different ways. More than a dozen of the announced partners have links to Facebook through common investors or executive crossovers, creating a perception of centralized power for a venture selling decentralization. Yet at the same time, Facebook is creating a payment system that could be competitive to its partners’ traditional business lines. So it’s not just central banks that are potentially losing influence over payment markets.
“There’s no upside for PayPal getting sideways with regulators by participating in a system that, if successful, would likely harm PayPal,” said Eric Grover, a principal at Intrepid Ventures.
While PayPal’s out of the venture, other payment companies remain. The payment companies are particularly important, since they provide merchant acquiring, compliance expertise and bolster Facebook’s network effect — in addition to the $10 million initial investment that all remaining 27 partners have pledged. The loss of PayPal removes part of that expertise and places more pressure on the other payment companies.
Mastercard and Visa operate huge international payment networks, and Stripe has become a major player in its own right, connecting merchants to online payments in dozens of countries.
“The same [PayPal problem] also applies for Mastercard and Visa,” Grover said. “If Libra was just a private currency that wouldn’t be the case, but it’s also a payment system. Imagine the social media giant massively incentivizing use. If Libra became the principal means of payment on the platform and it spread to adjacent e-commerce and the physical point of sale, it would hurt PayPal and also traditional global payment networks such as Mastercard and Visa.”
There is also a counter argument that suggests there’s an incentive for financial institutions to participate, according to Richard Crone, a payments consultant.
Financial institutions without mobile instant account issuance could use Libra’s prevalidated multifactor authentication as a federated ID to open an account to target both banked and unbanked consumers, Crone said.
“If you don’t support Libra you risk losing customers who want it and miss the greenfield opportunity,” Crone said, using Apple Pay as an example. “Banks had no choice but to support Apple Pay. Those that choose not to support it don’t have a chance of competing if they are not on the platform."