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Payment firms exit the Libra platform

18 Oct 2019, 00:00, , ,

In what may be the biggest blow yet to Facebook's Libra, payment giants Mastercard, Visa, eBay, and Stripe have abandoned the troubled cryptocurrency project.

With PayPal’s departure last week, six of the seven payment platforms that first joined the Libra Association have now pulled out. This leaves only the relatively small Dutch firm PayU and no major US payment processor.

When first announced in June, Libra planned to grow the 27 companies in the association to more than 100 before the launch of the network in 2020. But a series of clashes with regulators are thought to have deterred potential members of the Association.

A range of potential problems

When the first round of Libra-backers joined the Association, they signed only non-binding letters of intent.

Since then, tension with regulators has gone through the roof, with US Senators Brian Schatz and Sherrod Brown sending letters to Stripe, Visa and Mastercard warning of the “chilling” effect that Libra could have on the global financial system and suggesting they could expect a high level of scrutiny from regulators if they chose to be involved.

Authorities around the world have raised similar concerns that were presented to finance ministers at the IMF annual meetings this week. A report from the G7 Task Force suggests "global stablecoins" with the potential to "scale rapidly" could damage the ability of governments to set interest rates.

These issues are likely to have weighed heavily on the fleeing payment firms, which dropped Libra just before a major meeting on Monday, October 14th in which all members were expected to pledge full allegiance.

But while the fleeing companies might be keen to avoid regulatory uncertainty, their statements suggest they aren’t ruling out a future return to the project.

eBay said in a statement that it “respected” the Libra project" but would not be moving forward as a founding member because it was “focused on rolling out eBay’s managed payments experience for our customers.”

PayPal also hinted that its own business had become a priority, but remains open to future collaboration. “We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future,” it said in a statement.

Visa, whose departure will arguably leave the largest hole, made a similar statement, suggesting that co-operation could be possible once regulatory uncertainty is overcome. Future participation will depend on "a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations," it said.

Place your bets

Traders who think they can determine Libra’s fate will soon be able to bet on a predicted outcome.

Crypto exchange Coinflex is set to release a new physically-settled futures product that will deliver Libra tokens to those who successfully predict if the project will be live by the original launch date at the end of next year.

Coinflex CEO Mark Lamb is optimistic about Libra suggesting the project “has the ability to rival the entire global banking system from day one."

"When that first day will be is far from certain," said Lamb to Bloomberg. “The political backlash has been brutal and it’s anyone’s guess if Facebook will get this over the line."

As for the probabilities, the exchange prices the initial Futures Contracts at 30 cents, which equates to a roughly 30 percent chance that Libra will be operational by December 2020.

How this probability has been reached is not clear, and the mixed messages from Libra executives suggest it’s not a simple calculation.

Libra chief executive David Marcus has cautioned against reading too much into the fate of Libra from recent events and says that its current precarious position is not permanent.

"I would caution against reading the fate of Libra into this update," tweeted Marcus after the losses were made public. "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 onto something when so much pressure builds up. Stay tuned for more very soon."

Other executives have been more cautious with chief operating officer Bertrand Perez claiming in an interview on September 27 that it was not possible to say if Libra would launch in 2020 and that the timing of Libra’s launch largely depends on regulatory approval— “the rest will flow from there,” said Perez.


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