Visa Inc and Mastercard Inc on Friday announced their departure from Facebook Inc’s Libra project, the social network’s plan for a worldwide digital currency.
Along with the two payment giants, several other large companies have said that they are exiting Libra. Payment processing company Stripe Inc is stepping back, as well as e-commerce company eBay Inc.
PayPal Holdings Inc was the first of Libra’s big partners to leave, announcing on Oct. 4 that it would no longer be involved.
Facebook has faced substantial criticism since the summer when it unveiled plans to create a separate, private currency system to allow people to make cross-border payments more easily. The Libra Association, based in Switzerland, was supposed to give the currency project distance from Facebook, which would not own Libra.
Despite those efforts, financial regulators, as well as members of the US Congress, said that the privacy issues raised with the social networking company controlling a currency, while also expressing concern about how Libra could be used for money laundering like bitcoin or ether, other digital currencies.
US President Donald Trump tweeted that Facebook should be subject to US banking laws if the Libra project were to move forward.
All five departures come less than a week before the Libra Association’s official signing ceremony in Switzerland.
The impact of Libra’s loss of Visa and Mastercard cannot be understated. The two hold an effective duopoly over credit and debit cards in the US and Europe, and are making substantial inroads into payment systems in developing countries. Their initial agreement to join the Libra Association instantly gave Facebook’s project legitimacy. It also gave Facebook access to Visa and Mastercard’s networks, which could have given a pathway for users to convert traditional currency into Libra.
“If there was any ambition to scale Libra very quickly and make it widely accepted, they would have been able to do that through Visa, Mastercard and PayPal,” said Sanjay Sakhrani, a payments industry analyst at investment bank Keefe, Bruyette & Woods. “Now it’s going to be a bigger challenge.”
Visa said that it would re-examine a potential membership in the Libra Association if and when Facebook is able “to fully satisfy all requisite regulatory expectations” in its development of Libra — a sign that the regulatory and political hurdles Libra is facing were becoming too much to bear.
“Visa’s continued interest in Libra stems from our belief that well-regulated blockchain-based networks could extend the value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets,” Visa said.
Gartner Inc analyst Avivah Litan said that while the defections are “a big setback” for Facebook and Libra, they would not kill the project.
“It’s not the end of the effort, it just becomes much more contentious,” Litan said.
With the recent departures, Libra’s membership now consists mostly of venture capital firms and nonprofits. Uber Technologies Inc, Spotify Technology SA and Lyft Inc were still listed as members on Friday.
None of them responded to requests for comment.
Vodafone Group PLC, a telecommunications company based in Europe, which has a substantial presence in Africa and has specialization in mobile payments, was also still listed as a member.
Facebook chief executive officer Mark Zuckerberg is to appear in front of the US House Financial Services Committee this month to discuss Libra. That committee is chaired by US Representative Maxine Waters, who has been a critic of Libra from its onset.
The company has hired several Washington lobbyists to convince politicians and regulators to approve the project.
In a series of tweets, Libra co-creator David Marcus was not backing down either, despite Visa and Mastercard’s departure.
“The pressure had been intense (understatement), and I respect their decision to wait until there is regulatory clarity for Libra,” Marcus said.
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