Earlier this month, The Burn-In reported that Visa and MasterCard had doubts about being part of Facebook’s Libra cryptocurrency project. Last Friday, The Verge reported that the two financial sector giants joined eBay, Stripe, and Mercado Pago and withdrew from the program. With PayPal ditching Libra on October 4, the social network’s crypto-banking offering now lacks a major payment processor.
Why All the Big Payment Brands Left Libra
Officially, each of the firms that left the Libra Association last week had different reasons for doing so.
In a press statement, eBay said that, while it respected the aims of the organization, it wanted to focus on developing its own managed payments products. Mastercard made no public statement about its exit. Stripe said that it supported the project as a whole and would consider joining it at a later date. Meanwhile, Visa offered the most concrete explanation for why it’s abandoning Facebook’s cryptocurrency initiative.
“Visa has decided not to join the Libra Association at this time,” a company spokesperson told The Verge. “We will continue to evaluate, and our ultimate decision will be determined by several factors, including the Association’s ability to fully satisfy all requisite regulatory expectations.”
Indeed, two U.S. senators recently gave the world’s largest payment processors a very good reason to back away from Libra. On October 8, Senators Brian Schatz (D-HI) and Sherrod Brown (D-OH) sent a letter to Visa and MasterCard warning them of the dangers inherent in Facebook’s financial products. Like other legislators, the pair cautioned that the firm’s cryptocurrency could be used to facilitate crime and terrorism.
Accordingly, Senators Schatz and Brown vowed to heavily scrutinize the brands’ operations if they remained associated with the Libra Association. Facing such threats, Visa and its contemporaries left the organization before having to confirm their membership on October 14.
What Happens Now?
On Friday, Libra head David Marcus spun the situation as best he could with a few tweets. The executive states that the project will continue onward despite the setback of losing its U.S. payment processors. He also noted that the immense global backlash the project has faced means that Facebook is “on to something.”
Special thanks to @Visa and @Mastercard for sticking it out until the 11th hour. The pressure has been intense (understatement), and I respect their decision to wait until there’s regulatory clarity for @Libra_ to proceed, vs. the invoked threats (by many) on their biz.
— David Marcus (@davidmarcus) October 11, 2019
Despite Marcus’s optimistic outlook, the Libra initiative truly does need the support of major payment processors in order to succeed. Facebook wants consumers to use its cryptocurrency online and in stores. With 2.4 billion monthly active users, the company would require a massive transaction processing infrastructure to handle the traffic from even a fraction of its potential customers.
Furthermore, Facebook intended to have Visa and its counterparts handle Libra’s Know Your Customer obligations. After all, those firms have experience verifying that their services are not being abused by money launderers, extortionists, or terrorists. Dutch fintech corporation PayU, Libra’s last remaining payment processor partner, simply can’t handle all of the project’s traffic by itself.
Given that the scrutiny surrounding the project will likely scare off other processors, Facebook might have to build its own system. However, that wouldn’t be an irresolvable issue for the social network. With $44 billion in cash on hand, the company has more than enough money to buy the necessary infrastructural components. Indeed, the firm recently purchased a chatbot startup to serve Libra’s users.
Accordingly, Facebook may buy an emerging payment processor if all of the established ones turn its crypto project down. Even so, such a move will likely only intensify global legislators’ suspicions about the project.