NEW YORK: Visa and Mastercard on Friday announced their departure from Facebook’s Libra project, a potentially fatal blow to the social network’s plan for a worldwide digital currency.
Along with the two payment giants, several other large companies have said they’re exiting Libra. Payment processing company Stripe is stepping back, as well as online auction company eBay.
PayPal was the first of Libra’s big partners to leave, announcing last week it would no longer be involved.
Facebook has faced substantial criticism over its plans to create a separate, private currency system to allow cross-border payments. The Libra Association, based in Switzerland, was supposed to give the currency project a comfortable arm’s length distance from Facebook, which wouldn’t own Libra.
Despite those efforts, financial regulators, as well as members of Congress on both sides of the political divide, noted the privacy issues raised with the social networking company controlling a currency, while also expressing concern about money laundering. Even President Donald Trump tweeted that Facebook should be subject to US banking laws if the Libra project were to move forward.
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 developing countries’ payment systems. 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.
But both companies made it clear from the onset that their interest in Libra was at least partly out of curiosity. It now appears that the political pressure on Facebook to drop the project was enough to convince a chunk of the original members to cut ties.
Visa said on Friday 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,” the company said.
Gartner analyst Avivah Litan said that while the defections are “a big setback” for Facebook and Libra, they won’t kill the project.
“It’s not the end of the effort, it just becomes much more contentious,” she said.
With the recent departures, Libra’s membership now consists mostly of venture capital firms and nonprofits. Uber, Spotify and Lyft were still listed as members on Friday, and none of them responded to requests for comment. Vodafone, the Europe-based telecommunications company that has a substantial presence in Africa and has specialization in mobile payments, was also still listed as a member.
The Libra Association said in a statement that it is “focused on moving forward”.