October 14, 2019 News Magazine

Why each Libra member’s mutiny hurts Facebook

There’s a strategic cost to the defection of Visa, Stripe, eBay, and more from the Facebook -led cryptocurrency Libra Association . They’re not just names dropping off a list. Each potentially made Libra more useful, ubiquitous, or reputable. Now they could become obstacles to the token’s launch or growth.

Fearing regulators’ inquiries not just into their Libra involvement but the rest of their businesses, these companies are pulling out at least for now. None had made precise commitments to integrating Libra into their products, and they’ve said they could still get involved later. But their exit clouds the project’s future and leaves Facebook to absorb more of the blowback.

1E2D7DCE 681A 48C3 94E6 8318216CB542

Here’s what each of the departing Libra Association members brought to the table and how they could spawn new challenges for the cryptocurrency:

Visa

With one of most widely-accepted payment methods, Visa could have helped make Libra universally spendable. It’s also one of the most prestigious names in finance, lending deep credibility to the project. Visa’s departure leaves Libra looking more like tech companies barging into payments, conjuring fears of their move fast, break things approach that could cause financial ruin if Libra runs into problems. It also could leave Libra with a much weaker presence in brick-and-mortar shops. No one will want to own a cryptocurrency that doesn’t appreciate in value and can’t be easily spent.

MasterCard

The involvement of MasterCard alongside Visa made Libra look like the incumbents adapting to modern technologies. This made it less threatening, and gave cryptocurrency an air of inevitability. MasterCard would have also brought an even wider network of locations where Libra could one day be used for payment. Now MasterCard and Visa might actively work against Libra to prevent their payment methods being made obsolete by Libra and its elimination of transaction fees through the blockchain. Two of Libras biggest allies could become its biggest foes.

PayPal

Facebook has repeatedly told regulators that its Calibra app plus integrations into Messenger and WhatsApp would not be the only Libra wallets, pointing to PayPal . Facebook’s head of Libra David Marcus told Congress when asked about the social network’s outsized power to exploit Libra through its own Calibra wallet that “you have companies like PayPal and others that will, of course, collaborate, but [also] compete with us”. Now Facebook won’t have a scaled payment method it doesn’t own to point to as a likely alternative for people who don’t want to trust Facebook’s Calibra, Messenger, or WhatsApp to be their Libra wallet. The Libra Association also loses PayPal’s enormous network of online merchants that accept it, plus the inroad to integration into its peer-to-peer payback app Venmo. PayPal convinced the mainstream public to trust online payments — the exact kind of trust Facebook desperately needs. The fact that Marcus was also the former president of PayPal but couldn’t keep it in the association raises concerns about the group’s coalition-building prowess.

Stripe

Stripe’s enormous popularity with ecommerce vendors made it a valuable Libra Association member. Together with PayPal, Stripe facilitates a huge portion of online transactions outside of China. Its ease of integration made it a top pick for developers Facebook surely hoped would build atop Libra. Stripe’s exit destroys a critical bridge to the fintech startup ecosystem that could have helped institutionalize Libra. Now the association will have to work on engineering payment widgets from scratch without Stripe’s assistance, which could slow adoption if it ever launches.

There’s a clear reason all these payment processors bailed. Senators Brian Schatz (D-HI) and Sherrod Brown (D-OH) wrote a letter to Visa, MasterCard, and Stripe’s CEOs this week explaining that “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

eBay

As one of the longest standing ecommerce companies, eBay bolstered beliefs that Libra could be used to power transactions between untrusted strangers without a costly middleman. It might have also put Libra into practice on one of the top western online marketplaces outside of Amazon. Without destinations like eBay onboard, average netizens will have fewer opportunities to be exposed to Libra’s potential to eliminate transaction fees.

Mercado Pago

One of the lesser-known Libra Association members, Mercado Pago helps merchants receive payments via email or in installments. The idea of connecting financially underserved populations has been core to Facebook’s pitch for why Libra should exist. The Libra Association has been light on the details of how exactly it serves this demographic, relying on the inclusion of partners like Mercado Pago to help it figure this out later. Mercado Pago’s departure leaves Libra looking more like a financial power grab rather than a tool to assist the disadvantaged.

Who’s Left?

On Monday, the remaining Libra Association members will meet to finalize the initial member list, elect a board, and create a charter to govern the project. This forced the hands of the companies above, who had their last chance to depart this week before being pulled deeper into Libra.

Facebook Currency Hearing

UNITED STATES – JULY 16: David Marcus, head of Facebook’s Calibra digital wallet service, prepares to testify during the Senate Banking, Housing and Urban Affairs Committee hearing on “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations” on Tuesday, July 16, 2019. (Photo By Bill Clark/CQ Roll Call)

Who’s left includes venture capital firms, ride sharing companies, non-profits, and cryptocurrency companies. They are less tied up with the status quo of payment processing, and therefore had less to lose. The blockchain-specific companies were likely hoping to piggyback on financial giants like Visa to get Libra approved and create more legitimacy for their industry as a whole.

These partners could help fund an ecosystem of Libra developers, create daily use cases, spread the system in the developing world, and push for alliances between Libra and cryptocurrency players. Facebook will need to fight to keep them aboard if it wants to avoid Libra looking like a unilateral disruption of the economy.

For Libra to actually launch, Facebook needs to make serious concessions and divert from its initial vision. Otherwise if it continues to butt heads with regulators, more members could flee. One option floated by Libra Association member Andreessen Horowitz’s a16z Crypto partner Chris Dixon was for Libra to be denominated in US dollars instead of a basket of international currencies. That might lessen fears that Libra intends to compete directly with the dollar.

It’s become apparent that Facebook will not get its ideal cryptocurrency out the door. This is the brand tax of 100 scandals coming back to bite it. Now the best it can hope for is to get even a watered-down version launched, prove it can actually help the underbanked, and then hope to convince regulators it’s well-intentioned.


Source: TechCrunch

Tags: in Uncategorized
Banner
Related Posts

How Amazon took 50% of the e-commerce market and what it means for the rest of us

February 27, 2019

February 27, 2019

Jun-Sheng Li Contributor Jun-Sheng (Jun) Li is an Executive in Residence at Canvas Ventures and was the former senior vice...

Hack with these APIs at the Disrupt SF 2019 Hackathon

September 25, 2019

September 25, 2019

If you’re one of the 800 code poets lucky enough to score a seat for the TechCrunch Hackathon at Disrupt San Francisco 2019...

Clubhouse announces new collaboration tool and free version of its project management platform

September 10, 2019

September 10, 2019

Clubhouse — the software project management platform focused on team collaboration, workflow transparency and ease of integration — is taking...

Play Iconary, a simple drawing game that hides a deceptively deep AI

February 5, 2019

February 5, 2019

It may not seem like it takes a lot of smarts to play a game like Pictionary, but in fact...

New flaws in 4G, 5G allow attackers to intercept calls and track phone locations

February 24, 2019

February 24, 2019

A group of academics have found three new security flaws in 4G and 5G, which they say can be used...

Facebook’s regulation dodge: Let us, or China will

July 17, 2019

July 17, 2019

Facebook is leaning on fears of China exporting its authoritarian social values to counter arguments that it should be broken...

Unagi is the iPhone of scooters you actually buy

October 1, 2019

October 1, 2019

Can you never find a scooter to rent when you need one? Here’s a radical idea. Buy one. While Bird,...

Madrona Venture Group launches $100M acceleration fund

May 1, 2019

May 1, 2019

Seattle’s Madrona Venture Group has long been one of the most prominent early-stage funds in the backyard of Amazon and...

‘Gato Roboto’ and ‘Dig Dog’ put pixelated pets to work in gleeful gaming homages

May 30, 2019

May 30, 2019

Drawing inspiration from games of yore but with dog and cat protagonists that signal light adventures rather than grim, dark...

NASA shares 3D Moon data for CG artists and creators

October 5, 2019

October 5, 2019

If you want to set your movie or game on the Moon, it’s not hard to find imagery of our...

With the 2020 Cadillac CT4, GM begins to expand its hands-free Super Cruise driving system

September 12, 2019

September 12, 2019

GM’s high-end brand unveiled Thursday the 2020 Cadillac CT4, a sporty and small sedan that is designed and priced to...

Fitbit announces a $160 stripped-down version of the Versa smartwatch

March 6, 2019

March 6, 2019

Last year’s Versa was at the center of Fitbit’s reversing fortunes. After two years in the wilderness, the smartwatch helped...

Arm announces its new premium CPU and GPU designs

May 27, 2019

May 27, 2019

Arm, the company that designs the basic chip architecture for most of the world’s smartphones, today announced the launch of...

YouTube TV is now available on Fire TV devices

September 30, 2019

September 30, 2019

Earlier this year, Google and Amazon reached an agreement to bring their streaming video apps to each other’s platforms, following...

Come along, take a ride

August 31, 2019

August 31, 2019

From afar, Olli resembles many of the “future is now!” electric autonomous shuttles that have popped up in recent years....

Comments
Leave a Reply

Your email address will not be published. Required fields are marked *