Visa, Mastercard, Stripe Have Left Libra, but Facebook's Digital Coin Isn't Dead Yet

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October 14, 2019

The Libra Association has lost its biggest and arguably most important founding members, but that isn't quite the nail in the coffin for the Facebook-led digital currency project. It's unlikely to launch in 2020, as planned, and it may have to shift its strategy without the major payment processors on board, but it could still launch.

In recent weeks, PayPal, Visa, Mastercard, Stripe, eBay, and South American payment platform Mercado Pago (whose parent company PayPal invested $750 million in this year) have announced that they were dropping out of Facebook's digital currency effort. They have said little about their departures but generally seem to have left the door open.

A Stripe spokesperson said it will "remain open to working with the Libra Association at a later stage," for example, and a Visa spokesperson cited the need for the Libra Association "to fully satisfy all requisite regulatory expectations" as well as Visa's "continued interest" in it.

Uber, Lyft, Spotify, Visa, Coinbase, and VC heavyweight Andreessen Horowitz are among the remaining founding partners. More than half of the original 28 "founding members," whose so-called commitments appeared to be memorandums of understanding at best, have multiple connections to Facebook, like mutual current and former board members, investors, and executives.

If Facebook manages to push through with the launch of the digital currency, it would be unsurprising to see some of the defectors rejoin.

Meanwhile, they won't sit idly by; PayPal and Mastercard have their own internal blockchain projects and will continue to develop them.

"If Facebook can pull this off then there's always an opportunity to join," said Jalak Jobanputra, whose Future\Perfect Ventures has long invested in early-stage crypto and blockchain companies. "It isn't going to tell PayPal they can't participate down the road. There's little risk to these partners in dropping out at this point and focusing on their own strategies."

The Libra Association, which will be responsible for governing the Facebook-led digital currency, claims 1,500 entities are interested in joining and has said it will share details on them after Monday, when the Libra Council meets for the first time officially to discuss governance questions and ultimately sign a formal agreement about the roles of each member.

Next week, Facebook CEO Mark Zuckerberg will testify to Congress on the launch of Libra. The project has already drawn considerable opposition, hostility even, from politicians and regulators in the U.S. and Europe since Facebook announced its idea in June.

The Association might have to refocus the strategy on a platform of payments for Facebook's current users, Jobanputra said. PayPal, which first backed out of its commitment last week, already has a long-standing partnership with Facebook providing its payments through the Messenger app.

"They announced this big decentralized ambition, but they'll use it pretty much for their own properties," Jobanputra said. "The cost of regulation across regions is pretty onerous."

Jobanputra said the involvement of the payments firms was always a bit of a question mark to her, and that it's significant that there were never any banks involved in the Association.

But that's no surprise considering how highly regulated the financial services industry is. The announcement on Friday of the defections of several prominent payment platforms came only days after Senators Brian Schatz and Sherrod Brown sent letters to Stripe, Visa, and Mastercard threatening "a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities."

The regulatory aspect makes Stripe's departure from the project perhaps most notable, as it's still a private company, regulated differently than "traditional" financial firms.

There are ways to provide financial services to the underserved that don't require a so-called decentralized corporate digital currency. In that sense, losing payments partners isn't a total Libra killer, and there are still good opportunities with some of its other partners.

"There are some [partners] like Spotify," Jobanputra said, "where there could be a partnership that creates some sort of discount for Spotify services using Libra, giving people in other markets access to music streaming."

Facebook could also push forward with its original plan — in 2020, as planned, but in another market.

"Facebook publicly committed to launching Libra, and we think it will eventually want to declare victory," Matt Hougan, global head of research at Bitwise Asset Management, said in an investor note. "We think a scaled-down version will ship in a foreign jurisdiction (perhaps Switzerland or Singapore) in 2020. Nothing about Mastercard, Visa, or Stripe's participation changes this. There are over a dozen other members, and many applying to join the association."

Jobanputra highlighted the current political landscape in the U.S., citing the 2020 election, trade wars, monetary policy, and conversations around antitrust and breaking up Big Tech.

"It's not a good time to have these discussions; a lot of these partners realize that and don't want to be associated with something that will be a target with a partner that has been a lightning rod," Jobanputra said.