Visa, Mastercard shun Facebook’s Libra digital currency plan

Visa and Mastercard on Friday anunced ir departure from Facebook’s Libra project, a major setback to social network’s plan for a worldwide digital currency.

Along with two payment giants, several or large companies have said y’re exiting Libra. Payment processing company Stripe is stepping back, as well as e-commerce company eBay. PayPal was first of Libra’s big partners to leave, anuncing last week it would longer be involved.

 Privacy issues raised

Facebook has faced substantial criticism since summer when it unveiled plans to create a separate, private currency system to allow users to make cross-border payments more easily. Libra Association, based in Switzerland, was supposed to give currency project a comfortable arm’s length distance from Facebook, which wouldn’t own Libra.

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Despite those efforts, financial regulators, as well as members of Congress on both sides of political divide, ted privacy issues raised with social networking company controlling a currency, while also expressing concern about how Libra could be used for money laundering like Bitcoin or Er, or digital currencies. Even President Donald Trump weighed in, tweeting that Facebook should be subject to U.S. banking laws if Libra project were to move forward.

All five departures come less than a week before Libra Association’s official signing ceremony, which is to be held in Switzerland.

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impact of Libra’s loss of Visa and Mastercard cant be understated. two hold an effective duopoly over credit and debit cards in U.S. and Europe, and are making substantial inros into developing countries’ payment systems. ir initial agreement to join 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 tritional currency into Libra.

A bigger challenge

“If re was any ambition to scale Libra very quickly and make it widely accepted, y 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. “w it’s going to be a bigger challenge.”

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But both Visa and Mastercard me it clear from onset that ir interest in Libra was at least partly out of curiosity. It w appears that regulatory and political pressure on Facebook was eugh to convince a chunk of original members to cut ties.

Visa said Friday that it would re-examine a potential membership in Libra Association if and when Facebook is able “to fully satisfy all requisite regulatory expectations” in its development of Libra — a sign that regulatory and political hurdles Libra is facing were becoming too much to bear.

Facebook CEO Mark Zuckerberg is scheduled to appear in front of House Financial Services Committee later this month to discuss Libra. That committee is chaired by Rep. Maxine Waters, D-California, who has been an ardent critic of Libra from its onset.

“Visa’s continued interest in Libra stems from our belief that well-regulated blockchain-based networks could extend value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets,” company said.

Gartner analyst Avivah Litan said that while defections are “a big setback” for Facebook and Libra, y won’t kill project.

“It’s t end of effort, it just becomes much more contentious,” she said.

With recent departures, Libra’s membership w consists mostly of venture capital firms and nprofits. Uber, Spotify and Lyft were still listed as members on Friday, and ne of m responded to requests for comment. Vodafone, Europe-based telecommunications company that has a substantial presence in Africa and has specialization in mobile payments, was also still listed as a member.

After PayPal’s departure last week, Facebook did t waver in its support of Libra and is unlikely to do so, at least in immediate future. company has hired several Washington lobbyists to convince politicians and regulators to green light project.

In a series of tweets, Libra co-creator David Marcus was t backing down eir, despite Visa and Mastercard’s departure.“ pressure h been intense (understatement), and I respect ir decision to wait until re is regulatory clarity for Libra,” Marcus said.

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