On 11th October 2019, Mastercard and Visa announced their exit from Libra Project of Facebook. Apart from these payment giants, other companies also back stepped from the social platform giant’s Libra cryptocurrency.
Payment processing company- Stripe along with e-commerce company eBay exited Libra.
Among all, PayPal was the first to leave the Libra project and announced that it is no longer in partnership with the project.
Facebook is facing criticism from the day it announced a plan to create a separate private currency system which will help the users to make international payments more easily. The Switzerland-based Libra Association was supposed to give the currency project a comfortable arm’s length distance from Facebook, which wouldn’t own Libra.
Even after all the efforts from Facebook, the financial regulators and Congress members on both sides of the political divide are well-known about the privacy issues raised with Facebook while controlling a currency. The members are also concerned about how Libra will be used like other currencies such as Bitcoin, Ether, and others.
Even President Donald Trump tweeted that if Libra projects moves on then Facebook must follow the U.S. banking laws.
Total five companies took a departure from Libra Project within a week just before the official signing ceremony of Libra Association which will be held in Switzerland.
Facebook Libra is impacted a lot by the loss of Visa and Mastercard. Both the payment giants have an effective duopoly on debit and credit cards in the U.S. as well as in Europe. Both of them are making substantial inroads in developing the payment systems in the country.
The time they joined Libra Association, it on the spot gave authority to Libra Project. By this, it also gave Facebook access to Visa and Mastercard’s network which would have given the users a way to convert their country’s currency into Libra.
Sanjay Sakhrani, a payments industry analyst at the investment bank Keefe, Bruyette & Woods said “If there was any ambition to scale Libra very quickly and make it widely accepted, they would have been able to do that through Visa, Mastercard, and PayPal. Now it’s going to be a bigger challenge.”
But both Visa and Mastercard made it clear from the outset that their interest in Libra was at least partially curious. It now appears that Facebook’s regulatory and political pressure was enough to persuade its original members to break ties.
Visa said on 11th October 2019 that it will again join hands with Facebook and become a potential membership in the Libra Project but with a condition that Facebook must completely satisfy all the requisite regulatory regulations made in the development of Libra. It said this because the regulatory and political hurdles faced my Libra is becoming unbearable.
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The company said, “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”.
Gartner analyst Avivah Litan said, “while the defections are a big setback for Facebook and Libra, they won’t kill the project”.
she said, “It’s not the end of the effort, it just becomes much more contentious”.
The companies that are still in the membership includes venture capital firms and nonprofits.
The companies that were listed on Friday, 11th October 2019 were Uber, Lyft, and Spotify. None among them commented anything on this. The Europe-based telecommunications- Vodafone was also listed as a member.
After the exit of PayPal, Facebook did not lean on its Libra support, and probably won’t do so in the near future. The company, to convince the politicians and regulators to get green-signal for the project hired many Washington lobbyists.
Libra co-creator David Marcus did not back after seeing the tweets of the departure of Visa and Mastercard.
Marcus said, “The pressure had been intense (understatement), and I respect their decision to wait until there is regulatory clarity for Libra”.
Mark Zuckerberg is going to appear in front of the House Financial Services Committee by the end of this month to discuss about Libra Project. It will be chaired by Rep. Maxine Waters, D-California.