Mastercard (MA.NYSE) joined PayPal (PYPL.Q) and Visa (V.NYSE) with its announced exit from Facebook’s (FB.Q) Libra support group today, leaving the once famed project listing in the wind without a major payment processor to back it.
Mark Zuckerberg, Facebook’s CEO, said he had hoped to foist his cryptocurrency on the public in the same way Amazon (AMZN.Q) disrupted the book selling business: by force.
Unfortunately for Zuckerberg, he pissed off the cheeto-king, just like Jeff Bezos, and the scrutiny around his offering and Libra’s payment partnerships became the order of the day. Trump tweeted like a madman–par for the course as he is one.
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
— Donald J. Trump (@realDonaldTrump) July 12, 2019
After his rant, the U.S. Treasury Department penned a letter to Mastercard, et. al. asking them to explain how Libra fit within their payment systems and how they intended to remain compliant with federal regulations. Apparently two senators (Republican?) weren’t satisfied with the response and sent out their own letter this week to the CEOs of three of Libra’s corporate partners stating:
“If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities,” the two senators wrote according to a Wall Street Journal article published today.
Sound like a threat? Whatever the intent behind this communique, it spooked Facebook’s friends of Libra and an exodus began which saw PayPal, eBay (EBAY.Q), Visa and Mastercard head for the horizon.
Without the clout and processing power of these big four processors, Zuckerberg is left to cobble together a payment network of second-fiddle providers creating a spotty patchwork of coverage and services for the next wave in cryptocurrency.
Now, The U.S. isn’t the only market for digital payment processing: there’s a whole world out there and compared to India and China, the United States is in the dark ages when it comes to implementation.
Plus, regulations have never really stood in the way of business in these regions and Facebook may find a way around onerous compliance. Facebook could very well forget America and capitalize on this foreign opportunity, but there’s a problem with this approach.
International digital payment processing markets like China and India are mature. WeChat, AliPay, and Paytm dominate. Facebook would be hard pressed to get anybody to switch to a foreign service, never mind an out-of-country digital currency when there is already so much choice among users. So, despite how they look, these markets are pretty well closed to new competition and Facebook most likely won’t be able to establish any kind of sustainable foothold.
Having been hammered in the nose so soundly, the Libra project may not get off the ground at all, never mind with the power and grandeur Zuckerberg initially envisioned. Cryptocurrency in general seems to have lost some of its momentum as though investors themselves are calling bluff on the sector’s value proposition.
Whether bitcoin is merely a function of blockchain’s need to close or an invaluable asset that will become the currency cornerstone of our global economy is immaterial for Zuckerberg as Facebook may not be there to celebrate with Libra anyway. And it isn’t because Libra is a horrible idea, even though it is, it’s most likely because presidential political ire is a powerful tool in today’s America. Who needs reason when you can have revenge?
–Gaalen EngenDisclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.
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