By AnnaMaria Andriotis and Peter Rudegeair
The biggest financial companies that Facebook Inc. recruited to
launch a world-wide cryptocurrency-based payments network have
backed out of the project, threatening to derail an ambitious
initiative to remake global finance before it ever gets off the
ground.
Visa Inc., Mastercard Inc., Stripe Inc. and eBay Inc. said
Friday they were withdrawing from the coalition of companies that
had originally signed on to help launch the libra cryptocurrency,
following PayPal Holdings Inc., which dropped out of the Libra
Association last week.
The moves came after lawmakers, central bankers and regulators
expressed deep concerns about the libra project.
The loss of four of the largest payments companies in the world
leaves Facebook without much of the muscle it assembled for libra,
a digital currency it hoped would make it a player in e-commerce
and global money transfers. The project now mostly hinges on
smaller payments companies, telecommunications providers,
venture-capital firms, e-commerce merchants and nonprofits.
"I would caution against reading the fate of Libra into this
update," David Marcus, the Facebook executive overseeing the
project, wrote Friday on Twitter. "Of course, it's not great news
in the short term, but in a way it's liberating. Stay tuned for
more very soon. Change of this magnitude is hard. You know you're
on to something when so much pressure builds up."
While some of the companies left open the possibility of
rejoining the network in the future, the loss of Visa and
Mastercard is an especially painful setback for libra. The credit
and debit cards that run over their networks would have made it
easier for consumers to buy the digital coins.
"Our ultimate decision will be determined by a number of
factors, including the Association's ability to fully satisfy all
requisite regulatory expectations," a Visa spokesperson said in an
email. Mastercard believes "there are potential benefits in such
initiatives and will continue to monitor the Libra effort," a
spokesperson said.
For Facebook, the withdrawals imperil one of the company's two
major strategy shifts announced in the past year. The other, a push
toward more encrypted messaging, was also called into question
earlier this month when Attorney General William Barr asked the
company to delay implementation, citing public safety.
Both projects to some extent were designed to lessen the
social-media giant's near-complete dependence on targeted
advertising for revenue.
Coming in the wake of multiple privacy scandals and
public-relations fiascoes, Facebook's approach to Libra was
uncommonly cautious, with the company pledging to move slowly and
work with regulators. It said its initial goal with Libra would be
to make international financial transactions and remittance
payments cheaper and more accessible, and it committed to turning
over full control of the project to the Libra Association.
When Facebook unveiled the project in June, it announced that 27
other companies and organizations had agreed to back it. The idea
was that merchants including eBay, Uber Technologies Inc. and
Spotify Technology SA would accept libra as a form of payment, and
that Mastercard, PayPal and Stripe and would enable consumers and
merchants to convert their national currencies into and out of
libra.
Lawmakers and regulators were quick to criticize Facebook for
not supplying enough information about libra's defenses against
money laundering and other financial crime. In response, Facebook
pledged not to launch libra until regulators grew comfortable with
the project. Mr. Marcus, the network's architect, insisted that
libra wouldn't pose a threat to global financial stability.
The regulatory backlash stunned the projects backers. Several
companies that initially signed onto the project believed that
Facebook and the Libra Association had overstated their involvement
when it unveiled the project, people familiar with the matter said.
Facebook described them as "founding members," yet they had signed
nonbinding letters of intent to join the association that gave them
the option to withdraw at any time.
The pressure on libra's financial partners intensified after the
U.S. Treasury Department sent letters to Mastercard, PayPal, Stripe
and Visa asking for a complete overview of their compliance
programs and how libra would fit into them.
Earlier this month, The Wall Street Journal reported that Visa,
Mastercard and other financial partners were reconsidering their
involvement in the network. Mr. Marcus pledged to keep the project
on track.
"I can tell you that we're very calmly, and confidently working
through the legitimate concerns that Libra has raised by bringing
conversations about the value of digital currencies to the
forefront," he wrote on Twitter earlier this month. "Change of this
magnitude is hard and requires courage + it will be a long
journey."
Facebook has shown no signs of dropping its effort to convince
lawmakers and regulators that its digital currency initiative poses
no threat.
On Wednesday, the House Financial Services committee said Chief
Executive Mark Zuckerberg had agreed to testify in a one-man
hearing titled "An Examination of Facebook and Its Impact on the
Financial Services and Housing Sectors." That hearing is scheduled
for Oct. 23.
Libra's remaining partners are set to gather Monday in
Switzerland to formally sign on to the project.
"Although the makeup of the Association members may grow and
change over time, the design principle of Libra's governance and
technology, along with the open nature of this project ensures the
Libra payment network will remain resilient," Dante Disparte, the
head of policy and communications for the Libra Association, said
in an email.
--Liz Hoffman contributed to this article.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
October 11, 2019 18:59 ET (22:59 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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