Facebook Libra project down but not out, Forrester

Yesterday we reported that Mastercard, Visa, eBay, Stripe and Mercado Pago had withdrawn from Facebook’s Libra project. This closely followed PayPal dropping out as regulators push back against the initiative. Whilst we shouldn’t write off Libra just yet, the work of the Libra Association has become much, much harder.

That’s the view of Martha Bennett, VP & Principal Analyst at Forrester. The aforementioned companies jumping ship comes as no great surprise, she adds. “As I (and others) pointed out during the summer, none of the 27 Libra members announced in July had actually signed any binding contracts – it was letters of intent; in other words, companies were keeping their options open. With the first session of Libra’s governing council looming, it was make or break time in terms of making an actual commitment,” she says.

As the regulatory and government backlash in the US and around the world proved, the Libra proposal not only proved controversial, but there was also far too little detail available to come up with meaningful judgements, she adds. Despite protestations to the contrary (i.e. Facebook only being one of many organisations within Libra, represented by its subsidiary Calibra), Facebook has been the driving force here, and with David Marcus (the Facebook executive spearheading the effort), very much remains a public face of Libra.

This in turn heightened the scrutiny of the project, with concerns not only raised by FS regulators but also privacy and competition authorities. There was always potential reputational risk associated with participation in Libra; the degree of the backlash, combined with Libra’s/Facebook’s somewhat unconvincing efforts at entering into a dialogue with regulators and the continued absence of details around key aspects of Libra’s functioning and governance (including how regulatory compliance was going to be achieved), clearly proved too much.

“Given that the key concerns from PayPal and the other payments firms were around the lack of meaningful detail around regulatory compliance, a real step change is needed here. The recent statements from Marcus and spokespeople from the Libra Association have continued to be thin on detail. There’s also the matter of tone; for example, there’s not much point in reiterating that Libra won’t pose systemic risk – if regulators and governments have concluded that it does, a more comprehensive and in-depth response is called for,” Bennett states.

There has, meanwhile, been a lot of talk around the intervention on the part of the two US Senators writing to payment networks, and what impact that had. Coinbase CEO Brian Armstrong, for instance, has tweeted that this was ‘un-American’.

“Whether or not those letters were appropriate is a separate discussion. In my view, the companies in question would have pulled out anyway, for the same reason PayPal did: insufficient visibility on how Libra was really going to come to grips with compliance, and the associated risk of reputational damage (as highlighted before), and potentially worse (e.g. impact on those organisations’ relationships with regulators),” Bennett concludes.