Libra's Latest Challenges

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Libra's Latest Challenges

Fun fact: Libra is the only astrological sign represented by an object (scales) rather than an animal or human character. It signifies that people born between September 23 – October 22 value balance and harmony. The wisdom of the ancients therefore opines that this cohort should excel at evaluating art and design.

Things are not, however, going according to that plan for Libra, Facebook’s attempt at creating a crypto-like global currency:

  • On October 4th PayPal announced it is pulling out of the Libra consortium, the group of companies that collectively own and operate the backbone of the system. That is significant because PYPL’s CEO/president Dan Shulman is an important opinion leader in the payments space, and his former job group president at American Express means he knows the lay of the land stone-by-stone. Moreover, Libra’s current head – David Marcus – came from PayPal. If he can’t keep his old employer involved, how strong is the rest of the alliance?
  • Since then, a raft of other Libra members have also backed out. These include Visa/MasterCard (with all their brick and mortar vendor relationships), Stripe (popular with ecommerce businesses), and eBay (and its global franchise of small/mid scale sellers).
  • You can read a more detailed analysis of these departures, via Techcrunch, in this link:

The issue here is that these are the sorts of large companies that could have helped Libra/Facebook manage the problem of keeping the currency in compliance with global AML (anti-money laundering) and KYC (know your customer) regulations. Losing them means (at best) a slower rollout. Even still, the remaining Libra members plan to meet in Geneva tomorrow morning. At least it should be easier to find seats for everyone…

What this tells us about disruption in the payments and crypto currency space: Tech’s old mantra of “move fast and break things” does not work here. Three reasons why:

  • The global payments system is heavily regulated and industry leaders need to remain on the right side of politicians and enforcement agencies. US based companies like PayPal, Visa and MasterCard clearly saw that Libra has become a political punching bag and wanted no part of that.
  • “Big Tech” is solidly in the US government’s crosshairs, so any attempt by these companies to expand their reach will see intense scrutiny. “Money” is a huge addressable market, so it makes sense Facebook and others would be interested in disrupting it with technology. But government has a “fool me twice” problem with Facebook just now, and that’s unlikely to change ahead of the 2020 US elections.
  • Central banks are inherently conservative organizations and any new form of “money” will have to run their gauntlet as well.

Bottom line: Libra is a case study in the unstoppable force of disruption meeting the immovable object of regulation and government. We know how the story ends: disruption always wins. But we also know that it can more resemble the steady erosion of dripping water on a boulder rather than a torrent simply washing it away.