Libra’s non-committal partners could leave a huge customer base on the table

Facebook is not the only global megabrand tied to the Libra cryptocurrency project, and with a steady drip of rumors about the partners bailing, pressure on Facebook is rising while partners weigh missing out on the initiative’s addressable market.

The latest hit to Libra’s cohesion came Wednesday, as word spread that Visa, Mastercard and other participants are reconsidering the project because of the nearly constant and global pushback from politicians and regulators. Executives at some of the partner companies reportedly declined Facebook’s request to publicly support the project, according to The Wall Street Journal, citing unnamed sources.

At stake is Facebook's huge and growing presence in the payment industry. Even before Libra's announcement, Facebook was adding services to Messenger and has a substantial bench of users, expertise and scale to power a substantial payment ecosystem.

David Paul Morris/Bloomberg

“The recent news demonstrates the intensity of the regulatory scrutiny Libra is facing. Nevertheless, the strategic value to the members, should Libra go into production, would appear to far outweigh the financial cost of investment,” said John Dwyer, a blockchain analyst at Celent.

These benefits include accessing 2.7 billion users across Facebook, WhatsApp, Instagram and Messenger, with 90 million businesses, said Richard Crone, a payment consultant and retail industry researcher, saying if only 10% of Facebook users activate Libra and use it in a manner similar to the average Starbucks app user, Libra's scale would be the equivalent of one of the 20 largest banks in the U.S.

Libra's potential could include usage as a P2P app, given this scale, according to Crone. "This is a whole new distribution channel," Crone said. "People are getting hung up on the crypto part of this. It's really a prepaid account."

The role of Facebook’s partners, which include Visa and Mastercard, along with PayPal, Uber and about two dozen other companies, has not been formally defined. But these companies have international merchant networks and payment industry expertise that could contribute to compliance, risk and merchant acquiring. The benefits for the partners is getting in on the ground floor of a potentially global global payment system that has access to Facebook’s huge international user base and ancillary online services.

“It was always very important purely from the optics perspective for Facebook to present Libra as a coalition with blue-chip partners, rather than just a ‘Facebook project,' " said Zil Bareisis, a senior analyst at Celent. “Given the regulatory scrutiny, it’s understandable that various partners might want to consider the best way forward.”

Facebook, Visa and Mastercard did not return requests for comment, though there’s been some hedging on Libra before. Visa CEO Alfred Kelly in July told investors that Visa’s participation is “non-binding,” adding the more than two dozen non-Facebook participants in the project had all signed similar agreements. In the earnings call in July, Kelly suggested Visa’s decision on participation will be based on how the regulatory issues play out. In an earlier interview, Jorn Lambert, executive vice president of digital solutions for Mastercard, was more committal, saying “our objectives are aligned.”

Facebook has stated the regulatory pressure is a threat, suggesting it could delay or hinder the project in a recent government filing. On Twitter, David Marcus, head of the Facebook subsidiary Calibra, which is supporting the project, said “change of this magnitude is hard and requires courage, and it will be a long journey. For Libra to succeed it needs committed members and while I have no knowledge of specific organizations' plans to not step up, commitment to the mission is more important than anything else.”

The partners make up the Libra Association, which has been positioned as being responsible for bringing the collective mission of Libra to reality including making decisions around governance of the network, policy decisions, technical implementations, and the reserve basket that backs the stablecoin, according to Dwyer.

“There are specific evaluation criteria for members around market value, customer balances, global scale, and brand recognition. In short, their role is critical,” Dwyer said.