Where Facebook's payments business stands without David Marcus

When Facebook poached the president of PayPal in 2014, it was seen as a coup that could supercharge the social network's transformation into a formidable payments company. And David Marcus did indeed launch an ambitious project in the Diem stablecoin — only to be stymied again and again by the pressure from regulators and politicians.

Marcus, who announced he would be leaving Facebook "to start building something new and exciting," has a history as an entrepreneur. This was seen as an asset; he was expected to bring a nimble startup mentality back to Facebook. And even though Mark Zuckerberg is very much the face of Facebook, Marcus was the face of Diem and Novi, a digital wallet designed to support the stablecoin.

Diem operates independently from Meta, the company that owns Facebook, though Facebook created Diem (originally called Libra) and remains a partner in the project. Marcus' departure follows several changes to Diem over the past two years, mostly to reduce the initiative's scope to make it more palatable to regulators. Losing one of its most recognizable faces as Diem approaches its 2022 launch target could erode confidence in the project, according to payment experts.

"Leaders don't generally leave projects that are on the brink of success," said Rick Oglesby, president of AZ Payments Group.

Marcus will exit Meta at the end of 2021, leaving Stephane Kasriel in charge of Meta's payments unit. Marcus did not immediately return requests for comment. Meta referred questions to Marcus' tweets, in which he said "there's still so much to do right on the heels of launching Novi," but his "entrepreneurial DNA has been nudging me for too many mornings in a row to continue ignoring it."

Bloomberg

In a statement, a Diem spokesperson said “we appreciate David’s engagement and leadership over the years and his unwavering support for a modernized payment system that uses blockchain technology to further the cause of financial innovation, inclusion and integrity. We look forward to continuing to work with Diem Association members, including Stephane Kasriel and the Novi team, as we seek to make payments faster and cheaper for all, with robust protections for consumers and controls to combat financial crime."

When Marcus first joined Facebook he ran the Messenger business before helming the company's blockchain unit, which oversaw the development of Libra. Earlier in his career, Marcus was president of PayPal, joining the payment company when it acquired Zong, an early mobile payments company, in 2011. Marcus founded Zong in 2008 and was its CEO at the time of the PayPal acquisition.

In his farewell tweets, Marcus characterized the Novi digital wallet as a completed project.

Facebook began testing its Novi digital wallet in Guatemala and the U.S. in October. In an earlier interview with American Banker, Marcus said Novi and Diem can power a new open, interoperable protocol using blockchain and smart contracts to speed payments and reduce costs for transaction processing. Consumers will use Novi to convert Diem to traditional currency, as well as to initiate peer-to-peer payments.

Novi's test immediately drew political pushback, with a group of Democratic members of Congress calling for the pilot to be halted, citing privacy concerns. Marcus said at the time that Novi and Diem are often "put in opposition" with the banking industry, but if there's a better payment structure at lower cost, "everyone can benefit."

Marcus' successor, Kasriel, who joined Meta in August 2020, was previously CEO of Upwork, a Santa Clara, California-based freelance hiring platform. Like Marcus, Kasriel has also held leadership roles at PayPal and most recently has been supervising Novi.

"Marcus' departure could raise additional questions with regulators on Meta's suitability for a stablecoin offering, but there are so many hurdles for them to overcome," said Talie Baker, a strategic advisor with Aite-Novarica, who added the resignation's impact could be muted by Kasriel's appointment. "He is a well-known player at Facebook."

Marcus's exit follows the departure of Dante Disparte, a former vice president of the Diem Association, who joined Circle earlier this year to work on the USDC stablecoin and strategies to expand financial services built off of the USDC coin and wallet. Marcus is also the second high-profile Silicon Valley executive to announce his resignation in the past 24 hours, following Jack Dorsey's departure from Twitter, though Dorsey is remaining CEO at Square.

"Meta's financial services strategy will recover. They'll be able to attract other top talent. But it's likely that new leadership will take things in a new direction," Oglesby said.

The Diem stablecoin has already undergone several changes. As Libra, the project drew heat internationally from both conservative and liberal politicians who were concerned Facebook's size would cause the stablecoin to threaten central bank monetary policy.

Libra changed its structure in response. Originally intended to be backed by a revolving basket of currencies, Libra would instead tie its value to a single government-issued currency in each market. Libra later changed its name to Diem and moved its headquarters to the U.S. from Switzerland. Diem chose California-based Silvergate Bank as its issuer. In doing so, Diem is partnering with a bank that specializes in blockchain technology and is familiar with U.S. regulation.

These moves reduced the potential scope of the stablecoin.

"The universal payment concept that [Facebook CEO Mark] Zuckerberg started has already shrunk considerably and will likely shrink again" after Marcus's departure, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

For example, Diem could refocus on becoming the cryptocurrency used within Meta or Facebook properties with local exchanges supporting integration to external payment products.

"In this minimized scenario, regulatory issues are greatly reduced, and if Meta markets build volume, so will Diem," Sloane said.