Facebook is reportedly struggling to convince the traditional banking sector to engage with it in dialogue around its proposed cryptocurrency project. Libra, which Facebook has stated it plans to launch next year, would, according to details so far revealed, allow users to move money around internationally cheaply, easily and outside of the current financial system.
Facebook has said that its initial goal is ‘financial inclusion’ – offering basic financial services to those cut off from the traditional finance sector as a result of geography or a lack of personal documentation. However, regulatory approval permitting, the longer term aim is for Libra to be available internationally. Payment transfers involving Libra will initially be made over the Facebook Messenger and WhatsApp messaging apps with standalone apps introduced later. As well as cryptocurrency-based payments, Libra also plans to offer a range of basic financial services through Calibra, an independent sister organisation that has been established for that purpose.
Given that Libra would potentially represent a viable alternative to the established international banking and financial services system it perhaps shouldn’t come as a surprise that major banks are reportedly snubbing approaches from the social media giant to get involved. The ‘Libra Association’, a Geneva-based NGO set up by Facebook as an independent body which will oversee the development and scaling of the project has already attracted a host of high profile members, many of whom have paid up to $10 million each for the privilege.
These include major tech and consumer brands such as Spotify, Lyft, Uber and eBay, telecoms giant Vodafone, VC luminaries Andreessen Horowitz and Union Square Ventures, NGOs Mercy Corps and Women’s World Banking and payments companies including Visa, Mastercard and Stripe and Paypal. There are notably no banks in the list of the Libra Association’s founding members.
Banks are reportedly being put off opening dialogue by a combination of the fact that Libra could be seen as a direct competitor to their own industry and that they believe the project will run into serious regulatory roadblocks. Many banks are working on their own blockchain-based payments systems and even cryptocurrency proposals. The banks believe their own projects to speed up payments are likely to overtake Libra, especially if it becomes bogged down in red tape. They believe this is especially likely given the way Facebook has chosen to approach Libra, publically announcing plans before engaging with regulators.
Last month 13 of the world’s biggest banks including UBS, Lloyds Banking Group and MUFG also announced their own plans to launch a digital coin for use in wholesale banking. The Financial Times reports a senior executive at one of the banks involved, who expect the first international transaction to use their “universal settlement coin” to take place later this year, as commenting:
“Facebook is right that cross-border payments are clunky and convoluted and you have to go through far too many counterparties, but banks are getting involved and will solve this problem and solve it pretty quickly.”
Another senior banking figure believes that regulators in the developed world will insist on Libra following the same regulatory demands as any other financial services company, particularly with regard to ‘know your customer’ and other anti-money laundering systems:
“If this thing has the scale of 2bn people who can move money around outside of the financial system (without AML/KYC), it makes a mockery of the system. We won’t have to persuade them in Washington . . . regulators are at it, they’ll make them lift to the same standards as everyone else.”
Having to apply such standards would be expected to significantly raise Libra’s costs and could call the business model into question. However, banks, at least some, are not completely ignoring Libra or dismissing its potential even though at least ING has been reported as responding to a preliminary invitation to talks from Facebook with a polite ‘no thank you’. Another senior figure in U.S. banking commented anonymously:
“There’s a huge amount of scepticism but there’s some enormous names who have put up $10m a pop, there’s enough names of enough reputable organisations that have put up $10m to be a part of it to say there’s something there.”