What’s the impact of the Libra fallout for Facebook in 2019

By Martha Bennett, VP & Principal Analyst at Forrester

It was recently announced that some of the biggest financial firms Facebook had recruited to launch its cryptocurrency-based project, Libra, have withdrawn their support. Mastercard, Visa, eBay, Stripe and Mercado Page have all backed out, as has Booking Holdings, following concerns expressed about the project by regulators and lawmakers.

What’s the impact of the Libra fallout for Facebook in 2019

This wasn’t a surprise, and not just because PayPal announced a few days earlier that it wasn’t going to sign up to the Libra Association at this time. As I and many others have also 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 taking place on 14th October, it was make-or-break time in terms of making an actual commitment.

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. 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 behind Libra, and with David Marcus, very much remains a public face of Libra.

There has been extensive scrutiny of Libra, with concerns not only raised by FS regulators, but also privacy and competition authorities. While some feel that regulatory and government scrutiny might have been too intense, one has to be bear in mind that, due to Facebook’s reach, the potential of systemic risk is much higher than that of any other digital currency; it’s also worth remembering that regulators have duties to fulfil, such as keeping market stable and protecting the consumer.

There was always potential reputational risk associated with participation in Libra. The degree of the regulatory backlash, combined with Libra’s/Facebook’s somewhat unconvincing efforts at entering into the dialog 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.

The question now is, will Libra survive? I wouldn’t write off the initiative yet, but the Libra Association’s work has become much, much harder. 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 David 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.

There’s 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. 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 – for example, the impact on those organisations’ relationships with regulators.

Martha serves CIOs and other tech leaders, helping them understand the impact of emerging technologies on their business. She provides in-depth coverage of blockchain technology and business intelligence (BI), as well as analytics and artificial intelligence at a strategic level. In her blockchain research, Martha focuses on demystifying this emerging technology, helping CIOs and strategy teams identify appropriate use cases and navigate the broad ecosystem of startups and established providers offering software and services. In her BI research, Martha analyses the effect of emerging technologies and business pressures on the way BI capabilities are managed and delivered, and she helps CIOs and their business partners develop data and analytics strategies fit for the digital age.

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