Just when the dust was beginning to settle after the “round-the-globe” tongue-lashing of Facebook’s Libra project, regulators from the EU have decided in their infinite wisdom to turn up the volume a notch once more. The latest “twist” in this ongoing melodrama is that officials in the European Economic Union are concerned about potential anti-trust violations or at least implications at this stage. They have requested information from major partners in the project like Visa and MasterCard, but have received no replies.
Since everything is still on the drawing boards, so to speak, we suspect that the only information that either Visa or MasterCard could provide would be the “whitepaper” that was recently released by Facebook. Mark Zuckerberg’s crew most likely had a very convincing marketing presentation that was used to entice the two payment processing titans to join the effort in the first place, but these slides may not suffice either.
It is obvious to both Visa and MasterCard, as well, that Facebook is perfectly positioned to challenge their combined monopolistic hold on the payments industry. No other likely competitor has 2.5 billion active global customers to call upon, but it is not the first time that a large entity has reasoned that there was money to be made in the payments arena. You would have to go back decades to discover AT&T’s attempt at pursuing a similar strategy in the United States. They also employed telephone credits for customers, a feature no competitor could replicate, but a billion dollars in receivables and payables on its balance sheet made the stock price collapse. Shareholders revolted, and AT&T, after many internal squabbles had subsided, sold off the program.
Now Facebook seems to have picked up the baton, but is the effort really warranted? They were more than likely counseled about the error that AT&T had made, the reason for isolating the activity in a separate non-profit entity, ruled by an independent board of members, but maintaining an attachment to income earned on float deposits. The analyst community is split and appears to be on both sides of the issue, as reporters from CCN soon discovered:
- PRO – Marc Boiron, a securities and blockchain lawyer and a partner at FisherBroyles: “[Libra] would have the ability to cause people to spend significantly more time within its applications, which will naturally lead to more revenue and the ability to start broadening its product offerings in more and more financial-related products.”
- CON – Alex Webb in an opinion piece on Bloomberg: “One has to wonder whether the growing regulatory scrutiny the currency is attracting will make the project worth the effort for Facebook. For sure, the social networking giant needs to find a way to diversify its revenue away from advertising. But I’m unconvinced that Libra does that.”
Government officials, politicians, and regulators have been anything but kind to Zuckerberg’s new “baby”. Extremely harsh is a better description, but these are the same individuals that we expect to protect the interest of the public, when no one else is in a position to do so. The issue will be that Facebook will not be able to go it alone, if regulatory battles erupt across the global landscape. It will need the assistance of the powerful cast of corporations that it has assembled to date.
As Marc Boiron notes:
For Libra to work in the short-term, it will require other reputable companies, some of which have been announced, to actually join Libra and stand next to Facebook in discussions with regulators and politicians.
These companies, however, have their own agendas and revenues to protect, as well as their reputations. It will be a long uphill battle, and Mark Zuckerberg might have to follow AT&T’s lead in the end.
More on Libra latest can be seen below: