Facebook's plan to take over the world of cryptocurrency and online payments has not had the most auspicious start.
Given Facebook's massive customer reach, encompassing billions of users, it was no surprise that the social network would consider a move into finance in order to expand its influence further and beyond the revenue steams offered by data collection, analytics, and targeted advertising.
The first punt, Messenger payments, failed to capture the interest or imagination of users in areas including the UK and France, leading the tech giant to close the person-to-person (P2P) payments system in some countries, despite a successful rollout in the United States.
Enter Libra, a proposed cryptocurrency project announced back in June. Facebook said the digital coin, due to debut in 2020, will integrate with Facebook services and will provide the asset required for e-commerce transactions on its platform and beyond.
According to the company, Libra will be usable by "almost anyone with a smartphone."
At the time of the reveal, a number of major backers were mentioned, including Visa, Mastercard, PayPal, Uber, Lyft, and eBay. These companies joined forces to become the Geneva-based Libra Association, a consortium formed to oversee the cryptocurrency and its underlying blockchain's development.
However, Facebook's lackluster approach to security and privacy, its battered reputation caused by the Cambridge Analytica scandal, and the constant flow of data leaks and security woes came back to haunt the firm.
The idea that the social media giant could forge a position as a financial controller of sorts, a private company facilitating transactions outside of the traditional banking structure, prompted regulators to flood Facebook with inquiries.
Indeed, the US Federal Reserve went so far as to say Libra was of "serious concern" and would not be permitted to go any further until the company submitted to a grilling by regulators.
Over in France, regulators pledged to stop Libra from establishing a foothold in Europe until outstanding privacy concerns have been addressed. France's Finance Minister, Bruno Le Maire, said the cryptocurrency likely poses a risk to consumers, and "monetary sovereignty of countries [is] at stake."
The wave of concern and the likelihood of regulatory barriers being thrown up by multiple countries has also had an effect on previous backers.
Reports recently suggested that amidst the backlash, some backers -- potentially including Mastercard and Visa -- had begun to experience cold feet and declined requests to publicly offer their support for Libra.
PayPal, it seems, is the first to jump ship. A spokesperson told sister site CNET last week:
"PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations."
Despite the spokesperson's comments that the company will continue to work with Facebook in other ways, the loss of such a prominent online payment provider is likely a serious blow.
With over 250 million active customers, PayPal is a commonly-seen payment facilitator and its backing would have allowed Libra to draw on the firm's established trust score.
At the time of writing, the PayPal logo appears to have been removed from the Libra Associations' website. However, when it comes to payments, Mastercard, Visa, Mercado Pago, PayU, and Stripe are still present.
All is not lost, considering the other major players which are still members -- such as Mastercard and Visa -- but as one payment giant withdraws and reports have already implied that others are feeling the jitters, it will be interesting to see if any other companies decide to follow PayPal's lead.
It may be that the Libra Association is simply facing its first hurdle, likely to be one of many. Facebook has a tarnished reputation when it comes to user privacy and security, and so until the tech giant can placate and reassure regulators across the globe that Libra has value and is not a destructive or disruptive force, it could be that financial companies will take a 'wait and see' approach --reconsidering their participation in the enterprise at such an early stage, but potentially teaming up with Facebook later.
Dante Disparte, head of policy and communications for the Libra Association, told CNET the group had "no other member news to share at this time," and "each organization that started this journey will have to make its own assessment of risks and rewards of being committed to seeing through the change that Libra promises."
Previous and related coverage
- France will attempt to block Facebook's Libra cryptocurrency on European soil
- Singapore amongst currencies Facebook wants tied to Libra
- Facebook's Libra cryptocurrency project branded of 'serious concern' by Federal Reserve
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