“It was a neat idea that’ll never happen, and I have nothing else to say about it.” So said JPMorgan Chase chief executive Jamie Dimon on Friday, giving Facebook’s Libra cryptocurrency project one last kick at the end of what had already been a brutal week.
A week earlier, Mastercard, Visa, eBay, Stripe, and Mercado Pago staged something of a mass exodus from the project, just days after PayPal headed for the door. Booking.com later joined them, leaving Libra with just 19 of its original 26 members.
On the sidelines of last week's Institute of International Finance (IIF) meetings in DC, where Mr Dimon spoke so freely, other bankers casually referred to Libra in the past tense and marvelled at the project's spectacular misjudgment of the regulatory environment.
Libra was only unveiled in June but rumblings of trouble were brewing as early as July, when Libra’s leader David Marcus, formerly of PayPal, testified about the venture in Congress. He got a chilly reception.
But why did the partners’ sign up to Libra, only to quit just a few months after the project was announced? They must have understood from the start that — given politicians' distrust of both Facebook and cryptocurrency — Libra was going to face some heavy public criticism.
Industry sources have told the FT that the decisive factor was a letter that Democratic Senators Sherrod Brown and Brian Schatz sent to Mastercard, Visa and Stripe. It warned that proceeding with the project would expose even their non-Libra businesses to heavier regulatory scrutiny.
Senator Brown elaborated: “Large payment companies are wise to avoid legitimising Facebook’s private, global currency. Facebook is too big and too powerful, and it is unconscionable for financial companies to aid it in monopolising our economic infrastructure.”
As the old American saying goes: thems is fightin’ words. The financial table stakes for Libra were low — indeed Mastercard has reportedly been referring to the minimum $10m investment as lower than some of its sponsorship deals. But the risk to their core businesses was too much for the payment incumbents to bear.
Is the project dead? The Libra team is not ready to concede, saying only that “the regulatory piece is the bit that carries the most uncertainty . . . that is the part that may not be ready in time” for the planned 2020 launch.
Facebook boss Mark Zuckerberg goes before the US House of Representatives on Wednesday to make his case for Libra. He will have to make it clear to the politicians that Libra presents opportunities, not just threats. It will be a tricky job — in part because of fundamental tensions at the heart of the project.
Libra was pitched as being both closely tied to major fiat currencies such as the dollar and the euro, and an engine of mass financial inclusion for around 2bn people left behind by the banking system.
Put aside the rather grandiose claim that Libra is “a threat to national sovereignty”. Put aside, too, privacy worries, which are always serious when Facebook is involved; they have been managed effectively by other payments companies.
Instead, ask this: how it is possible to bring the great swell of unbanked onboard and at the same time satisfy all the sanctions compliance and money laundering rules that come along with transacting in the big currencies? If Zuckerberg can't convincingly answer that on Wednesday, the bankers' grim prophecies may well be proved right.
Quick Fire Q&A
Company name: Thimble
When founded: 2016 (as Verifly)
Where based: New York
CEO: Jay Bregman (previously founded ride-hailing app Hailo)
What do you sell, and who do you sell it to: On-demand liability insurance for small businesses — hourly, daily, and monthly policies for as little as $5. Thimble is on track to sell 100,000 policies by year-end.
How did you get started: We started with liability insurance for drone operators. Recognising unmet needs, we expanded to cover 119 professions and are available to small businesses and workers in 48 states.
Amount of money raised so far: $29m
Valuation at latest fundraising: Not disclosed
Major shareholders: IAC, Slow Ventures, AXA Venture Partners and Open Ocean
There are lots of fintechs out there — what makes you so special: Previously, liability insurance was annual with high upfront costs. We created the first new product in decades, empowering small businesses to grow in the gig economy.
Further fintech fascination
New frontiers: Spain's Santander is gearing up to become the latest online challenger in the US deposit-taking market. The bank is planning to launch a new nationwide deposit gathering platform within the next year, which will compete with other platforms like Goldman Sachs' Marcus by offering higher interest rates than the big Main Street banks. Meanwhile, Goldman last week said its investments in new projects, including Marcus, had cost the firm a net $450m so far this year.
Crypto chronicles: Insurance giant Fidelity is upping its crypto game. Abigail Johnson, chief executive, told the Financial Times that the company is ramping up its crypto custody business, which was launched last autumn. Fidelity is targeting hedge funds, family offices and financial advisers which invest in cryptocurrencies. Bermuda, better known as an insurance and reinsurance hub, is also diving into the world of digital currencies, reports International Investment. The premier, David Burt, said it would accept US dollar-backed digital currencies for the payment of government taxes, fees and services.
Follow the money: Paytm, India’s largest payments group, is looking to raise $2bn from investors so it can better compete with Walmart and Amazon, says the Financial Times. The fundraising could take Paytm’s valuation to $15bn. The company is also expected to use some of the money to expand into Canada and Japan.
Follow the money (2): Somebody somewhere has made plenty of money out of European fintech. Sifted highlights a report by Dealroom.co and Finch Capital, which says the sale of European fintechs via initial public offerings or acquisitions has pulled in €83bn over the past six years. The report says that Europe’s remaining private fintechs have an “unrealised” combined value of €43bn.
Regulators advance: The European Commission has Apple Pay in its sights, reports the Financial Times. It is looking at antitrust concerns, including allegations that the Wallet app on the iPhone refuses to carry rival payment methods. The Commission has sent requests for information to “market participants” seeking feedback on the concerns. Apple has declined to comment on the probe.
AOB: FT Alphaville’s Jemima Kelly has documented the pitfalls of using an iPhone to pay for a £1.50 bus fare. Here she replies to some of the people who have given her advice; Santander is one of the investors in a new €35m funding round for CrossLend, a pan-European digital debt marketplace.
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