Facebook set the cat among the pigeons earlier this year when it revealed its cryptocurrency project – Libra. CEO Mark Zuckerberg scared the living daylights out of governments and private corporations alike with his ambitious project that aims to make sending money “as easy as sending a photo,” so it is not surprising to see why online payments company PayPal is now shaking in its boots.
PayPal is one of the members of the Libra Association, a collection of organizations including non-profits and big corporates created to oversee Facebook’s cryptocurrency project.
But like a few other members of the Libra Association, PayPal seems to be having second thoughts about the project now. PayPal recently issued a press release stating that it is “cautious” about the future of Facebook’s Libra cryptocurrency.
The online payments processor cited ever-increasing scrutiny by international regulators, governments, and central banks, who are worried about how Facebook’s cryptocurrency will be regulated. Facebook is all set to face a collection of 26 central banks that will put the Libra project through extreme questioning.
Such intense pressure seems to have forced PayPal to issue a public statement aimed at distancing itself from Facebook Libra. PayPal investor relations executive Gabrielle Rabinovitch said that the company’s commitment to the Libra Association is “non-binding.” Rabinovitch added:
And obviously, I think there’s a lot of work to happen before we get to that point where it becomes something more than just a very exciting idea.
Though PayPal’s press release praised the potential of Facebook’s Libra cryptocurrency, stating that it can “bring over a billion unbanked people into the financial system” with “a stable virtual money,” it is not surprising to see why it is trying to maintain a distance.
With regulatory pressure mounting on Facebook to explain how it plans to regulate Libra and not create a parallel financial system that threatens the traditional one, the members of the association are probably unsure if the project will take off the ground. PayPal will definitely not want any negative publicity in such a scenario that affects its stock price, so it is trying to wash its hands off already.
But more importantly, Facebook’s Libra poses a threat to PayPal’s very existence.
PayPal reported that it had 286 million active accounts at the end of the second quarter of 2019. The number pales in comparison to Facebook’s mammoth user base of more than2.41 billion monthly active users, meaning that PayPal is just 10 percent of Facebook as far as its reach is concerned.
It is not an apples-to-apples comparison, but PayPal investors shouldn’t forget that the successful launch of Libra will put Facebook head-to-head against the payments processor. And once that happens, PayPal could go into a downward spiral because Facebook could easily crush it because of two reasons.
First, Facebook’s huge reach means that the proliferation of Libra will be really, really fast. Second, the social media giant promises that Libra will allow users to send money “instantly, securely, and at low cost.”
Facebook says that it will ensure low transaction fees with the help of the interest earned on the reserve assets backing the cryptocurrency. Facebook’s Libra whitepaper says that these reserve assets will consist of bank deposits and short-term government securities in currencies from stable and reputable central banks.”
As PayPal is nothing more than just a middleman that’s known to rip off users with high fees through its hidden tactics, Libra’s business model could simply crush it. What’s more, PayPal doesn’t transfer money instantly to your bank account, but Libra promises instant delivery and that too at low transaction costs.
This explains why PayPal secretly wishes that Libra gets crushed by regulators and never becomes a reality.
Last modified: September 16, 2019 1:29 PM UTC