Editor's Note: This article comes fromUnitimes（ID：Uni-times）Editor's Note: This article comes from
, by AnnaMaria Andriotis, Peter Rudegeair & Liz Hoffman, published with permission.
Original title: "Inside Facebook's Botched Attempt to Start a New Cryptocurrency"
In May, social media giant Facebook's David Marcus gathered a team at the company's headquarters to toast a year-old cryptocurrency project. The project is a bitcoin-like payment system that Facebook believes will disrupt the flow of money around the world.
“We’re going to change the world,” David Marcus, a Facebook executive who also designed the project, told employees over champagne, according to people familiar with the matter.
Turns out, changing the world isn't easy.
Five months later, under pressure from lawmakers and regulators, some high-profile supporters pulled out of the Libra project, which is currently on life support.
President Trump, Federal Reserve Chairman Jerome Powell and House Financial Services Committee Democratic chairwoman Maxine Waters have all criticized the plan. Officials in Europe are also trying to prevent its launch.
With Libra, Facebook tried to enter the financial world with techno-utopian bravado, only to find itself entangled in regulatory skepticism and vested interests. Lawmakers, already uncomfortable with how Facebook handles the privacy of users' photos and posts, have pulled a drawbridge over users' funds.
The U.S. Treasury Department has expressed concern that Libra could be misused by money launderers and terrorist financiers. Payment companies that had confirmed joining the Libra Association played down their role in the Libra project in private meetings with regulators and lawmakers’ offices, and big banks approached by Facebook declined to sign up.
Facebook executives don't seem to know how to deal with the bureaucracy of U.S. financial institutions. In meetings with the U.S. Treasury Department and the Federal Reserve, they gave a brief overview of Libra, but there are still some unanswered questions for financial institutions. question.
To realize its grand ambitions of creating an entirely new currency, Facebook is relying on a loose coalition of companies, the Libra Association, many of which joined wary of the tech giant foraying into its own turf. When Libra came under fire, partners like Visa, Mastercard, and PayPal quickly pulled out.
For Facebook, Libra's ups and downs are a major blow to the tech giant's attempts to reduce its almost complete reliance on targeted advertising for profit.
The Libra situation is also a warning to other tech giants that are expanding into financial services. The likes of Apple, Amazon and Google are all working on payments projects that could also give them access to sensitive personal financial data at a time when public trust in Silicon Valley is waning.
During a congressional hearing in July this year, Democratic Senator Sherrod Brown asked David Marcus: "Do you really think people should entrust their hard-earned money to Facebook?"
Currently, Facebook shows no sign of giving up on Libra; representatives of the remaining supporters met in Switzerland on Monday to push the project forward. Facebook CEO Mark Zuckerberg also said he would answer questions at a congressional hearing next week.
“There’s a reason the core of the financial system hasn’t changed in over 50 years,” Marcus said in an interview. “It’s hard to change.”
In June of this year, Facebook publicly released its plans for Libra, but at the time there was little public content. Facebook hoped to entrust the details to the Libra Association, a coalition of partners, and positioned the project as a public utility (the Libra white paper describes Libra as a public utility). Describes being able to bank the unbanked, "enabling greater access to financial services and cheap capital"), rather than corporate land grabs for profit.
Libra is conceived as a digital currency that can replace government-backed currencies, widely accepted by merchants around the world, and capable of instant cross-border sending at low cost.
Marcus said that it would be great if these large payment companies remained in the Libra Association, but even if these companies are no longer official members of the Libra Association, they still have the option to let their consumers and merchants use Libra, the new currency. .
image description
In September of this year, the Libra Association announced its "founding members" in Geneva, Switzerland.
Facebook has been experimenting with consumer payments for more than a decade. In 2009, the company launched its own currency, Facebook Credits, which can be used to buy virtual goods in video games and online gift shops. A Facebook subsidiary has been granted permission to transfer money in 48 U.S. states.
image description
Facebook launched an early consumer payments product, Facebook Credits, in 2009
David Marcus joined Facebook five years ago from PayPal to run its Messenger division. In May 2018, he took on a new role exploring how Facebook uses the blockchain technology that underpins bitcoin and other cryptocurrencies.
The strategy Marcus proposes is more ambitious than any US tech company has ever attempted in financial services: Facebook will create its own digital wallet, Calibra, which will allow people using Libra coins to shop online/offline, pay bills, Remittances to friends and family outside of China, etc.
In Marcus's case, many other companies eager to reach Facebook's large user base will also join the Libra Association, each contributing $10 million to build a global payments network and developing their own applications to interact with it. To overcome bitcoin-like volatility, Libra's value will be pegged to a range of fiat currencies and government-backed assets.
image description
In July, Democratic Senator Sherrod Brown grilled David Marcus
Mark Zuckerberg has led Facebook into one new area after another — advertising, hardware, original TV shows, and more — this time giving the green light to the Libra project.
But others are less sanguine: Facebook's chief financial officer, David Wehner, has questioned David Marcus about how Libra will cover its costs and generate profitability. Employees at WhatsApp, the messaging service owned by Facebook, don't think integrating Libra into the app is such a big deal.
Facebook has since started looking for partners, targeting existing payment giants whose support will help solidify the project and ensure they don't side with public critics of Libra.
In China, hundreds of millions of consumers have ditched credit cards for WeChat Pay, a digital wallet built into one of the country's largest messaging platforms.
image description
Visa pulled out of the Libra project earlier this month
These companies face a dilemma familiar to many: join or risk being left behind. Linking their names to Libra and making a small investment (the $10 million joining fee that Facebook hopes to receive, which is equivalent to only one-third of Visa's profit in a day), can make their own Credit card networks reach billions of potential customers.
Since then, Facebook has turned to online merchants interested in cutting credit card processing fees: Uber, Lyft and Booking Holdings have all signed up to partner. Visa and MasterCard were the last two companies to offer support, and they decided to join after hearing that other companies had joined.
image description
Visa CEO Al Kelly questioned Visa's joining the Libra Association in July
The Marcus team had relatively little time dealing with regulators before announcing the Libra project in June. When Facebook executives met with U.S. Treasury Department officials, they responded to many questions with "more details to come," which raised concerns among many officials.
Marcus said Facebook was in talks with regulators to understand the "deep concerns" they had to begin with. He also added that answers to some questions can only be provided after the Libra Association is formed and members agree on a certain approach.
“In the early meetings, we couldn’t have all the answers, but that’s for a reason,” Marcus said. “At that point there was only a white paper with ideas for 2020. I think that’s normal.”
In June of this year, Facebook released a concept paper explaining how Libra works, and announced the list of 27 other "founding members", including PayPal and other companies that have already exited, as well as music. streaming service provider Spotify Technology and telecommunications giant Vodafone Group. The goal of the project is to create a financial system that does not rely on central bankers or Wall Street middlemen.
The Washington government, which has been watching Facebook for a long time, is not satisfied. Democratic Representative Waters asked Facebook to announce a moratorium on the launch of Libra, and her committee members drafted the "Keep Big Tech Out of Finance Act" (Keep Big Tech Out of Finance Act) to limit Facebook and other Silicon Valley giants from further expanding into financial services. expansion. During two days of hearings in July, lawmakers grilled Marcus, who promised Libra would not be launched until regulatory hurdles were overcome.
Around that time, representatives of several companies in the Libra Association participated in a conference call to coordinate their responses to the growing backlash against Libra.
Meanwhile, some of Marcus' allies stayed out. PayPal announced in June that Bill Ready would step down as the company's chief operating officer, which would lead to the loss of a key supporter of Libra.
image description
Bill Ready, PayPal's chief operating officer, was an early supporter of Libra, but PayPal announced in June that he would resign
Regulators and lawmakers who didn't get a satisfactory answer turned to Facebook's partners for answers. This summer, the U.S. Treasury Department sent letters to companies including Visa, Mastercard, PayPal and Stripe, asking them to outline their plans for anti-money laundering compliance and how Libra would fit into those plans. Some of those companies found it difficult to respond without more clarity from Facebook.
As the pressure mounts, Facebook tries to rally its partners. Facebook invited members of the Libra Association to a meeting in Geneva on Oct. 14 to review the organization's charter and select board members.
Libra Association members have yet to pay the $10 million per partner initiation fee Facebook requires. They signed a non-binding agreement to walk away from the project if they changed their minds.
Some member companies believe Facebook overstated the companies' involvement when it announced the project in June and resented being called "founding members."
"It's important to understand the facts of the situation ... no company has formally joined (the Libra Association) yet," Visa CEO Al Kelly said on the company's July earnings call.
The invitation to the Geneva meeting therefore referred to these companies as "initial members".
But by early October, support from several partners began to unravel. Ahead of the Geneva summit, some members of the Libra Association convened a meeting in Washington, during which executives from various companies in attendance expressed their concerns. Executives at Mastercard and Visa said they may remain members, but no final decisions have been made.
PayPal did not attend the Washington meeting, but announced its departure from the Libra Association the next day.
Meanwhile lawmakers continued to mount the pressure. Democratic senators Sherrod Brown and Brian Schatz warned executives at Visa, Mastercard and Stripe that if they remained involved, they would "expect a high level of scrutiny from regulators not only on Libra-related payment activity, but all of their payment activity." There will be a high level of scrutiny.”
Visa and MasterCard then sent executives to meet with the senator's staff. Shortly after, they announced they were quitting the project, as did Stripe. Booking Holdings, eBay and Argentinian payment provider Mercado Pago also pulled out.
Losing support from Visa and Mastercard could affect one of the main ways users move money in and out of the Libra system, which could be a serious blow to the Libra project.
Tensions have risen within Facebook. Executives had asked Marcus why a new cryptocurrency — and all the encumbrances that came with it — were necessary to advance Facebook’s financial ambitions? Couldn't the company use dollars or bitcoin?
image description
Facebook CEO Mark Zuckerberg appeared in the U.S. Congress in September this year and testified on the Libra issue in Congress
According to people familiar with the matter, Marcus has not been deterred by this. He has been contacting major banks in the United States, hoping that they will join the ranks of Libra. In this way, consumers can deposit money into the Libra wallet from their deposit accounts.
However, JPMorgan Chase & Co. and Goldman Sachs Group Inc. declined Facebook's invitation before Facebook's announcement in June. This is partly due to concerns that the cryptocurrency could be used for criminal activities in violation of strict anti-money laundering and sanctions regulations.
In Geneva on Monday, 21 companies, including Facebook, pledged support for the Libra project and elected five directors to oversee the Libra Association. Marcus said the next task was to hire a full-time managing director.
What do you think about Libra's dilemma? Welcome to discuss together in the comment area!
reference link
