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In its latest quarterly reports, Facebook said that, although it still intends to launch its ambitious crypto-based payments system by 2020, a number of factors could scupper that timeline or even bar its launch entirely, per CNBC.
Since announcing plans to launch Libra last month, the social media giant has faced a barrage of criticism, not least from regulators and lawmakers in the US but also across the world, including from British, Chinese, and French central banks. In its filing with the US’ Securities and Exchange Commission, the company said it was cognizant of the substantial pushback the project has received and says it expects that scrutiny to continue.
Here’s what it means: We previously noted that Facebook’s turbulent history would inevitably delay Libra — and the company appears to agree.
- Facebook says significant regulatory scrutiny has made the project’s fate uncertain. The tech giant admits the significant uncertainty around Libra means there can be no genuine assurance that the project "will be made available in a timely manner, or at all," per CNBC. Facing questions from the US Senate Banking Committee, David Marcus, who heads up Libra and Calibra, the Facebook subsidiary tasked with developing a digital wallet for the crypto, claimed that the company would not move forward without the receiving the appropriate regulatory approvals. Then, I (Mekebeb) noted that the company’s recent scandalous history, which has resulted in a string of regulatory actions against it, would delay the launch of Libra — with such an outcome representing a best-case scenario. And Facebook’s latest comments appear to agree with this.
- Yet, regulatory concerns aren’t the only issues that the company cites over the viability of the project. It acknowledges that achieving widespread adoption of Libra among consumers is another potentially challenging issue. In the wake of the Cambridge Analytica scandal, where 87 million users’ data had been illegally obtained, consumer trust in Facebook plunged66%. And given a steady stream of privacy issues have occurred since, it wouldn’t be a stretch to imagine the company will have a hard time convincing people to give it even more personal information.
- The company has also cited its lack of experience with crypto and blockchain as another hurdle to Libra’s success. This lack of significant prior experience in the space could impact its ability to successfully develop and market the crypto and services related to it. Such an acknowledgment is somewhat confusing given that the Libra Association, the consortium of 28 companies tasked with developing and governing the crypto, includes four companies that operate within the space, including Coinbase. More importantly, given Facebook is the fifth-most valuablecompany in the world, by market cap, naturally it would appear such challenges, as difficult as they may be, are not insurmountable.
The bigger picture: Libra is facing unprecedented regulatory scrutiny — and I suspect it’ll have major implications for big tech firms’ push into financial services.
Libra’s fate is likely to tell us a lot about how regulators will react to big tech firms’ outsized ambitions to transform financial services. Despite Facebook’s assertions that Libra might get delayed or not even launch, given how nascent the project is, it’s likely to take a while before Libra’s fate is decided.
Interestingly, though, the US Department of Justice launched its antitrust probe into big tech firms like Facebook last week. Such an investigation, I think, could scupper any likelihood of Libra launching, at least in the sense Facebook anticipates. And it could have major implications for big tech firms’ efforts to push into financial services.
Even prior to Libra, these players’ foray into financial services has been well documented. However, their existing monopoly on consumer data is only likely to be strengthened by gaining access to consumers’ financial lives. The outcome could have substantial repercussions for financial stability, not least by compelling incumbent FIs to take greater risks to keep up. Given these threats, the kind of regulatory action imposed on Libra could tell us a lot about how lawmakers will police big tech players’ financial service efforts.
Here’s an industry opinion, as told to Business Insider Intelligence:
"What this latest announcement from Facebook suggests, is that governments, banks, and regulators really haven’t been spooked by the existing cryptocurrency industry yet. But that the power of a corporation, with a not too clean record on data use, fake news, or ethics, may well significantly destabilize the status quo. I still expect Libra to exist in one form or another in the next 12 months, although based on its reception so far, some restructuring will likely take place and it could take longer to come to market. This increased scrutiny could also be good for the industry as a whole as it forces cryptocurrencies to become more regulated." — Richard Dennis, CEO and founder at temtum
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