PayPal Backs Away From Libra

In a surprise move, PayPal (NASDAQ: PYPL) announced that it has decided not to pursue its involvement with Facebook‘s (NASDAQ: FB) Libra cryptocurrency project. While it’s the first of the 28 involved companies to leave the group, it might not be the last.

In this clip, we discuss why other major players like Visa (NYSE: V) and Mastercard (NYSE: MA) might also decide to back away from Libra.

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This video was recorded on Oct. 7, 2019.

Jason Moser: Matt, let’s jump into PayPal here real quick. This happened a little bit later in the week last week. I can’t say I’m surprised. I don’t think you were surprised, either. Facebook is already dealing with a lot. Now PayPal has said, “See you later, Libra. We don’t really feel like this is going to work out.” Libra is still not off the ground and running. I don’t think that’s really a shock to anyone. They’ve got a lot of hurdles to clear before anything can really happen. But PayPal, this is a big loss. PayPal is one of the names that gave this concept the most credibility. When you see a name like PayPal involved with something like this, Libra, you think that maybe there’s something there, if you’ve got some folks there in a mobile, technology-driven finance company. But PayPal just said, “Listen, the juice ain’t worth the squeeze, see you later.” What do you make of this news?

Matt Frankel: I definitely agree with that. There are 28 companies that are part of the Libra gang, whatever you want to call it. [laughs] A lot of them are big names, but are not financial names — like eBay, Lyft, Uber, Spotify. Those are great names, but none of them lend the credibility to a financial product that PayPal did. So I think this is not great news for Facebook. I think that this is not going to be the last one that jumps ship. I honestly think MasterCard and Visa are going to follow quickly just because that’s a very heavily regulated industry. With the regulatory scrutiny that’s been placed on the Libra project so far, they just want nothing to do with it. Obviously, companies like Coinbase and other blockchain companies are going to stay in and see where this goes. But I think the big financial ones are going to get out. Stripe’s another one, I think they’re going to wind up backing out.

All the non-financial companies, I can see them hanging around just to see where it goes. They really don’t have a whole lot to lose by saying, “OK, we’re involved.” But the big financial side… I think it’s a good move by PayPal. Like we said, we don’t really see the point that much in Libra at this point. It’s just not worth the risk to these companies.

Moser: We talked about Libra before, and it seems like the problem they’re trying to solve, there are other company out there that are already solving that problem, and doing a way better job of it, it’s more their core competency. It’s interesting to look at that circle of names that had signed onto this initiative. To your point, it wasn’t just financials. You had eBay, Spotify, Xapo, Calibra, Bison Trails, Coinbase, Farfetch was in there, Booking Holdings, even. So, yeah, to your point, there are a lot of companies in there that, it’s really no harm for them to stay in that simply because there’s virtually no downside. I could see they look at that and think, “This is an opportunity for us to expand our network, to expand our universe, to grow our business and participate in something that could be meaningful, given the size of Facebook’s networks.” It’s certainly understandable. I tend to agree with you, though. I think we probably see the bigger financials go ahead and bow out because it is going to be a lot more work than it’s probably worth to them. We talk about return on investment. You can look at that from any number of angles, but you have to feel like the time and money that these big financials could potentially sink into initiatives like this and still not realize anything from it, it’s rather significant. So I wouldn’t be surprised to see Visa and Mastercard go ahead and bow out next.

But who knows? It’s anyone’s guess at this point. It certainly doesn’t sound like Facebook is giving up on the initiative. But it definitely did not make their job any easier. It is worth noting that for its part, Libra confirmed that an upcoming council meeting on Oct. 14 in Geneva, Switzerland, where Libra Association is headquartered, that meeting is still on. I guess we will just be keeping our eyes on that next to see what develops here.

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