Facebook Inc.’s bid to create a new cryptocurrency has the potential to some day disrupt the global money system, analysts say. That’s if the new stablecoin, called Libra, can gain enough traction. In the meantime, they say, the plan probably means little for existing payments companies, like Mastercard Inc., Visa Inc. and PayPal Holdings Inc. -- which are all partners with Facebook.
Shares of Mastercard, Visa and PayPal were mixed in mid-day Wednesday trading, ahead of the conclusion of the latest Federal Reserve meeting. Facebook was down as much as 2.1%.
Here’s a sample of the latest commentary about the new cryptocurrency:
Cowen, George Mihalos, Jaret Seiberg
“If successful – if – it could be very disruptive to the legacy interchange model developed by the networks and banks,” Cowen analysts wrote in a note. Libra may also be “price-eroding to processors,” and serve as a “shot across the bow to money remittance firms.”
Their expectations aren’t all bad for existing financial firms. Libra offers potential to bring “new money” into the digital payments ecosystem, they said, which would add to the value stored in digital wallets, like PayPal’s. That may lead to greater account adoption and transaction growth, though costs will probably come under pressure, as “Libra will in many ways be akin to using cash.”
They also warned that politics pose a risk to Facebook, with Congress likely to hold hearings in the next few months. “Washington has the power to end Libra and any other cryptocurrency,” they said, by denying access to the banking system, making converting the currency to cash impossible. Congress may also adopt legislation that imposes onerous anti-money laundering and public audit requirements.
MoffettNathanson, Lisa Ellis
The announcement may be “most important for the cryptocurrency world,” and less so for payments companies, Ellis wrote in a note after discussing the plan with Visa, Mastercard and PayPal. “The cryptocurrency ecosystem may finally have a crypto-based system that – in design, at least – meets the major criteria required to make it functional for payments.”
Libra has passed Visa, Mastercard and PayPal’s litmus tests, she said. They “see enough potential in the system to have raised their hands to participate – the first significant endorsement of the viability of cryptocurrencies from the incumbent payment ecosystem.”
Citi, Ronit Ghose
Libra “could be a big thing,” as the “support of Facebook and other internationally active partners will provide at minimum, a lot of public exposure to stablecoins and specifically to the Libra project.”
Citi questions how regulators will respond to Libra.
“For instance, Japan and Singapore consider coins pegged to a legal fiat as e-money,” while China, India and Indonesia ban dealing in virtual currencies, and Libra might fall under the SEC’s purview in the U.S. “The creation of ‘private money,’ even if fiat-linked, will raise a lot of political and regulatory debate.”
Morgan Stanley, Brian Nowak, Betsy Graseck, James Faucette
Morgan Stanley analysts see little threat Libra will disrupt current global payment networks, noting Visa and Mastercard have “significant scale advantage, mature fraud detection capabilities and low cost structure.”
They ask whether facilitating cross-border payments -- the only thing that’s not already present in today’s real-time banking system -- will be enough to differentiate Libra from other services, including Zelle and PayPal’s Venmo. They note that JPMorgan’s Interbank Information Network (IIN) is a blockchain that currently offers anti-money laundering and know-your-client (AML/KYC) services, with 259 banks and payments as a use case.
KBW, Sanjay Sakhrani
The initiative isn’t an immediate threat to payments companies, Sakhrani wrote in a note. “While the use case appears compelling for the underserved, adoption at a much broader scale will be required for Libra to emerge as a viable alternative to existing payment ecosystems.”
Libra seems different than other cryptocurrencies, as it solves at least some issues, including volatility in value. Also, sponsorship from a large platform like Facebook may “help with the problem of adoption, although we believe that barriers to scale are likely still high, particularly in regions where a well-functioning payments ecosystem exists.”
Wolfe Research, Darrin Peller
The most likely medium-term impact may be on “P2P, cross-border remittance, and the global underbanked,” Peller wrote in a note. He doesn’t see a near-term use case for Libra disrupting the payment system in “financially developed markets outside of remittance.”
He sees opportunities for PayPal to fund Libra wallets/transactions and assist merchant acceptance, but adds that there are “long-term questions on potential pressure around e-commerce fees if Libra gains ubiquity.”
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