In the payments industry we regularly hear rumors about the next big disrupter. Some of these disrupters materialize, some take a while (cough, cough, contactless card acceptance[1]) and some fizzle as fast as the rumors start. One of the latest and more interesting disrupter discussions is Facebook’s proposed cryptocurrency, Libra. There are a bevy of concerns from regulators about Libra, including money laundering, consumer protection and the creation of a financial system reaching a quarter of the world’s population that would be ”too big to fail.”[2] These factors all raise a bigger question: will Big Tech become the next payments disrupter?
A very real potential result of a Big Tech push into the payments space could be the revitalized efforts by retailers who have sought to become disrupters. A few examples of Big Box Retailers efforts to become disrupters include:
To understand some of the potential impacts of Libra, let’s dive a little deeper into its proposed inner workings. Facebook claims Libra will provide a way to send money online cheaper and faster, and that Libra will also provide the underbanked with access to financial services. The Libra network will be built on a “permissioned” blockchain which would limit the servers that can connect to the chain before transitioning the network to a public blockchain based on open sourced coding. The Libra Association will be managed by an independent non-profit organization made up of a consortium of companies and nonprofits from around the world. A Facebook independent subsidiary, Calibra, will develop products and financial services using the Libra network. The Calibra Wallet, the first Facebook Libra product, will be a standalone app with plug ins to Facebook’s Messenger and WhatsApp. Other companies will also be able to develop their own wallets and other tools to use the Libra network.[6] If Facebook is successful in launching its cryptocurrency, what could be the impact to payments?
- Beginning in 1998, Walmart sought to open an industrial bank for the cost-savings of debit and credit card processing. In 2007, Walmart dropped plans to obtain a bank charter that was coincidently timed to the introduction of a Congressional bill to bar nonfinancial companies from owning banks out of a concern to the impact of small community banks.[3]
- In 2004, a Target subsidiary was approved to operate as an industrial bank (TD Bank)[4] for the purpose of issuing the Target card portfolio, including the Target Debit Card™, Target Credit Card™ and Target Mastercard™.
- In 2017 Square submitted its first application for a bank charter that was withdrawn after several months, and then resubmitted in 2019. The banking unit, Square Financial Services, would provide loans and other services directly to Square merchants.[5] Square’s bid to open a banking unit is still undecided.
- How long would it be before retailers push to accept Libra payments to potentially avoid or reduce traditional processing fees? One very Big Box retailer tried to create their own ACH based wallet for years to reduce such fees before finally abandoning the project.
- How would regulators and financial institutions react if the Libra network is used for illicit purposes such as money laundering, sex trafficking and black-market drug sales? Past attempts to address such issues have produced mixed results focused on particular platforms (i.e. Craigslist Personals, Silk Road) but have largely failed.
- Would Libra become a distractor to retailers and financial institutions advancing other payment initiatives? Consider how the “Pays” have impacted contactless card acceptance in the US compared to other countries like the U.K and Australia.
If Libra is launched, would other Big Tech players jump on the bandwagon to get involved in payments and how? Time will tell what happens with Facebook’s Libra, but this attempt could create a new type of disrupter to payments, Big Tech.
For further discussion on Big Tech’s potential to become a payments disrupter, contact Sean Sullivan at [email protected]
[1] https://www.pymnts.com/news/retail/2019/contactless-payments-tap-and-pay-mpos/
[2] https://www.washingtonpost.com/technology/2019/07/16/facebook-privately-pitched-its-cryptocurrency-plan-last-month-regulators-they-were-left-even-more-scared/?noredirect=on&utm_term=.68d323e34c8a
[3] https://www.nytimes.com/2007/03/17/business/17bank.html
[4] https://www.fdic.gov/regulations/laws/bankdecisions/depins/target.html
[5] https://www.digitaltransactions.net/square-resumes-its-pursuit-of-a-bank-charter/
[6] https://www.cnn.com/2019/07/16/tech/facebook-libra-crypto/index.html
