When she heard about Facebook’s Libra project, under which the social media giant and a cadre of partners plan to launch a digital currency in 2020, Tanisha Sinha of Freemont Bank in California was far from enthusiastic.
“Another one? I was still skeptical about all the other cryptocurrencies out there,” Sinha, director of technology products at the $4.2 billion-asset bank, said at the Digital Banking conference hosted this week by American Banker in Austin, Texas.
“They have not proven the use case yet, and we would not feel comfortable or safe going in,” she said. “We’re conscious of what we invest in and how it would impact our community and customers. We’re very careful. … I would like to wait it out more and see which banks are coming forward.”
The argument that now anybody with a Facebook, Messenger or WhatsApp account could pay anyone or any vendor that integrates with those applications was not enough to sway her.
“I’m a payments person, and I’m a seller for [the digital payments network] Zelle, and all the banks came together to build [the Zelle] product,” she said. “We need something like that.”
If banks established a stablecoin of their own, “I would back that,” she said.
Pam Burch, director of product and service delivery at the $1.9 billion-asset Northwest Financial in Arnolds Park, Iowa, predicted that financial regulators would thoroughly scrutinize the Facebook Libra project.
“For that reason, I don’t see banks supporting this any time soon,” she said.
Jaime Armistead, vice president and business line leader for Zelle, which is owned by Early Warning Services, said the same thing about his company.
“The financial institutions that own us would have to say, we want to transact in cryptocurrencies” for Early Warning to get involved, he said. “Could we support it? Sure. But I don’t think you have to worry about it any time soon.”
Brad Leimer, co-founder of Unconventional Ventures, a venture capital firm for fintechs, is also in a wait-and-see mode about Facebook’s new project.
“They’ve been trying to do payments for 10 years,” he said. “The reason why payments in Messenger didn’t work was because they didn’t realize what Alipay and WeChat realized early on, that you have to make payments ubiquitous.”
Leimer noted that there are no large retailers in Facebook’s initial group of Libra partners, and he believes getting merchants such as Target and Walmart would be critical for Libra to succeed.
Though Mastercard, Visa, Stripe and PayPal are backing the project, “Mastercard and Visa are concerned they’re not going to be a valid business model going forward, and that’s why they’re latching onto this,” Leimer said. “All these other big players latched on because they don’t want to miss out on the opportunity to be part of the future.”
But he also warned of the potential danger in having a small group of companies decide the future of money.
“This future shouldn’t be determined by a consortium of for-profit companies,” Leimer said. “I’m interested in where it’s going, but unless you have retailers on board, unless you have government on board, unless you have regulators on board, I don’t see this not being a constant battle.”
Aaron Klein, a fellow at the Brookings Institution, said he does see value in Libra, especially for remittances.
“There are a lot of inefficiencies and frictions in global money exchange,” he said. “I think Libra’s first value is to help folks more easily and efficiently move funds between countries,” Klein said.
In addition to immigrants and global migrants, 7 million Americans live part of the year abroad, he pointed out.
“There is no global currency, and currency exchange is expensive,” Klein said. “Many countries do not have a ubiquitous system to accept magnetic striped cards transmitting funds through the banking system. If Facebook can build a system that works efficiently for merchants and consumers in those countries, it has the possibility to take off, just as Alipay and WeChat Pay have grown in under a decade to more than 1 billion users each and taken over China’s payment system.”