Could Libra, the Facebook-led cryptocurrency finally announced today, disrupt Visa and Mastercard?
On the surface, it sounds like the world’s dominant payment networks are in the crosshairs: The Libra Association, the non-profit, Facebook-led group of organizations behind the cryptocurrency, says it hopes to “create more access to better, cheaper, and open financial services.” Facebook founder Mark Zuckerberg has said sending money should be as easy to sending a photo.
Visa, Mastercard, and PayPal, however, are charter members of the Libra Association. Are they keeping their friends close and their enemies even closer? The association’s members will, after all, get an inside look at a major digital payment experiment involving the Facebook family’s more than 2 billion monthly users. (Here’s everything we know so far about the initiative.)
Investors don’t seem upset. Visa stock has been on a tear, outperforming a broader index of financial company stocks, despite six months of news leaks about the radical new Facebook-led payment system. The social network’s shares, however, have rallied even more.
But Visa and Mastercard are tough incumbents to dislodge. Taken together, they account for around $17 trillion of yearly global payment volume. It’s not clear that Libra would be a better alternative for customers already using the fast and cheap card networks, according to Bernstein analyst Harshita Rawat.
In a recent research report, Bernstein also noted that card payment fees, at around 2 to 3% per transaction, are often criticized. But the majority of that expense goes toward things like rewards and fraud prevention. The network fees are a sliver of that, around 5 cents, compared with $1.63 for bitcoin transaction processing, and 12 cents for the ethereum cryptocurrency. (Libra hasn’t released any information on network fees thus far.)
“People are happy with their credit and debit cards,” Rawat says. “There’s not really a problem screaming for a solution, from a consumer point of view.”
Online payments for developing markets and remittances could be a bigger opportunity, and Libra Association says it is focusing on those areas. But as for the incumbent payment networks, Bernstein expects the impact to be “immaterial” over the next five years.
“That said, blockchain and crypto evolution bears close-monitoring over the long-term,” Rawat said in the report.