When PayPal walked away from Facebook’s Libra Project on October 4, four other founding members—Visa, Mastercard, eBay, Stripe, and Mercado Pago—followed its lead and pulled out from the association the following week, leaving PayU as the only payment processor still committed to the project.
In a Wednesday interview with Fortune, PayPal CEO Dan Schulman explained his reason for bailing on the alliance and confirmed that the company is moving forward with its own blockchain-related work.
When Facebook launched its cryptocurrency project in June, 28 companies—including Lyft, Uber, Spotify, and Coinbase—joined forces to form the Libra Association, the de facto monetary authority tasked with overseeing the proposed digital currency. Since then, the project has met considerable resistance from politicians and regulators.
Schulman pushed back on the theory that PayPal withdrew due to fear of compliance issues.
“We have an extremely robust relationship with every regulator out there,” he told Fortune. “That wasn’t really what spooked us on it. It was just about, 'Where do we want to put our attention, and what do we want to do today to advance our mission?'”
Schulman also said that PayPal did not anticipate the amount of work left to be done with Libra and did not want Libra to consume all its resources. “We think if we focus on our own roadmap, we’d be able to advance financial inclusion faster than if we put all these resources against Libra,” he said.
However, firms like PayPal, Visa, and Mastercard have reasons to be particularly concerned with hostility from regulators. Sens. Brian Schatz (D-HI) and Sherrod Brown (D-OH) wrote a strongly-worded letter to the CEOs of Visa, Mastercard, and Stripe, suggesting that companies involved with the project would face a higher level of regulatory oversight. The letter highlights the risk associated with the Libra Project when it comes to potentially facilitating criminal and terrorist financing.
Now that all major card processors have dropped out of the Libra Association, the challenge of navigating through compliance issues might be greater.
“We believe Libra will fail without the involvement of the major payments players,” analysts at Moffett Nathanson told CNET. “They bring essential, deep payments expertise, trusted payments brands, global acceptance and settlement networks, and relationships with every major financial institution, government, and regulatory body around the world.”
PayPal’s CFO John Rainey said in May that they “have teams working on blockchain and cryptocurrency,” although they were not sold on the idea that Bitcoin is the future of payments.
Despite owning bitcoins himself, Schulman remains suspicious about cryptocurrency due to its volatile nature. Merchants operate on small margins, he explained, so they have to immediately turn their crypto assets into fiat, which adds to the cost.
“Until it becomes less volatile, it won’t be a currency that is widely accepted by merchants on the web — not the dark web, but the web,” he said.
Schulman reaffirmed to Fortune that PayPal is experimenting with its own blockchain and cryptocurrency projects, which he claimed are “not necessarily competitive with Libra,” although he refused to give out details regarding the company’s next product or acquisition.
“Most people think that blockchain is about efficiency, but the system today is pretty efficient,” he said. “It’s intriguing to us, but it really needs to do something that the traditional rails can’t do.”
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