Facebook crypto project ambitions threatened by regulators: Fitch

Facebook may reap steady profits from its foray into cryptocurrency, but its ambitions may be curtailed by intense and costly scrutiny from bank and financial market lenders, according to a Fitch Ratings analysis.

In a report released Monday, the credit rating agency said Facebook’s Project Libra may emerge as a major money transfer platform, challenging legacy firms like Western Union, Moneygram and Transferwise.

{mosads}Fitch said that while Libra will have limited impact on banks, it could supplant major money transfer firms and payment platforms if successful. 

“Facebook’s extensive network, big data access and technology could eventually help Libra challenge banks’ dominance of payment mechanisms,” wrote Fitch senior directors Monsur Hussain and David Prowse.

“But tight regulation and concerns about data privacy may constrain Facebook’s ability to capitalise on these factors.”

Set to launch next year, Libra would allow users to send and receive money through exchanging a proprietary cryptocurrency backed by dozens of major corporations, including Facebook.

While Libra will be controlled by a Swiss nonprofit separate from Facebook, the system will use a virtual wallet called Calibra that is operated by a Facebook subsidiary.

Facebook has insisted that it will play no role in controlling Libra, and is simply just one of its several major backers. But lawmakers and regulators have expressed deep skepticism of the project given Facebook’s massive reach and a series of data and privacy controversies.

Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, and a group of the panel’s Democrats asked Facebook last week to suspend Libra until lawmakers and regulators vet the project. Rep. Patrick McHenry (R-N.C.) has also expressed concerns about Libra, but has not joined Democratic calls for a moratorium. 

Facebook executives will testify before the Financial Services Committee and the Senate Banking Committee next week. 

Facebook is the latest social media giant to pursue a lucrative slice of the financial services industry. Chinese social media firms Ant Financial’s Alipay and Tencent’s WeChat Pay processed payments equal to 16 percent of the country’s gross domestic product in 2017, according to Fitch.

But Fitch added that Libra may be forced to use bank accounts and payment infrastructure to comply with U.S. money laundering laws, which would pinch its profits and limit its expansion.

“It is not clear how Libra can significantly reduce cross-border fees if banks still have to be used – and paid – as part of the payments process,”  wrote Hussian and Prowse.