Headwinds From Every Corner

• Our research anticipated many topics of discussion raised from the project's launch onwards. Some of them we highlighted were:
• Why entrusting a private entity with issuing money? What about money laundering? Can the Association become the new monetary policy maker?
• How independent is the Libra Association and what role has its fist supporter, Facebook (FB US)?
• Regulatory and political concerns took centerstage.
• US Senators Brian Schatz and Sherrod Brown warned Visa (V US), Mastercard (MA US), and Stripe (not listed) of risks inherent in the project. In their letter, they suggested that an increased oversight from financial regulators was to be expected if they continued in the Libra Association – subsequently they withdraw from backing the project.
• David Marcus stated that the Libra Association "has no intention of competing with any sovereing currencies or entering the monetary policy arena" during his 16th July testimony. Though, he did not provide many details about how the project would be managed and controlled.
• Mobile payments do not carry the same political and regulatory burden: they offer a mean of exchange, not its object. Their way to revolutionize the payments ecosystem does not threaten monetary authorities.
• The world can already benefit from faster multicurrency transactions thanks to Revolut (not listed) and TransferWise (not listed), among others, and they do not raise concerns with regulators.

An Example Of Libra Usage With Spotify

Libra – The Right Direction, But Not The Best Match

• As we mentioned in our research report, Libra wants to be the next standardized currency. It looks like more of a marketing boast than something real.
• As of 2Q19, US Dollar accounts for 61.63% of worldwide reserves.
• Mark Carney (Bank of England) sais that he was keeping "an open mind but not an open door to Libra". While recognising the slowness and inefficiencies featuring the financial system, he proposed a Libra- like coin issued by central bankers.
• Jean-Pierre Danthine agreed on Mark Carney's view that central banks have to take action. De-dollarizing the world economy is a step to be taken.
• Meanwhile, fast and cheap mobile payments alternatives have been spreading fast, and are projected to overtake credit card and cash usage by 2021.
• Japan recently raised its consumer tax to 10% from 8% – this is offset by a 5% reduction for consumers using digital means of payments at the smaller retailers.
• Italy is considering to add VAT rebates for purchases made to small merchants through mobile payments methods. At the same time, cash payments would be burdened by a VAT increase.
• Moreover, data security and privacy guarantee are key components of the debate. Although Libra stated its independency, its ties to Facebook are clear and not boding well for gaining support from the public opinion or the authorities

Catalysts:

• Fast, cheap and universally accessible means of payments. That is what Libra aims to offer. Mobile Payments are already serving the purpose while not raising the same scrutiny from the authorities.
• Political power pushing for a cashless society. The black economy would emerge as payments would be traced and therefore easier to monitor.
• Adoption to further push adoption. Trust in mobile payments spreads among sceptical potential users as many others embrace the technology.
• Global use of Mobile Payments at point of sale is forecast to increase to 28% in 2022 from 16% in 2018, surpassing credit cards and cash.
• Cash usage at point of sale is expected to shrink to 17% in 2022 from more than 30% in 2018.
• Tech players entering the mobile payments business. They will facilitate adoption to smartphone users. One of the latest examples is the partnership between Apple (AAPL US) and Goldman Sachs (GS US) to launch the Apple card.

Risks:

• Libra may be a threat in the long-run. It may threat mobile payments by being their substitute, but in the short-term it will raise awareness on their importance.
• Competition is increasing at a local level. Within the mobile payments field, international players are spreading to many local niche markets, and consolidation is happening at a global scale.
• Other projects are ongoing. An open blockchain project (Venus) has been initiated by Binance (global cryptocurrency exchange) to develop localized stablecoins (and digital assets) pegged to fiat currencies around the globe