The big international news of the month will be–alongside of course the impeachment hearings here in Washington–the formal departure of the United Kingdom from the European Union at the end of the month. What this means for global economics, much less geostrategy, is anyone’s guess. But I do think it may hold interesting lessons outside the world of international relations, in fintech–and most importantly, Facebook’s Libra project.
As in Brexit, there have been some pretty high profile splits associated with Libra. The fintech news of the last couple of months was the departure of the major payment processors Visa, Mastercard and Stripe from Facebook’s Libra project. The news followed on the high profile, and embarrassing departure of PayPal from the venture the week before.
Without the companies on board, the project’s future has been intermittently cast in doubt. The idea behind Libra’s launch was to create an association of (for the most part) large, global payment players who could assist in the scaling and development of the Libra ecosystem by creating new kinds of apps and services. But as companies jump ship, the specter is increasingly raised that Facebook’s plan may not only meet greater regulatory scrutiny, but also diminished market adoption. Instead of being an eventually “decentralized” platform, it will look, increasingly, like what many critics always claimed that it was—a Facebook-dominated commercial venture.
Governance Lessons…from Brexit?
This does not, however, necessarily have to be the way the story in fact plays out. To understand what I’m getting at, consider the United Kingdom’s impending departure from the European Union, or “Brexit.” For many commentators, Brexit serves as a potential mortal blow to the block. The UK has the second largest economy in Europe and the third largest population. Moreover, the country hosts one of the largest financial centers in the world, the City of London, which is helped to propel the competitiveness of the entire region’s financial sector. But if London is no longer a member of the European Union, and no longer has access to Europe’s common market, that competitive advantage could be wiped away.
But increasingly, commentators—and officials throughout Europe—are noting that the departure of the United Kingdom from the European Union could help to deepen cooperation among the remaining members. London, after all, had long served as a counterweight to more social democratic regulatory impulses within your, and favored lighter touch and more laissez-faire policies. Without that counterweight, efforts to deepen regulatory and governmental involvement in the economy could accelerate, bolstered by renewed and intensifying collaboration between France and Germany. If this happens, the European Union could emerge from Brexit more politically cohesive, active, and perhaps even stronger than ever.
The Upside of Down
The point, of course, is that even smallness can carry important advantages. Fewer preferences have to be kept in mind, decision-making can be enhanced, and conflicts of interest reduced. From this standpoint, the optimistic take on the departures is that Facebook no longer has to concern itself with placating parties whose economic interests could over time find themselves in some conflict with goals and aspirations of Libra. If, for example, Libra becomes a dominant international currency, with transactions executed on its blockchain, it is unclear as to whether or not such an instrument could end up eroding Paypal’s—or MasterCard or Visa’s—existing market share in payments services. Now, however, the Libra Association won’t have to necessarily take into consideration the negative market implications of its technology in that industry segment.
Still, a smaller Libra association will certainly change the direction of the Libra ecosystem, just as a Uk-less EU will change. The Libra Association is, after all, designed to assist in the adoption of Libra by coordinating the efforts, resources and competitive advantages of the association’s members. But with payments players largely having exited (the only payments firm remaining is PayU), the logical course of action could be to focus on the strengths of the members remaining in the group. And with some of the remaining big technology marketplaces including the likes of Spotify, Uber and Lyft—and major fintech Venture Capital firms like Andreessen Horowitz—the project will look a lot more like tech companies bargaining into finance, a point Josh Constine recently made. Retail adoption may be elevated in priority, if it wasn’t already.
Of course, there is another potential course of action—accelerating the Libra Association’s original goal of building out the body’s membership. Originally, the objective had to do with ensuring the evolution of its platform to a more decentralized infrastructure; now, however, it could be based on generating reputational momentum as other firms have departed as skepticism concerning the project grows. But this will be easier said than done. It’s certainly one thing jumping on a project with the world’s leading technology firms joining forces. It’s quite another jumping into a project facing enormous regulatory headwinds, and where other market participants have voted with their feet.