This week, bodies both private and public around the world have been digesting exactly what Facebook's Libra means, not only for commercial markets but also for fiat currencies, central banks and society itself. Facebook's move into finance promises to make it what Bank of England governor Mark Carney acknowledged would be a "systemically important financial firm". So far, when it comes to regulation, most of the doubtful voices seem to be coming from Europe, uniquely vulnerable perhaps to Silicon Valley disintermediation: the European Economic Area, through EU directives, may now offer harmonised regulations around payments services for over half a billion people, but the facts on the ground are that the continent lacks a universally used payments system. Instant Payments are up and running in countries such as Denmark and Britain, alongside transcontinental infrastructure such as TIPS (generally only used by larger banks), but the European Payments Council has been using the Libra announcement to persuade the industry that it is past time for TIPS coverage to become universal. The EU meanwhile, mindful of Visa and Mastercard's network advantage, has already been looking at ways to draw more firms into TIPS: Libra could be the wake-up call from the marketplace that was needed. Another alarm bell will be the news that P27, the pan-Nordic payments infrastructure currently in the works for Sweden, Norway, Finland and Denmark, has chosen Mastercard as a partner. An especially logical choice, when one remembers that Mastercard took over VocaLink three years ago and thus controls the United Kingdom's instant payments infrastructure.
This is not to suggest that global regulators are unconcerned: both the G20's Financial Stability Board (FSB) and the Bank of International Settlements (BIS), through which central bankers cooperate to set worldwide standards, have observed that concerted international action may be called for in light of the Libra announcement. "A new currency that is usable worldwide, reaching far beyond the dreams of John Maynard Keynes or Jacques Delors, would seem to require a coordinated global regime", noted Fin Keegan of Verisk Financial Research, "especially with the prospect of 'unknown unknowns' that such innovations inevitably give rise to". In the case of the FSB, the topic may not actually be on the formal agenda of the G20 summit currently taking place in Japan - but there is little doubt that Libra will be much discussed by FSB members in the corridors and dining rooms of the Intex Osaka convention centre. "The FSB and standard setting bodies will monitor risks very closely and in a coordinated fashion, and consider additional multilateral responses as needed," said Randal Quarles, chair of the FSB and, as it happens, the vice chair for supervision at the US Fed. International cooperation was stressed also by Hyun Song Shin, head of research at the BIS: "The role of Big Tech in finance introduces very many new and very unfamiliar elements which pushes us to take a fresh look at some of the activities that international policymakers engage in. This is something that needs attention sooner rather than later." Again, that ticking clock fairly resounds.
Unlike bitcoin, Libra "will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks", to quote the official white paper. In other words, the new creation is not designed to be an entirely parallel system and, in contrast to the pioneer crypto, will rely upon existing financial arrangements. That interrelation goes the other way too, in cases where the authorities have pushed for Open Banking and created regulatory sandboxes to help fintechs along. Now, the Bank of England is building on these longstanding efforts with news that the new breed may get balance sheet access. Consultation will take place to see how fintechs can enjoy the same access to $634bn of liquidity as the big banks.
How regulators should proceed in the new world of digital PSPs and banks with no bricks-and-mortar presence is no more hotly contested than within the United States, where a turf war is in full swing between federal and state regulators over who gets to license the new players. In this case, the Fintech Charter proposed by the OCC (Office of the Comptroller of the Currency) is being stoutly resisted by the CSBS, the Conference of State Bank Supervisors, who created a multi-state "compact" 16 months ago to pre-empt the OCC's charter. Now the CSBS have revealed that the number of participating states in the agreement has risen to 23, with the ultimate goal being a round 50. Interestingly, both Google and PayPal reportedly looked into an OCC application but, shying away perhaps from the public spotlight that might well ensue, dropped the idea. Both operate with state-level money transmitter licences.
Finally, from New York comes news that Citi is eliminating a number of perks on its credit cards from September, in what might be a sign that American banks are no longer seeing generous rewards and benefits as worth the expenditure. Slated for cancellation on US cards, among others, are trip interruption insurance, free trip insurance and missed ticket protection. A lot of these features are only availed of by frequent travellers, while the average cardholder might well not notice their absence, but it certainly shows that Citi is keeping a close eye on the bottom line now that the intense round of competition unleashed by the launch of the Sapphire Reserve card from Chase has abated.
To end, links to some other stories of interest this week...