JP Morgan CEO Does Not Think Libra Is A Threat To The Banking Or Credit Card Sector
JP Morgan Does Not Think Libra Is A Threat To The Banking Sector
Libra, the nascent cryptocurrency project of social media giants Facebook has created quite a storm among policymakers and regulators all around the globe. As soon as Libra’s whitepaper released, regulators from around the globe started sharing their concern on how the project could become a disruptive force to the present financial sector.
According to the whitepaper, Facebook’s Libra would be a stable coin backed by a basket of fiat currencies and government securities. Regulators have warned that the working model of libra is a clever attempt to avoid regulatory guidelines. Since it is backed by multiple fiats, it would not fall under the jurisdiction of any single regulatory body. A few regulators have even claimed that Facebook is trying to piggy ride the existing financial ecosystem without having to pay any fee in regulations and compliance which costs millions for the present banks.
However, amid all the hue and cry from around the world over Libra, JP Morgan CEO Jamie Dimon has come out to say that Libra does not pose any threat to their banking sector or impact their card business. Along with Dimon, Citigroup chairman also weighed in all the noise surrounding Libra.
Mike Corbat, Citigroup chairman said that he went through the Libra whitepaper several times but could not understand whether it will be consortium led or Fed-backed. Both the CEOs also questioned how Libra plans to take on consuming banking when it claims to be the global digital money.
The Card Business Is Growing
Libra might have created a controversy storm and crypto proponents keep claiming that the traditional financial institutions are under threat, however financial data suggest otherwise. In the card business, Citigroup registered a surge of 8% in purchase volume while JP Morgan registered an 11% rise making $190 billion worth of quarterly volume.
While Facebook’s Libra is planning to take on all these financial institutions with lower P2P cost and faster transaction time, the whitepaper does not seem to provide a clear path on how Facebook intends to do so.
The case of a new financial setup like the decentralized cryptocurrencies have been pegged as the giant killers and eliminating age-old traditional banks. However, going by the quarterly numbers they are from the goal. Jamie Dimon who used to be a big-time critique of Bitcoin took a dig at fintech firms claiming to be giant killers. Dimon said blockchain has been there for 7 years and still its impact on the financial sector has been minimal or at least nowhere near as blockchain and crypto proponents have claimed.
Dimon also said that they are all up for healthy competition, but regulators should ensure a leveled playing ground.
Is Libra Really A Threat?
Amid growing concerns of regulators and policymakers around the globe, Facebook was summoned for a Congressional hearing first before the Senate committee on Tuesday and later before the House of Representatives on Wednesday. Facebook was represented by tits blockchain lead David Marcus who was grilled by the Senators on various aspects of their crypto project.
The Senators posted some genuine questions over the viability of the project and called out Facebook for its past endeavors with user data. One of the senators also compared the Libra project with 9/11 giving you an idea of how intense the questioning was. Many senators have called for halting of the project unless Facebook can reassure regulators of its intention.
However, a few analysts and investors are questioning if libra can pose a different kind of threat i.e taking away a chunk of credit card business from these financial institutions. Betsey Graseck, a Morgan Stanley analyst says,
“A lot of times initiatives like Libra highlight friction in the system… and opportunities to take out fee rates of legacy businesses. I think some people might view you as a legacy business with a margin that can be taken out.”
The main profit for the credit card operators come from interchange which is a transaction fee taken on credit cards by their merchants. Libra could target this aspect of the credit card business with lower interchange fee or no fee at all. However, Corbat the Citigroup CEO believe that would not be something that would impact their business model. He explained,
“I think the way we think about it is that the market is moving and likely moving quickly towards 24/7, real-time friction-less, ubiquitous global money movements and payments. That’s just the reality.”
He added further,
“I think there are some redeeming or some qualitative aspects that are appealing. I think others might raise some questions. Libra is not a question of if. It’s when the digital currency comes… is that currency one that kind of operates as a consortium, or is it a Federal Reserve… central bank-backed type currency?”
With all the scrutiny of regulators around Libra, the actual launch date of 2020 might get delayed given how passive most of the Senators are towards Facebook’s cryptocurrency. During both the hearings, all the concerned Senators were neither happy with Libra's working model nor for the fact that they decided to open its headquarters in Geneva.