|Bid||101.00 x 3200|
|Ask||101.36 x 2200|
|Day's Range||100.75 - 104.30|
|52 Week Range||75.47 - 121.48|
|Beta (3Y Monthly)||0.89|
|PE Ratio (TTM)||48.25|
|Earnings Date||Oct 23, 2019|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||126.62|
Let's dive into three tech stocks that we found using our Zacks Stock Screener that growth investors might want to consider buying during Q3 2019 earnings season...
PayPal (PYPL) third-quarter 2019 results are anticipated to reflect portfolio strength. However, losses from investments in MercadoLibre and Uber have weighed on the results.
Recently, Bitcoin experienced a 28% plunge to around $7,800 from its price of around $10,350 on Sept. 19 and over a 56% drop from this year's all-time high of almost $14,000. The tail end of September was a rough stretch for Bitcoin, as well as for other cryptocurrencies.
PayPal Holdings said its Venmo money-transfer service will launch a credit card in 2020, joining Apple as a new entrant. PayPal will partner with Synchrony Financial. PayPal stock climbed.
The typical Facebook employee stays with the company for just over 2.5 years, a Business Journal analysis shows. This is how that compares to other large Silicon Valley tech employers, like Cisco, Apple and Intel.
Square (NYSE:SQ), the mobile payment fintech (financial technology) company, is expected to report earnings on Nov. 6. In recent years, "fintech" has become one of the most popular buzzwords in the markets. Although it started as a payments company, Square has in recent quarters introduced a range of software, hardware and apps to service small businesses and individual clients.Source: IgorGolovniov / Shutterstock.com In 2019, SQ stock is up about 14%, but lately has taken a beating. Square shareholders are now wondering if they should consider buying the stock prior to the earnings release.I do not think long-term investors should rush to buy into the shares just yet. When SQ stock reports earnings in a few weeks, Wall Street will be able to better gauge the financial health of the company. Here is why:InvestorPlace - Stock Market News, Stock Advice & Trading Tips Can SQ Stock Shake Off Earnings Season Jitters?On Aug. 1, the payment-solutions company reported Q2 earnings that were better-than-expected. Its total net revenue increased 44% year-over-year to $1.17 billion. And on an adjusted basis, earnings were 21 cents per share, beating Wall Street's expectation of 17 cents per share.Its payments processing business, also referred to as "payments as a service," has been a game changer in serving small businesses. Square's subscription and services-based revenue increased 87% to $251 million. Primary drivers behind the growth include the Cash App, Square Capital, and Instant Deposit. Cash App's quarterly revenue of $135 million especially impressed the Street.Gross payment volume (GPV) of $26.8 billion increased from $21.4 billion year-over-year. Square defines GPV as the total dollar amount of all card payments processed by sellers using Square, net of refunds.The quarterly report once again confirmed that SQ stock is a high-growth equity. Such shares in general are far more volatile than market indices or mature companies. Whenever investors feel growth expectations need to be toned down, they sell the stock first and ask questions later.Investors were especially concerned by the company's lower-than-expected Q3 guidance. Its Q3 adjusted-EPS guidance of 18 cents to 20 cents trailed the average estimate of 22 cents. Square management now expects Q3 adjusted revenue to be between $590 million and $600 million as opposed to the consensus of $599 million.Square stock's losses on the bottom line are also projected to be higher than expected. And many shareholders have likely felt that for the rest of the year, SQ stock may face a rising tide. Square Is a Growth Stock in a Competitive IndustryAccording to a recent World Bank research paper by Juan Cortina and Sergio Schmukler, "… the trend toward digitalization and technological innovation will likely reshape the global financial sector and the ways in which financial companies interact with their customers."Square's rather sticky ecosystem combines software with hardware to especially enable sellers to turn their mobile devices into point-of-sale (POS) solutions. Through various growth initiatives, management is now aiming to make the company a major player in the fintech sphere.The global payments industry is a $100 trillion-plus market. Such a big industry inevitably attracts both domestic and global competition. SQ stock faces competition from many companies, including the global online payments group Paypal Holdings (NASDAQ:PYPL), transaction processing leader Visa (NYSE:V) and Fiserv (NASDAQ:FISV), which is shaping up to become a global payments giant as well.A growth stock like Square trades on forward sales as well as the momentum provided by future expectations. While Square currently enjoys a head start in serving small businesses, Wall Street has questions as to whether the group can maintain growth quarter after quarter. If the U.S. economy slows, Square's growth may start to decelerate rather quickly. Therefore, throughout the year, the SQ stock price has been extremely volatile.Furthermore, Square is not yet profitable. Its net loss was $7 million in Q2, compared to a net loss of $6 million in the year-ago quarter. The company has reported net losses in five of the last six quarters.Efforts to attain profitability are taking time. Moreover, not every area Square expands into will necessarily produce easy profits. And unless it increases its revenue, Wall Street may take down the high valuation of SQ stock. Square Stock's Rich ValuationFollowing the initial public offering of Square stock in late 2015, its price surged from $9 to an all-time high of $101.15 in October 2018. Yet over the past year, SQ stockholders have noticed a decline in the growth rate of its gross payment volume. Between July 2017 and the end of June 2018, GPV grew about 30%. Now growth hovers around 25%. Wall Street tracks this metric widely.As growth has declined, so has the share price. Now the shares are hovering around $64. Although the decline in Square's stock has improved its valuation, the shares are still richly valued.Most SQ stock holders are well aware that the shares do not trade at bargain-bin valuation ratios, especially compared to its competitors. For example, SQ's forward price-to-earnings ratio is over 56. On the other hand, forward P/E ratios for PYPL, V and FISV stocks are about 29.5, 28.5 and 25.7 respectively.Similarly Square stock's current price-to-sales ratio is over 6.9x. Companies generate revenue from the sale of goods and services. Analysts prefer a low P/S multiple, ideally below 1x. However, a P/S number between 1x and 2x is more common. To put the metric into perspective, S&P 500's average price-to-sales ratio is 2.1x.In short, I do not think there is much room for Square stock's valuation to head higher in the final quarter of the year. Sooner or later, SQ stock's valuation and revenue growth will be more in balance. Technical Charts for SQ Signal More VolatilityLet us briefly remember how the Square stock price has acted over the past year.SQ stock went on a big tear during the summer of 2018, baking in plenty of euphoria. However, it had a rough patch after reaching the all-time high in October. By late-December 2018, SQ was hovering around $50.In 2019, although SQ stock is up about 15%, August has seen the start of a downtrend in the stock. That's of course due to the weak Q3 guidance.Before this, shares had been up over 45% for the year ahead of the Q2 quarterly results release. On earnings day, Square stock closed at $80.98. The next morning, SQ shares gapped down to open at $70.80. By Sept. 24, the stock saw a low of $54.41.From a technical perspective, I'm not expecting Square stock to make another significant leg up prior to the earnings report. In the next few weeks, shares are likely to be range-bound between $60 and $65, a range where SQ stock has strong support. However, if any negative headlines flash that affect the technology or fintech sectors, then shares may easily go below $60.Square stock will need to stabilize and build a base again before a long-term sustained leg up can occur. Consequently, investors need to be careful about chasing shares at this point, especially prior to the earnings report. The Bottom Line on Square StockThe so-called fintech revolution is changing the way traditional banks, credit card issuers and mobile-payments companies work with businesses as well as retail customers. Square is providing merchants with a wide range of tools and services to start, run, and grow their businesses.Therefore, over the long term, I would not bet against Square stock. In the short-term, though, stakeholders shouldn't expect smooth sailing.Square is a high beta stock at 3.3. The stock market has a beta of 1. SQ stock's beta measures its volatility in relation to the market. In other words, Square stock rises more than the market in bullish conditions and decreases more when markets are falling. Short-term traders should exercise caution if they want to participate in SQ stock's wide daily swings.The upside momentum can build up only when long-term investors feel that the SQ stock price justifies the future growth expectations. Thus Wall Street would want to see the next quarterly results to judge whether the current investor skepticism is warranted.Analysts are likely to pay special attention to metrics that would indicate Square stock's potential to continue growing sales and earnings over the next several quarters. I personally would not take sides as to whether the share price will go up or down when the group reports earnings soon.Investors with a 2-3 year time horizon may consider any further price decline in Square shares as a good buying opportunity.At the time of writing, the author did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * The 7 Best Penny Stocks to Buy * 7 Bank Stocks to Avoid Now at All Costs * The 10 Best Mutual Funds for Your 401k The post Should Investors Buy Square Stock After Its Recent Decline? appeared first on InvestorPlace.
Analysts identified their 11 highest-conviction names going into this earnings season, with positive catalysts over the next two months that they predict will send shares higher.
The company is adding merchants and growing its lead among digital wallet providers, Morgan Stanley’s James Faucette wrote in advance of its third-quarter earnings report.
Although Zuckerberg was banking on Libra, the cryptocurrency project has landed on shaky ground. Here's a rundown of its challenges this month.
PayPal Holdings Inc. plans to roll out a Venmo credit card next year as the online-payments giant looks for new ways to monetize the popular peer-to-peer money-transfer platform.
STAMFORD, Conn. and SAN JOSE, Calif., Oct. 17, 2019 /PRNewswire/ -- PayPal Holdings, Inc. (PYPL) and Synchrony (SYF) today announced an expansion and extension of their strategic consumer credit relationship. As part of their expanded partnership, Synchrony will become the exclusive issuer of a Venmo co-branded consumer credit card in the U.S., which is expected to launch in the second half of 2020. PayPal and Synchrony also announced an extension of their overall consumer credit program relationship.
Judging by the headlines from the last few weeks, you wouldn’t know that Facebook’s payments strategy is moving along just fine. Much of the last week has been dedicated to the slow crumbling of Libra, Facebook’s crypto project.
Paypal (PYPL) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
(Bloomberg) -- MercadoLibre Inc. will “for sure” invest more than 3 billion reais ($718 million) in Brazil next year with a focus on financial services and logistics, Chief Operating Officer Stelleo Tolda said.MercadoLibre, the e-commerce pioneer in Latin America now worth $28 billion, plans to invest more in its financial services and payments unit while opening more distribution centers and seeking partnerships to cut delivery time further, Tolda said in an interview at Bloomberg’s Sao Paulo office.The early guidance on outlays for next year follows investments of 2 billion reais in Brazil last year and 3 billion reais this year. As competition heats up from the likes of Amazon.com Inc. and local retailers including Magazine Luiza SA and B2W Cia Digital, MercadoLibre is defending its market share of about 33% and looking to get customers to lean heavier on its services for day-to-day shopping and payment solutions, Tolda said.“We strongly believe in the growth potential of this business, so it’s too early to focus only on profitability,” said Tolda, who met MercadoLibre’s founder Marcos Galperin at Stanford University in the late 90‘s and has been leading the Brazil business since the start, 20 years ago.MercadoLibre, based in Buenos Aires but with operations in 18 countries and shares trading in New York, is offering same-day delivery in Sao Paulo and looking to expand its next-day delivery to at least 16 cities in 2020.The firm currently operates two distribution centers near Sao Paulo and will open facilities in other regions, to speed up its delivery in a country larger than the continental U.S.Brazilian e-commerce has more than doubled to 68.8 billion reais between 2013 and 2018 and should almost double again through 2023, according to market researcher Euromonitor International.The newest focus for the company is on the fast-moving train of fintech services courting large parts of the population without bank accounts.MercadoPago, the payments platform, has been leading growth at the company. The number of transactions more than doubled year-on-year in the second quarter with the value surging 47% to $6.5 billion. That compares to $3.4 billion in gross merchandise value from the marketplace.“We see opportunities not only in payments, but also in all financial services, including credit, investments and eventually insurance,” Tolda said. “MercadoPago is also the way through which we believe we’ll have higher recurrence in people’s lives.”MercadoLibre needs to invest in marketing for the MercadoPago brand and search out companies to provide payment solutions and individual customers to use the virtual wallet. Offering payment with cards as well as with QR codes, MercadoPago has already cut deals with a wide variety of brick-and-mortar companies in Brazil such as gas stations, drugstores and the Sao Paulo subway.MercadoLibre doesn’t plan to spin off the financial products unit, which it sees as a way to increase interactivity with customers and attract shoppers into its e-commerce platform, Tolda said. Currently, the average Brazilian e-commerce consumer buys an item per month and MercadoLibre wants to intensify the frequency of purchases to at least once a week, Tolda said.The company recently opened new categories of no-gender fashion and sustainable products in its e-commerce platform to attract younger consumers. It also plans to expand next-day delivery to 16 larger cities, from eight currently, after closing a deal with the cargo unit of airline Azul SA that could help reduce its dependence on the country’s post offices.MercadoLibre has surged 93% year-to-date to $566 on the Nasdaq. That compares to 18% for Amazon, 28% for Alibaba Group Holding and 39% for EBay Inc.After raising $1.9 billion earlier this year, including a big chunk of it from PayPal Holdings Inc., MercadoLibre is focusing on investment in its core businesses rather than any bold new acquisitions, according to Tolda. Talks are ongoing with PayPal on how to collaborate in several areas despite being competitors.“Theirs is a traditional online payment model, and we’re seeing even greater potential offline than online,” with MercadoPago, Tolda said. “It’s an interesting path, this idea of ‘frenemy,’ that exists in the technology market.”To contact the reporters on this story: Fabiola Moura in Sao Paulo at firstname.lastname@example.org;Vinícius Andrade in São Paulo at email@example.comTo contact the editors responsible for this story: Daniel Cancel at firstname.lastname@example.org, ;Nick Turner at email@example.com, Richard RichtmyerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The move means PayPal is the only foreign company to hold licences to provide domestic and cross-border web and mobile payment services in China, where Rmb277tn ($39tn) of mobile payments were made last year, according to the People’s Bank of China.
Since it was spun off from online marketplace eBay (NASDAQ:EBAY) in July 2015, PayPal (NASDAQ:PYPL) has consistently delivered the goods. This year has been no different, with PayPal stock gaining nearly 24% since this January's opening price.Source: JHVEPhoto / Shutterstock.com Over the years, I've generally taken a bullish stance on PYPL stock. As a digital-payments processor, PayPal has the distinct advantage of being indefinitely relevant. In recent years, we have witnessed the rise and surging interest in alternative payment vehicles, such as cryptocurrencies. More likely than not, this trend will continue to progress.In addition, this underlining thesis behind PayPal stock aligns naturally with current behavioral trends. According to a Pew Research Center report, "Roughly three-in-ten U.S. adults (29%) say they make no purchases using cash during a typical week, up slightly from 24% in 2015."InvestorPlace - Stock Market News, Stock Advice & Trading TipsInterestingly, Pew noted that as income levels rise, so does eschewing cash for digital payments. Logically, this makes perfect sense. Those with higher income tend to have higher education levels, and therefore have access to new technologies. Given that saving time is more of a concern than saving money for more affluent individuals, they're more willing to advantage digital payment solutions. Naturally, this benefits PYPL stock. * 7 Tech Stocks You Should Avoid Now Not surprisingly, millennials love anything to do with digitalization. Since they represent the largest workforce in the U.S., the compass for PayPal stock is appropriately calibrated.However, what is surprising is that older generations are also embracing the conveniences of digitalization. When I look at PYPL stock from a wide angle, the increasing adoption of alternative payments is what keeps me bullish.That said, the third-quarter PayPal earnings report is around the corner, and that's not necessarily great news. Management Must Control the Narrative of the PayPal Earnings ReportOn paper, the upcoming PayPal earnings report - scheduled for release after the close on Oct. 23 - should result in a per-share profitability beat. Going back to Q1 2016, the company at worst has met expectations for earnings per share.This time around, covering analysts expect EPS to come in at 67 cents. This is firmly near the upper end of the estimate spectrum, which ranges from 52 cents to 71 cents. In the year-ago quarter, PYPL delivered an EPS of 58 cents. A 15.5% earnings lift year-over-year is well within reason relative to prior performances.On the revenue front, consensus forecast pegs sales at $4.4 billion. As with earnings, analysts are incredibly optimistic for growth, with revenue estimates ranging from $4.2 billion to $4.4 billion.But does all this mean that PayPal stock is an easy buy? Unfortunately, recent news items make the narrative severely complicated.In a much-publicized fallout, PayPal dropped out of Facebook's (NASDAQ:FB) Libra cryptocurrency project. Later, eBay, Stripe, Mastercard (NYSE:MA), Visa (NYSE:V), and Mercado Pago followed suit.Also, in late September, PayPal announced Chinese government approval to buy a controlling stake in Gopay Information Technology. This groundbreaking event marks the first time a foreign entity has entered China's payment services market.But most critically, PayPal lost $228 million in Q3 because of its investment in Uber (NYSE:UBER), which has been nothing short of volatile.Optically, these news items give the impression that PayPal is biting off more than it can chew. Plus, with its Uber losses, PYPL confirms that some of their bets probably won't pan out for some time. Therefore, the PayPal earnings report in Q3 will be about more than the numbers; investors will look to management to re-instill confidence in a suddenly shaky organization. It's Time to Play the Tactical Game with PayPal StockDespite my belief in the longer-term picture for PYPL stock, I've got to look at reality. For the immediate time frame, the markets are bearish on shares. In this situation, the last thing I want to do is fight the tape.Technically, PayPal stock has dropped below the 50-day and 200-day moving averages (DMAs), barometers for nearer-term and longer-term sentiment, respectively. I also believe it's an important clue that the price action has stumbled at the 50 DMA in the past two months. Upside resistance is strong, which implies a future downward trajectory.But even if PayPal stock absorbs a rough outing following Q3, I won't take that as a net negative. Instead, it provides a "time capsule" opportunity for those who wanted to jump aboard but didn't for whatever reason. Although the nearer-term picture is troublesome, the forward outlook is among the brightest in the tech space.As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Beverage Stocks to Buy Now * 10 Groundbreaking Technologies Created by Universities * 5 Semiconductor Stocks Worth Your Time The post Distractions Ahead of Q3 Makes PayPal Stock Risky appeared first on InvestorPlace.
With Square (NYSE:SQ) stock you're free to believe what both bears and bulls are saying these days. But if you're watching the SQ stock price chart and are agreeable with the company's underlying growth narrative, the argument for a longer-term investment can be made today.Source: Piotr Swat / Shutterstock.com Mobile payments innovator Square stock has its share of fans and foes. Bulls on Wall Street will point to the company's growth prospects as a primary driver for shareholder performance. Most recently, SQ received just that sort of praise from Susquehanna Financial Group.On Friday analyst James Friedman wrote a client note which laid out the case for SQ stock to rally. According to the firm, Square's investments are set to deliver stronger payment growth following August's earnings-driven fallout. Susquehanna went on to raise Square from "neutral" to "positive" and reaffirmed its 12-month price target of $77 a share.InvestorPlace - Stock Market News, Stock Advice & Trading TipsSurprisingly, Friday also saw Instinet analyst Bill Carcache take a bearish swipe at Square's future stock performance. Shares of SQ stock were given a "reduce" rating. Acknowledged innovation in the payments space, as well as the belief Square's investments will bear fruit nevertheless took a backseat to valuation concerns. Square's ValuationWere recent price tag worries associated with the company's failure to turn a profit? Maybe. But I wouldn't be too quick to think that's the end all, be all. Investing in SQ stock is about looking ahead, not in the rear-view mirror. * 10 Hot Stocks Staging Huge Reversals SQ sports a forward price-to-earnings ratio of 58.2. It has a lower price-to-sales ratio than industry competition PayPal (NASDAQ:PYPL) or even credit card giant Visa (NYSE:V). And Square has much stronger sales growth -- estimated at 44% over the next five years. I have to give the benefit of the doubt to the bulls.Additionally, companies like Square are known to sandbag guidance after a weak quarter. Because of this, I think an upside surprise might be just around the corner. SQ Stock Monthly Price ChartStocks are fluid and price patterns change. Some of my prior notes on the provided monthly chart of SQ stock could be viewed as support of this non-contestable point. As investors, the best we can do is take imperfect information and work with it as unbiased as possible. It's no easy task.Right now Square stock is poised to align its price action with the company's superior growth potential. Following SQ's August correction, shares managed to eventually find a bottom in September at the 50% retracement level tied to its lifetime cycle low of $8.42 to cycle high of $101.15.The September price action in SQ stock is forming a monthly hammer candlestick and this time frame's stochastics are meandering in oversold territory. It is very approachable now to buy Square's growth narrative, even though shares are still highly contentious.My suggestion is to buy SQ stock above $64.75. This will allow the monthly candlestick to receive a small bit of extra price confirmation above the September high of $63.98. From there, I'd look to take partial profits near $80 and where shares turned lower in August. Ultimately though, Square looks like the type of core growth investment which can be accumulated on weakness and allowed to run on the upside. Investment accounts under Christopher Tyler's management do not own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Hot Stocks Staging Huge Reversals * 7 Under-The-Radar Growth Stocks That Could Benefit New Investors * 5 Excellent High-Yield Dividend Stocks to Buy The post Now Is a Great Time to Buy Square Stock appeared first on InvestorPlace.
Plans for Facebook’s proposed “stablecoin,” Libra, appear to be unraveling. This is hardly surprising, given growing awareness of Libra’s potential adverse consequences. If it offers anonymity to its users, Libra will become a platform for tax evasion, money laundering and terrorist finance.
(Bloomberg) -- The Libra Association, which oversees a controversial cryptocurrency, was officially formed on Tuesday, and its five board members have one thing in common: close relationships with Facebook Inc. and its executives.When Facebook first announced Libra, the company was quick to point out that it wouldn’t be alone in managing such an ambitious endeavor. Instead, it hoped to be one out of as many as 100 companies controlling the new digital coin. But as regulatory pressures have mounted and early partners have been leaving the project in droves, Facebook finds itself resorting to close allies to fill the Libra leadership team.David Marcus, who heads the Facebook team that proposed Libra in the first place, is on the board. Marcus is also an investor in Xapo Inc., whose Chief Executive Officer Wences Casares is on Libra’s board as well.Joining them is Katie Haun, a general partner at Andreessen Horowitz, which was an early investor in Facebook. Another early Facebook backer, Digital Sky Technologies, is part-owned by Naspers, which has majority ownership of the parent company of PayU, the home of another Libra board member, Patrick Ellis.The fifth board member, Matthew Davie of micro-lending service Kiva, also has ties to Facebook. One of Kiva’s board members is John Muller, associate general counsel at Facebook who, like Marcus, hails from PayPal Holdings Inc.“Silicon Valley boards nearly always have these kinds of interconnections,” Aaron Brown, an investor and a writer for Bloomberg Opinion, wrote in an email. “Even someone without formal ties to Facebook will have informal and indirect ones. So no one qualified to be on the board is likely to be fully independent of Facebook. But I don’t see the board as being essentially an independent check on Facebook. I see it as a group of qualified and interested people.”The board members and the Libra Association didn’t immediately respond to requests for comment.“Yes, David is a very small investor in Xapo like dozens of other people from Silicon Valley. Yes, Wences and David are both in payments and fintech in Silicon Valley and because of that they have known each other for a few years now,” a spokesperson for Xapo said. “Neither David being a small investor in Xapo nor David and Wences having known each other for a few years compromises Wences’ independence in Libra’s board.”The Libra Association board was formed after high-profile exits by a number of companies, including Mastercard Inc., Visa Inc. and PayPal. The exodus followed scrutiny by lawmakers and regulators who have expressed concern about Facebook’s poor track record in protecting user privacy.Facebook has described Libra as a community effort. But the original group of about 28 partners has dwindled to 21 organizations that signed on as members on Tuesday. Facebook’s challenge will be to convince more companies that there is value for them in a project that has the social-media giant firmly in the driving seat, whether it intended that to be the case or not.(Corrects number of original partners in final paragraph)To contact the reporter on this story: Olga Kharif in Portland at firstname.lastname@example.orgTo contact the editors responsible for this story: Nick Turner at email@example.com, Vlad SavovFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
When Facebook unveiled ambitious plans in June to spearhead the creation of a global digital currency, co-founder David Marcus promised unprecedented co-operation between some of the biggest names in technology and payments. “Everyone will play their role,” the Facebook executive said of the 28 initial founding members of his Libra scheme. Members of the so-called Libra Association became wary of the project after regulators and politicians across the globe warned that a mass-market digital currency could pose a threat to the financial system, as well as lead to money laundering and increased financing for terrorism.
(Bloomberg Opinion) -- It’s just as well that big companies that process and facilitate payments have quit Facebook’s Libra cryptocurrency project, fearing a regulatory backlash. If Facebook really wants to bring financial services to the “unbanked,” it should try doing it on a smaller scale than these companies’ presence promised. And even then, the probability of failure will be high.It’s clear why PayPal Holdings Inc., Stripe Inc., eBay Inc., MasterCard Inc. and Visa Inc. have decided not to join the Libra Association, which Facebook has been organizing to run the proposed digital currency. They took seriously the recent warning of Senators Brian Schatz of Hawaii and Sherrod Brown of Ohio that because of their membership, they could “expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities.” The concern is that a cryptocurrency used in conjunction with encrypted messaging could potentially be used in illegal transactions, and anyone involved in creating such an opportunity would be suspect.U.S. regulators are perfectly capable of scuppering major cryptocurrency projects. On Oct. 11, the U.S. Securities and Exchange Commission announced it had stopped Telegram Group Inc. from distributing digital tokens, so-called Grams, to the investors who contributed $1.7 billion to the creation of the cryptocurrency last year. These include major U.S. venture capital firms such as Benchmark, Sequoia and Lightspeed. The same could easily happen to Libra.That’s the problem with starting so big. Telegram’s token offering was the biggest ever recorded. Facebook made a big announcement on Libra and presented a list of partners that read like a Who’s Who of the payments industry. They envisaged global launches for their cryptocurrencies. Of course regulators and politicians were alarmed.To avoid this kind of outcome, Facebook — whose stated goal with Libra is to offer affordable payment services and loans to people currently priced out of the financial services market — could have tried the strategy that got results for one of its remaining partners, Vodafone Group Plc. Vodafone launched M-Pesa, Kenya’s storied “mobile money,” in 2007, and one of the project’s major assets was the Kenyan central bank’s consent to the launch without any formal regulation. Vodafone’s local cellular operator, Safaricom Plc, quickly built up a network of stores where people without bank accounts could pay in and receive cash, and old-fashioned mobile phones began to double as wallets for transfers and purchases. The lack of regulatory intervention and the large physical network, fed by relatively generous commissions, made sure that by 2019, M-Pesa claimed 37 million active customers in seven African countries. But attempts to transplant the service to many other markets have failed. Vodafone has closed M-Pesa in India (in part because of regulatory obstacles), South Africa (low customer interest), Romania and Albania (apparently it was unprofitable). Vodafone discovered there was no cookie-cutter solution. In different countries, lenders, retailers and mobile operators offered competing services, and regulatory scrutiny varied. To find countries in which to launch such an electronic money service, one would need to go down the list of nations with large populations of the unbanked. The top 20, according to the World Bank, includes big ones, such as China, India, Indonesia and Brazil.But in most of these countries, people are already using some form of digital money in lieu of dealing with traditional financial institutions. That’s why the list of 20 countries with the smallest percentage of people who have recently made or received digital payments looks completely different.In other words, it’s not easy to find a country where a lot of people have neither a bank account nor access to other kinds of financial services. And then there’s a chance that the cash-using population of a specific country wants to stay that way. One possible reason M-Pesa didn’t quite work in Albania and Romania is that these countries have large informal economies. With up to a third of gross domestic product “in the shadow,” traceable electronic transactions are unattractive compared with cash. These difficulties of finding good target markets, and ones with friendly regulators to boot, should explain Facebook’s desire to launch at scale, to throw everything at the wall and see what sticks. But the risk with this approach is that the idea of offering cheap financial services to the unbanked begins to look like a smokescreen for building a huge unregulated bank in the developed world — just what regulators in Europe and the U.S. fear the most.Instead of pushing ahead with the remaining partners and risking the same kind of trouble as Telegram, Facebook should go back to the drawing board and start thinking of smaller projects tailor-made to specific countries’ requirements. Expansion would be slow, and there would be failures and miscalculations along the way, but regulators in each market might be easier to persuade that the project’s goals aren’t nefarious. To contact the author of this story: Leonid Bershidsky at firstname.lastname@example.orgTo contact the editor responsible for this story: Tobin Harshaw at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.