PayPal said on Friday that it had pulled out of the coalition of companies involved in a Facebook-backed cryptocurrency initiative, in the latest headache for the social network’s effort.
The proposed cryptocurrency, Libra, has been in the works at Facebook for more than a year and was announced to much fanfare in June. Libra was designed to function as a cryptocurrency that could be freely traded inside Facebook’s properties, like Messenger and WhatsApp, and would be used for international exchange. At the time, Facebook said more than 27 corporate partners — including PayPal, Visa, Mastercard and companies like Uber — had pledged to support the project.
“PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities,” a spokeswoman for PayPal, Amanda Coffee, wrote in an email on Friday.
A Facebook spokeswoman did not respond to a request for comment. PayPal’s move was earlier reported by The Wall Street Journal.
PayPal’s decision is a blow to Facebook and its cryptocurrency ambitions, which are based on the premise that Libra will be controlled not by Facebook but by a broad network of corporate partners. The effort is the most far-reaching attempt by a mainstream company into the world of cryptocurrencies, with Facebook executives having detailed plans for how Libra could become the foundation for a new financial system not controlled by today’s power brokers on Wall Street or central banks.
“It feels like it is time for a better system,” David Marcus, head of Facebook’s blockchain technology research, said in an interview in June. “This is something that could be a profound change for the entire world.”
Yet the project encountered pitfalls almost immediately after it was announced. President Trump and other federal officials criticized the effort, with Treasury Secretary Steven Mnuchin saying he was “very uncomfortable” about the plan. Many other politicians, regulators and central bankers around the world echoed their skepticism.
Lawmakers said the idea of introducing an unregulated currency showed that Facebook had not learned its lesson from past controversies, including its data privacy issues. In July, Mr. Marcus faced two days of questioning about Libra in Congress.
Many of Facebook’s partners also quickly distanced themselves from the Libra project. Some had signed nonbinding agreements, knowing they weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where the initiative was going, executives at seven of the partner companies told The New York Times in June.
Some partners were wary of how Facebook’s issues with regulators around the world, including privacy and the uncertain legality of cryptocurrencies, might affect Libra. Many of the companies rely on good relationships with financial regulators. In back-room conversations, several partners have complained that Facebook did not do enough before announcing the project to get regulators comfortable with Libra.
“We will not do anything that we think doesn’t meet our own personal standards, as well as the standards of regulators that we respect around the world,” Al Kelly, Visa’s chief executive, told CNBC this year.
The news that PayPal was the first to drop out is likely to carry a particular sting because Mr. Marcus used to be the president of PayPal.
As the latest news about disenchanted partners leaked out this week, Mr. Marcus took to Twitter to defend the Libra project and acknowledge the struggles it has faced.
“Change of this magnitude is hard and requires courage + it will be a long journey,” he wrote on Tuesday. “For Libra to succeed it needs committed members.”
If the hearing goes ahead, it will be Ms. Sandberg’s first testimony to since September 2018, when she answered questions about election interference on Facebook and the social network’s handling of user data.
Mr. Zuckerberg recently said in an interview that he was committed to making Libra happen. But he also said Facebook might not be able to push out the first Libra coins by next year, as the initial plan envisioned.
The Libra Association, a Swiss organization that Facebook created to oversee the project, is planning a meeting for partners in Geneva this month to formalize their participation. Even with PayPal’s departure, 1,500 companies and other organizations have expressed an interest in becoming partners, said Dante Disparte, the association’s head of policy and communications.
“The type of change that will reconfigure the financial system to be tilted towards people, not the institutions serving them, will be hard,” Mr. Disparte said in a statement. “Commitment to that mission is more important to us than anything else. We’re better off knowing about this lack of commitment now, rather than later.”