Morningstar sees a risk to money transfer services from Facebook’s Libra

While Facebook‘s cryptocurrency Libra faces regulatory challenges, its potential to upend some legacy payment providers merits consideration, according to a recent report from Morningstar.

“The most at-risk company in our payments coverage might be Western Union, as Libra could prove to be an effective vehicle for international money transfers,” Morningstar analysts Eric Compton and Brett Horn stated in their report.  The money transfer market is small enough for Facebook to be able to build sufficient scale to put competitive pressure on Western Union, they noted.

Facebook’s scale, developed through its massive user base, could be its biggest advantage in challenging money transfer services like Venmo, Zelle and Square‘s Cash app. However, Compton and Horn argued that, at $17 trillion annually combined, the immense payment volume of Visa and MasterCard (partners in Facebook’s cryptocurrency initiative) means  it would be much harder for Libra to threaten them in the foreseeable future.

Libra still could face major roadblocks in its march to ubiquity among users globally, as operating alongside banks and legacy payments networks would mean figuring out ways to meet compliance requirements. “[We] have a hard time seeing how this would not create problems for the banks, as they could run into issues around anti-money laundering and know-your-customer rules,” the analysts stated. As a report released Sunday by the Bank for International Settlements noted, regulators should ensure a level playing field between big tech companies and banks, considering tech companies’ wide customer base, access to information and business models.

Consumer trust in Facebook also could present a major challenge to adoption. Indeed, an NBC News-Wall Street Journal poll from April found that 60% of American’s don’t trust Facebook to protect their personal information. Morningstar agreed that trust in the platform could stand in the way of consumers using the platform for money transactions, prospects for which could be improved if the company acquired a banking license.

Meanwhile, large banks’ investments in blockchain and cryptocurrency (for example, like JPMorgan Chase’s Coin) could stand in the way of Libra’s ability to become a default payments and banking method among customers, Morningstar noted. What will make the difference is whether or not Libra will be cheaper and more efficient than existing vehicles. “Displacing the card networks and the other players in their ecosystem would depend on developing a payment system that is equally ubiquitous and either materially cheaper or more secure,” the report concluded.