Ottawa-based e-commerce company Shopify Inc. has joined Libra Association, the group behind Facebook’s plan to create a global cryptocurrency that first attracted — and then lost — backing from key financial players including Visa, Mastercard and PayPal.
In a statement, Shopify said it linked up with the venture to “work collectively to build a payment network that makes money easier to access and supports merchants and consumers everywhere.”
Facebook’s plan to broaden its influence beyond communications and advertising into finance with a virtual currency, unveiled last June, drew a swift backlash from politicians in the United States and raised regulatory questions.
But Shopify’s desire to expand beyond the million merchants on its e-commerce platform, including enticing smaller vendors that require a low-cost structure, could be behind the decision to join Facebook’s cryptocurrency play, analysts and industry watchers said.
Kaan Yigit, president of Toronto-based Solutions Research Group, said Shopify is “pushing to eliminate as many barriers as possible in order to expand their market” and provide incentives to small merchants. This would include the potential to reduce fees such as those charged by credit card companies to process transactions.
“Shopify and merchants probably would love to have a way to cut out the middlemen” by introducing a cyptocurrency to the platform, said Yigit, whose consultancy specializes in consumer analysis.
While it’s too early to know what the arrangements with Facebook would be if Libra gets off the ground, and therefore what costs might be eliminated, “whatever form it takes would probably be cheaper than credit card fees,” Yigit said.
“On a low-margin transaction, credit card fees are a big deal — true in the physical world, true online.”
He said the initial involvement of credit card companies and other payment facilitators in the Libra Association was probably driven by a motivation to steer the emerging cryptocurrency in a direction that would have the least impact on their primary business.
“In case of Mastercard and Visa, Libra is a potential substitute for them and ultimately a disruptor,” Yigit said.
He said he expects more common purpose to emerge from the relationship between Facebook and Shopify, particularly since both emerged as “digital-first” enterprises.
Ygal Arounian, a research analyst at Wedbush Securities in New York, said he views Shopify’s involvement with Libra as a low-risk way for the e-commerce firm to experiment with alternative payment options for its platform, while looking for ways to reduce fees in the longer term.
“Who knows if Libra will ever work, but Shopify offers merchants on its platforms various payment options and this seems like a low-risk way to get a variant payment system to hundreds of thousands of merchants,” he said, adding that a target is likely to be international small and medium-size businesses and entrepreneurs that don’t necessarily have access to traditional payment methods.
“Also, Shopify pays a lot to credit card networks when its merchants use its Shopify Pay payments platform, and this could be a long-term bet to find a way to limit paying those fees,” Arounian said.
