A recently published bank report by Spanish banking giant Banco Santander is foreseeing a future wherein – if bitcoin is adopted in the mainstream – the fundamental business model of credit and debit card companies could be uprooted.
A research report [PDF] was published earlier this week by Santander Investment Securities (SIS), a subsidiary owned by the Spanish banking group. The report and its findings came after an August meeting which saw SIS researchers, local investors and most notably, Mercado Bitcoin – the largest bitcoin brokerage in Latin America.
The bank-sanctioned report, titled “To Bitcoin or Not to Bitcoin?” assess what bitcoin could have in store for banks and financial services in Brazil.
In it, the impact of a future with wider adoption of the cryptocurrency and its underlying technology, the blockchain, upon various sectors of the financial services ecosystem is predicted. Card issuers and acquirers, card brands, exchanges and Brazilian banks are all taken under the scanner to see the threats or opportunities that bitcoin and blockchain brings.
Card Issuers Closest to Bitcoin’s Rising Tide
The report does not pull any punches, as researchers suggested:
Simply put, we believe a future with bitcoin transactions with their low (or no) costs and fees puts at risk the entire business model of credit and debit card companies. Acquirers such as Cielo (through net MDRs and POS revenue) and issuer banks (through interchange fees) potentially could suffer the most, in our view.
The researchers followed up their claim with a list of the disadvantages of a card payment in comparison to a bitcoin payment. They are:
- Long payout time for merchants; 30 days as opposed to 10 minutes, with a bitcoin transaction.
- The lack of card contracts, with bitcoin.
- Card fees and other middlemen costs.
- Local taxes as opposed to no taxes with bitcoin
- Operational costs from IT, back-office to process the transactions with cards.
As more merchants and suppliers accept bitcoins, “the risk increases” for card issuers, the researchers note.
Blockchain Benefits for Banks and Cards
While card issuers fall under the endangered category in a big bitcoin future, the researchers see card brands – the likes of Visa and Mastercard – to benefit from blockchain technology.
“[T]hey could benefit from the blockchain concept in order to lower transaction, IT, and back-office costs,” the report adds.
Furthermore, the report cites a Visa initiative where it is testing a payments system based on the blockchain, to process interbank transactions. The upside, compared to a traditional transfer method such as SWIFT, would be significantly faster settlement times, reducing credit risk over domestic and cross-border transfers and cost cutting.
“In our view, it is definitely a challenge to Swift,” the authors wrote.
Meanwhile, the authors of the report also believe banks have already started taking action in preparation for the cryptocurrency , even though they perceive banks to consider digital currencies’ technology to be in their “early stages.”
With this in mind, banks are already looking toward their own digital currencies such as Goldman Sachs’ SETLcoin, the report stated.
We believe the blockchain concept has the potential to redefine money transactions in the banking world, taking advantage of the power of decentralized computer networks to eliminate difficult, time-consuming and costly trading among banks. IT, transaction costs, the banks’ huge back-offices, capital requirements – all of those could change in a material way, in our view.
Altogether, the authors believe that in the future, that the answer to the report’s title, would see a response heavily leaning toward the cryptocurrency.
[W]e believe that the question in this report’s title will eventually be answered with a resounding “Yes, to bitcoin.”