Santander: Bitcoin Threatens Credit Card Issuers

A securities affiliate of Spanish banking group Banco Santander is predicting bitcoin will have a significant impact on the legacy finance ecosystem should it see wider adoption.

The report, published earlier this week, stems from a meeting involving Santander researchers, Santander Investment Securities, Brazilian bitcoin brokerage Mercado Bitcoin and local investors. While short, the publication offers a take on the risks (or opportunities) card issuers, acquirers, exchanges and banks would face in a future should the use of digital currency become more mainstream.

Perhaps most at risk, according to the report, are the card issuers and acquirers.

Researchers Henrique Navarro and Bruno Mendonca noted:

"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.”

Specifically, the report identifies long transaction times, operational costs and associated fees and taxes as factors that would put issuers and acquirers at a disadvantage.

"The risk increases as more and more merchants and suppliers accept bitcoins," the report adds.

Impact on card brands, banks

The report examines the potential impact on banks, offering a broad overview of recent work by major financial institutions to test and experiment with various blockchain applications.

Notably highlighted is the recent blockchain settlement system created by UBS, BNY Mellon, Deutsche Bank and Santander.

The report's authors state:

"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."

Major card brands, too, stand to reap the advantages of the technology, according to the report.

Companies like Visa and MasterCard, among others, "could benefit" from using blockchain to lower transaction, IT and back-office costs, the authors write.

The report also highlights a recent initiative launched by Visa to test interbank payments, indicating that such systems could threaten the supremacy of the global interbank payments network SWIFT.

"In our view, it is definitely a challenge to SWIFT (banks' interbank payment system)," the report states.

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