The number of reports discussing Bitcoin’s impact on mainstream banking and financial sector is overwhelming. Adding to the list is yet another report focused on Brazil, published by Banco Santander.
The report titled “Brazil: Banks and Financial Services – To Bitcoin or Not to Bitcoin?” is a result of last month’s meeting with Banco Santander, Mercado Bitcoin — the leading Latin American Bitcoin exchange and local investors. The meeting revolved around the potential long-term impact of Bitcoin on businesses dependent on the conventional financial system.
The Santander report lists Bitcoin and blockchain technology’s impact on 5 major segments. These segments include Acquirers and issuer banks, Card brands, Card suppliers, Cryptocurrency exchanges and Brazilian banks. It states that the banking and payments industry as a whole will have a mixed impact, depending on the focus verticals of the businesses.
Findings of Santander’s Report
Payment acquirers and issuers are expected to be the worst affected by Bitcoin adoption as their business models are solely based on Merchant Discount Rates (MDR) and POS revenues. Increased acceptance of Bitcoin will effectively make these companies redundant as transactions will be executed over a decentralized ledger instead of being channeled through their network.
However, major card brands will find Bitcoin and blockchain technology helpful when it comes to cost reduction. With the adoption of blockchain technology, they are expected to witness a drop in costs associated with transactions, IT infrastructure, and back office operations. There are already instances of Bitcoin companies issuing MasterCard and Visa powered Bitcoin debit cards. Irrespective of the funding method, whenever a user swipes his/her card at a POS or shops online, the card network stands to gain any associated transaction fees.
Third party card issuers and payment solutions providers may find themselves at a slight disadvantage following Bitcoin adoption. Wallet-to-wallet Bitcoin transactions will eliminate the absolute need for POS terminals and even reduce the demand for credit and debit cards. However, the impact will be limited, resulting in a fall in profits at the worst.
Santander believes that the impact of increased Bitcoin acceptance on Cryptocurrency exchanges to be minimal. Most exchanges charge negligible fees from its customers in comparison to fiat currency exchanges. They may register a slight increase in exchange volumes, resulting in a marginal increase in profits.
When it comes to conventional banks, they will definitely enjoy the benefits of blockchain technology as it significantly reduces regulatory and compliance costs (a fact reiterated by an earlier report published by Santander last year). However, these benefits may not mean much if Bitcoin acceptance increases. Banks will register a fall in revenues as cryptocurrency transactions don’t need them to act as intermediaries.
The latest report is a mix of good and bad news. A significant portion of the report will hold good only if Bitcoin gains increased mainstream acceptance. Bitcoin has not reached that point yet and it may take a good few years before it becomes a reality.
Download the complete report here
Ref: Santander Report | Image: Santander