We often discuss how change is in the air. There is so much taking place it can be overwhelming. Cryptocurrency is right in the middle of it all and really disrupting a great deal. As they say, the fun is just beginning.
Before we get into the topic of this article, let us look at Netflix. What did that company really do? How did it alter the video industry and basically bankrupt Blockbuster in a few short years?
The answer lies in the fact that the distribution model was change. Netflix simply removed the middle man, at least to an extent. While it is still in place, it is radically different from the service Blockbuster provided. It also changed the expense ratio.
For example, a monthly Netflix subscription costs what a handful of video rentals went for. Yet, one can get hundreds of hours of video entertainment for the cost of 3 films. That is a radical alteration in the pricing model. Hence, we see two benefits.
This is how disruption works.
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Visa On The Clock
The demise of outfits like Visa is in the works. At present, they are still a strong, global leader. However, their basic business is facing a major threat from cryptocurrency.
What is the problem with Visa? The basic issue is that it is an expensive rent-seeker. The fees that merchants are charged by entities like this are significant. This can often cut into the margin that companies operate upon. Of course, we mostly see the costs turned over to the consumer, pushing the price of things up.
Cryptocurrency along with blockchain promises to eliminate many of these extractors. Payment services are enormous business that is primed for disruption.
The value that a Visa provides is to validate the purchaser on behalf of the merchant. Obviously, allowing a stranger to walk out with a product is a dangerous game. How does the shop know it will get paid? This is the role Visa fulfills.
In a cryptocurrency based system, there is no need for validation. The work is done by blockchain. That is the validation mechanism that charges nothing for the service. Of course, depending upon what chain one is on, transaction fees can end up being worse than what Visa or Mastercard charge.
Nevertheless, there are plenty of chains out there which are much less expensive in terms of transaction cost than what Visa charges. This is especially true on larger ticket items since those type of companies tend to operate on a percentage basis. When dealing with a car or something like that, we can easily be talking hundreds of dollars in fees.
Greater Efficiency
The ultimate goal of cryptocurrency is to bring more efficiency to our global financial system. We have systems in place that date back decades, without much change. This means they are primed for disruption.
Unfortunately, the present system has little incentive to upgrade what is taking place. We basically see monopolistic systems in place whereby the money is flowing and little to disrupt it. So why spend a fortune to upgrade something when people are basically locked in?
That is the nature of all monopolistic enterprises. Cryptocurrency obviously seeks to interrupt that.
What is very interesting is that networked systems are forming all over the place. This mean, in my opinion, that we will not see a single replacement for the likes of Visa. Instead, there are going to be many different merchants, spread on a variety of networks, that accept payments in a lot of forms. Some merchants might end up taking a dozen or so cryptocurrencies. Once wallets improve to the point where it is instant swap capability, why not?
This does not bode well for the present payment systems. Sure they could add technological innovation but it is tough to alter your business model, especially as a public company. Wall Street looks at things quarter-to-quarter, meaning any drop in profitability is not well received. The idea of looking long-term is not in the make up of these types of entities anymore.
That is the window of opportunity for cryptocurrency. While institutions are trying to hold onto their business models, the disruption can start to take place. It gets to the point where even when they realize it is coming, there is little they can do to stop it.
Hence Visa and companies like it are on the clock. The countdown to their eventual demise has begun.
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Great article. I wonder what would be the response of these companies. I am sure they are well aware of these potential threats coming from crypto-based payment systems. I am aware that VISA has looked into blockchain as a tech for the future.
The credit card companies will probably exist for a while longer because people aren't use to making an actual crypto wallet and using it in daily life. Most of the time I pay with my card when I go out shopping because its easier and you get some cash back when doing so.
Another question: Won't this cause liquidity issues because banks won't be able to use the card payments (debt) to add liquidity into the market?
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Just think the same way
HIVE should take over the payment system since it's fast and free. Not sure if HIVE alone could scale though. BTC could surely not take over payment system, and ETH either, has to be some light new coins like hive, maybe a combination of coins.
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I agree as well as a lot of cryptos junkies cause of low fee and freedom of spending
I think many businesses like VISA are having to look at where they fit in and how they can fit in. The finance world especially with regarding payments is changing quickly and no doubt will try and stay relevant somehow. Crypto is the future and noticed the debit cards for crypto are all Visa cards.
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Crypto will definitely play a part in the payment system. Around my town, I see "ATM" machines that accept Bitcoin deposits and payments. I feel that as society gets more comfortable around the topic more of these options will become popular and acceptable. Visa will fight it though.
The Netflix story is great, they completely changed the rules. Speaking of changing the rules could you imagine a form of credit card that was not only crypto-based but also rewarded you for activity?