‘Bitcoin a Threat to Debit and Credit Card Issuers,’ Says Citibank

Citi has issued a report about bitcoin that stated the digital currency could surpass traditional payment services in the next years.

Citi GPS, a corporate publication owned by the financial institution Citibank, said that Bitcoin and other digital currencies have the potential to disrupt current-day payments structures. Photo: Ed Yourdon/Flickr

Citi GPS, a corporate publication owned by the financial institution Citibank, said that Bitcoin and other digital currencies have the potential to disrupt current-day payments structures. Photo: Ed Yourdon/Flickr

Citi, the US financial company, has recently published a report that stated what other banks have previously said. The report says bitcoin could be a challenge for traditional payment services and can even surpass them in the future.

Citi GPS, a corporate publication operated by the financial institution, noted that the innovative technology that is behind the virtual currency could disrupt day-to-day payment structures, including such services as credit and debit cards.

The report says: “The essential innovation in bitcoin is that it can eliminate the need for a ‘trusted intermediary’ when the principals in a transaction do not trust each other. There are many such transactions but money transfer/ credit/ debit card transactions stand out.”

Still, the report noted that price volatility and security risks could prevent bitcoin from being accepted.

Additionally, the report compared the world payment sector, which is worth $300 billion, and the bitcoin market capitalization estimated at about $6.2 billion. Over $15.5 trillion in credit and debit card transactions took place in 2013 and it is the market that bitcoin could disrupt in the future.

Citi also noted that the usage of digital currencies as a payment method can provide significant cost savings.

The report says: “Bitcoin transactions have potential cost advantages over conventional payments and reduce the need for intermediation. The gap between conventional transactions cost and any bitcoin fees for convenience and increased security will allow bitcoin to make incursions into this market.”

According to the financial institution, other digital currencies such as dogecoin, litecoin and blackcoin could also achieve higher market share.

The report stated that companies, providing credit and debit card services, are likely to face escalated competition from virtual money. It also noted: “If fraud/chargebacks can be reduced or eliminated by digital currencies there is plenty of room for margins to be eroded.”

“Retail transactions across borders could also become very inexpensive, if the charges involved in going from one currency to another were substantively reduced.”

Citi said that due to low margins the influence on foreign exchange market is less certain. Moreover, the bitcoin adoption would bring significant benefits for the marketplace.

According to the report, the companies with high transaction fees “may find their franchise eroded if generic bitcoin technology lowers the cost if these transactions”.

The report was finished with a statement: “Digitization in general and adoption of digital money solutions in particular, is not a question of ‘if’, but ‘when’. Doing nothing simply means allowing the system to develop dysfunctionally, in fits and starts. It also means delaying the tremendous socio-economic benefits that adoption can bring. Inaction is not an option. There is too much at stake.”

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