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Bitcoin and blockchain pose little risk to payments giants - Credit Suisse

05 August 2016  |  14394 views  |  0 Credit Suisse Web Logo

Visa, MasterCard, WorldPay and others in the payments sector can relax: Bitcoin will remain a niche player and blockchain technology poses little risk, according to a new report from Credit Suisse, which has less comforting news for Swift.

In response to questions from investors about blockchain and its potential to disrupt traditional industries, Credit Suisse has put together a 135 page report pooling analysis on the impact the technology will have on 14 company stocks from around the world in different sectors: payments, capital markets, financial services and media.

Broadly, the authors conclude that Bitcoin faces an uphill struggle to become a major force, highlighting 13 barriers to mainstream adoption. In contrast, shared ledgers are seen as a more potent force, with three key properties - disintermediation of trust, immutable record and smart contracts - endowing the technology with real advantages to legacy systems.

On payments, the report acknowledges that a permissioned public ledger could remove the need for a central clearing house in the form of Visa and MasterCard. However, the bank's analysts still see limited risk to these card schemes, arguing that the decision by the likes of Apple to tap into their rails, making the networks the guardians of the tokenization process, puts them in a strong position.

Concerns about firms such as WorldPay are misplaced, says the report, which rates the company's stock as 'outperform', while DH Corporation also scores 'outperform' in part because it is facing up to the blockchain threat and partnering with Ripple.

Fintech giant Fiserv faces a greater threat, rated 'neutral' because "we believe that as blockchain-based applications develop around core financial services, FISV could face competition in the bank technology space". Fiserv has, in fact, hedged against the threat, taking a stake in blockchain startup Chain, alongside Nasdaq, Visa, Citi and Capital One.

Another payments player that could be in trouble is Swift, which is slow and costly and has systems that are decades old, have limited flexibility and face a growing security threat, as evidenced by the recent Bangladesh Bank attack.

Warns the report: "Enter blockchain - a low-cost, instant, virtually unhackable, fully automated, end-to-end transaction system built on a private permission-based network. Such a system would not only enable banks to eliminate costly overheads, but would provide a lower-cost money transfer product attractive to large multi-national organizations with high frequent cross-border funding and trade finance demands."

In capital markets, the report says that blockchain is more of an opportunity than a threat for the London Stock Exchange, which gets an 'outperform' rating. In contrast, the market "appears to be overlooking risks" for some bourses, including the Australian Securities Exchange, which is itself bidding to bring the technology to bear in the post-trade arena

Meanwhile, in financial services, Goldman Sachs is seen as well positioned to reap blockchain benefits thanks to its direct investments in the technology. JPMorgan is also praised for its determination to invest in DLT both internally and through partnerships with startups.

Read the full report:» Download the document now 5.6 mb (PDF File)

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