In a release, 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. According to the publication, the technology behind the digital currency may become a danger for debit/credit card systems and remittance services in particular.
Citi GPS 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.” The report is in consonance with the paranoia shared by Citibank.
The report says that at present, there are more than 200 digital currencies (30 with market capitalization above $1million and 12 above $5 million) with more created each month. Talking about various digital currencies it further elaborates that digital currencies differ along multiple dimensions, although Bitcoin is often used as a template.
to the report the digital currencies typically share the characteristic that the pace at which they are created is pre-determined, there is an algorithm that governs the creation and distribution of the currencies and there is a market to determine the value of the currency. Though the publication does not rule out the opportunities, it says there are a lot of challenges as well.
A lot of Challenges for Debit and Credit Card Companies
The report from Citi GPS says that in the near term the sectors most at risk are credit and debit card and payments services. At the same time it makes clear that if fraud/charge backs can be reduced or eliminated by digital currencies there is plenty of room for margins to be eroded. It says that with Bitcoin at service, retail transactions across borders could also become very inexpensive.
However, for it, according to the publication, the charges involved in going from one currency to another were reduced to great extent. For instance, it says that wholesale FX transactions are already very low margin, so the room for margin erosion appears much more limited. This opinion is being shared even by independent clients who are opting for digital currencies as transactions are cheaper.
Nonetheless, as the publication mentions further that most broadly, intermediaries who charge high margins to stand between two transactors who do not ‘trust’ each other may find their franchise eroded if generic Bitcoin technology lowers the cost of these transactions.
To contact the reporter of this story: Deepak Tiwari at firstname.lastname@example.org