The use of digital currency could pose a real threat to credit card companies by pushing down their often exorbitant fees or even by driving some out of business.
Even cash is making a comeback in some areas as the public becomes increasingly tired of hearing of credit card companies’ huge profits on the back of poor quality service and high fees passed on to the customer.
As an illustration of this frustration, recent system crashes by both Mastercard and Visa recently brought a flood of complaints from Bitcoin loyalists. At the time, Financial Times reported that regulators were “already intensifying their scrutiny of apparent fragilities in the payments system”.
With growing competition across the retail sector, alarm bells should be ringing for the likes of Visa, Mastercard and Amex. Bitcoin is already beginning to look like an obvious replacement, shredding credit card fees and offering quick and transparent payment solutions. Ian DeMartino writes in ‘The Bitcoin Guidebook: How To Obtain, Invest, And Spend The World’s First Decentralized Cryptocurrency‘ that merchants also need to wake up:
“From a merchant perspective, Bitcoin has the advantage of not having large fees from credit card companies that cut into profits… For merchants with small profit margins, that fee could be up half or more of their profits for each credit card transaction.”
As well as a boon to the merchant’s business, power can be shifted away from corporations with ungainly profits back into the hands of those who need the service: the consumers. Kris Marszalek, co-founder and CEO of Cypto.com, sees the current financial climate as perfect timing for a major change in perception by both merchant and consumer, arguing:
“The banking and payment sector is ripe for disruption… The entire credit card business model is focused on wringing money out of people who can’t afford credit card debt: late fees, penalties and high-interest rates.”
The opportunities for simple cryptocurrency payments outside of the credit card system are endless, whether it be payment by fingerprint recognition linked a crypto wallet or a linked crypto debit card. As Arran Stewart, co-owner and CVO of Job.com points out, all that’s stopping this becoming a reality for the general public as a whole is the stability of the cryptocurrency market. This he suggests, “will come in time and as transaction volumes continue to increase”.
Jonah Lehrer, author of ‘How We Decide‘, is not so certain, claiming that people are attached to their credit cards:
“When you buy something with cash, the purchase involves an actual loss — your wallet is literally lighter. Credit cards, however, make the transaction abstract, so that you don’t really feel the downside of spending money.”
Fair comment, but until now the world has lived with a card versus cash scenario. With digital currencies, this is set to change.
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