Santander Bank releases Bitcoin report: Bitcoin becoming mainstream will have a significant impact on the traditional financial ecosystem (download the full report)

A securities subsidiary of Spanish banking group Santander has predicted that if Bitcoin becomes more widely used, the cryptocurrency will have a significant impact on the traditional financial ecosystem.

Earlier this week, the company released a report (download the full report) at a conference attended by Santander researchers, Santander Securities Investments, Brazilian bitcoin broker Mercado Bitcoin and local investors. Although relatively short (just 10 pages), the report lays out the risks (or opportunities) that card issuers, acquirers, exchanges and banks may face in the future if bitcoin usage becomes more mainstream.

According to the report, card issuers and acquirers are more likely to bear risks.

Researchers Henrique Navarro and Bruno Mendonca note:

“Simply put, we believe that a future of bitcoin transactions with low (or no lower) costs and fees puts the entire business model of credit and debit card companies at risk. Acquisition companies such as Cielo (who rely on network MDR and POS revenues) and issuing banks (who rely on interchange fees) are most at risk.”

Specifically, the report identifies the lengthy transaction times, operational costs and associated fees that can put both issuers and acquiring companies at a disadvantage.

The report also said:

“As more merchants and vendors accept Bitcoin as a form of payment, the risk to these institutions will increase.”

Impact on credit card brands and banks

The report explores the potential impact on banks and provides a broad overview of various blockchain application tests and experiments recently conducted by major financial institutions.

Particular emphasis was placed on the recent blockchain settlement systems created by UBS, Bank of New York Mellon, Deutsche Bank and Santander.

The report authors stated:

“We believe that the concept of blockchain has the potential to redefine how money is transacted in the banking industry, using the power of decentralized computer networks to eliminate difficult, time-consuming and costly transactions in banks. IT, transaction costs, banks’ large back-office operations, capital requirements – these are all going to change in a material way in our view.”

In addition, according to the report, some major bank card brands will have technological advantages.

The report's authors wrote that companies like Visa and MasterCard could gain 'benefits' from using blockchain technology, reducing transaction, IT and back-office operating costs.

The report also highlighted a recent project launched by Visa to test interbank payments, saying such systems could threaten the dominance of SWIFT, the global interbank payments network.

The report says:

“This is indeed a challenge for SWIFT in our view.”