Cryptocurrencies May Pose a Threat to Traditional Payment Companies, Analyst Argues

  • Financial professional with over 20 years of work experience believes products developed by companies such as Ripple Labs could replace traditonal cross-border payment methods.
  • She also thinks PayPal, Mastercard, and Visa might start using crypto-related technology.

Lisa Ellis, a senior equity analyst and partner at MoffettNathanson LLC, recently argued that cryptocurrencies will most likely not replace more mainstream payment methods such as those offered by Paypal, Visa Inc. and Mastercard Inc.

Ellis, an MBA graduate from the University of Virginia, wrote a note to her clients in which she stated that “as ludicrous as it may sound," we must closely watch the crypto industry - as transactions involving bitcoin (BTC) and other digital assets may become more widely accepted.

She explained that there are many developers throughout the world that are working to improve crypto-related technology.

According to Ellis, cryptocurrencies may be increasingly adopted in countries affected by high levels of inflation, or even hyperinflation. Because a decentralized means of value transfer helps people transact more freely, Ellis believes peer-to-peer (P2P) transactions using cryptocurrencies may potentially pose a threat to the dominance of traditional payment methods. She remarked

Cryptocurrency systems (e.g., Bitcoin, Ethereum, Ripple) are potentially disruptive to private payment systems. Their core design characteristics –- which are aimed at enabling ‘freedom of money’ -- are in direct contrast to the characteristics of most traditional, private payment systems.

Payment Technology Developed By Veem, Ripple Labs To Challenge Existing Solutions 

Ellis thinks traditional payment processors such as PayPal and Visa might start using or integrating cryptocurrencies or blockchain-based transaction systems. Alternatively, cryptocurrency platforms could start commoditizing established financial platforms - instead of disintermediating them completely, Ellis stated.

She also argued that older financial service providers such as Visa and Mastercard could face more competition from American fintech firm, Ripple Labs and Veem, a “next generation payment service provider for global commerce.” Moreover, Ellis believes that “unless [payment] networks [such as PayPal] fully embrace these technologies themselves,” more efficient cross-border funds transfer solutions developed by companies like Ripple Labs may replace existing methods of settling international transactions.

JPM Coin Has Successfully Competed Testing Phase

Ellis further noted that banks have started to increasingly adopt cryptocurrency-related technology. JPMorgan Chase, the largest bank in the US, recently introduced the JPM Coin prototype - which has reportedly undergone rigorous testing. According to JPMorgan’s management, transactions involving the JPM coin have successfully completed their testing phase and the bank’s new cryptocurrency will now be used to facilitate cross-border payment transfers.

Notably, Ellis believes cryptocurrencies and their underlying blockchain technology could potentially create new revenue streams. For example, blockchain-based systems could be used to improve existing network authentication methods - which may be used to track items like valuable pieces of art.