Crypto Isn't Disrupting Payments Yet But Stay Tuned, Ellis Says

(Bloomberg) -- “Why would I ever buy coffee with bitcoin?” MoffettNathanson analyst Lisa Ellis said.

“As ludicrous as it may sound," the existential threat of cryptocurrency as a globally accepted, unbranded payment system that upends incumbents like Visa Inc., Mastercard Inc., and PayPal Holdings Inc. is worth watching but is unlikely to occur soon, Ellis wrote in a note to clients.

As progress is steadily being made to address shortcomings and compelling use cases emerge -- like crypto as an alternative to fiat currency in high-inflation economies -- the threat should not be ignored, she said.

“Cryptocurrency systems (e.g., Bitcoin, Ethereum, Ripple) are potentially disruptive to private payment systems,” Ellis said. “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.”

For Visa, Mastercard and PayPal, the more possible scenario is emerging that cryptocurrency systems commoditize them instead of disintermediating them entirely, said Ellis, who rates each of the three as a buy. Plus, “unless networks fully embrace these technologies themselves,” another more imminent concern is the risk of ceding the cross-border person-to-person and business-to-business payments markets to players such as Ripple and Veem that are leveraging crypto, which is particularly well-suited for these kinds of payments, she said.

Banks are also starting to join in on the technology. During its investor day Tuesday, JPMorgan Chase & Co. said its JPM Coin prototype tested successfully, and the bank added that cross-border money movement as well as asset transfer payments over blockchain could be future uses for its institutional clients.

Ellis says overall cryptocurrencies and blockchain present opportunities for the incumbents. The technologies, she says, could open up new revenue streams, such as combining the networks’ authentication abilities with blockchain technology for tracking, like a piece of art, for example.

To contact the reporter on this story: Natasha Rausch in New York at nrausch@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Sebastian Silva

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