Major Rater Warns Payment Processors of the Growing Threat of the Crypto Space

Payment processors are warned not to rest of their laurels when it comes to the threat of Blockchain and digital innovations.

In another show of the increasing threat of the cryptocurrency space to players in the traditional financial industry, a major rating agency has weighed in on the matter.

In a note that seemed to be trying to sooth the U.S. payments sector, rater Moody’s Investors Service put the sector on notice. It warned that Blockchain and cryptos were an immediate threat, but it saw more businesses adopting them, instead of shunning them.

What’s the problem?

Payment processors seem to be using the same old excuse as other traditional processors when it comes to accepting that Blockchain is the way of the future. They don’t want to accept payments with Blockchain based cryptocurrencies, such as Bitcoin, because of market fluctuations and the risk related to fraud and money laundering.

The risks traditional systems face if they don’t get on board is significant, however, notes Moody’s. It says this stubbornness will especially hurt those who resist technology like Blockchain.

Their fee structures will definitely be put at risk. Crypto players are said by Moody’s to be aggressively attacking the incumbents with the potential to lower card fees to merchants, as well as provide consumers with additional convenience and benefits.

Shaking in their boots

The new competition has some payment processors nervous. This includes card networks and large financial institutions. They may have thought the crypto space was just a fad, but reality is sinking in that not only is it here to stay, but it is growing.

Card networks have enjoyed their positions as the only players to process payments. Giving up those positions is another reason some may be resistant to Blockchain.

The following is from Moody's Senior Vice President Stephen Sohn:

"Card networks and large financial institutions are fully entrenched in existing networks and have several inherent advantages over new entrants that are looking to displace them. These include large consumer and merchant customer bases with long-term relationships, significant financial resources, credit underwriting capabilities, and a wealth of data that they can use for marketing and to tailor payment offerings and services."

While new financial technology firms and payment platforms are unlikely to displace the existing consumer electronic payments landscape, technology innovation, like Blockchain, poses a long-term competitive threat to the current payment ecosystem.

Fending off incoming cryptos

Traditional payment processors have taken steps to ready for the changing landscape presented by the crypto industry. For example, they have been partnering with fintechs. They’ve also increased consumer rewards as well as slowly lowering fees to merchants, particularly large merchants, Moody’s found. It noted that the traditional players are well-placed to benefit from innovation, and that scale and customer relationships should help them cope with the challenge.

Moody's expects the established system of card networks and the like to be resilient, but they will have to adapt to digital demands of the crypto space.