Blockchain and Bitcoin are believed to revolutionize the financial industry since they offer more transparency, security, anonymity, and more cost-efficiency. Will this hot trend melt Visa’s “plastic” business? Here we make a SWOT threat analysis of VISA – another incumbent – disruptor episode.
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SWOT Threat Analysis of VISA: In This Issue
The cryptocurrency and Bitcoin are here. We try to analyze what they really are and what are their capability and capacity. Further, we also examine the case if the financial ecosystem really transforms into something new due to cryptocurrency’s existence.
- Disruption is cutting the Process
- The Chained Block
- Little Bit for The Coin
- Raiden. The Lightning Network
- Problem. People
- Key Takeaway
We begin with the most natural form of disruption: Process Cutting.
Cutting The Process
Some people believe everything that cuts the process will eventually lead to disruption. This case is true. Once at a time, people drive their car to go Walmart and shopping – then Amazon comes. Everything happens online, with just a few clicks and our order comes. This is process cutting.
Before the iPhone, we have to turn on our laptop to browse Bloomberg news. Apple shrinks that PC into your palm size and cuts the process.
How about Blockchain and VISA?
Think we order a replicate of iPad magic keyboard online that cost $100 online and we use VISA as payment. The transaction does not simply involve you (the buyer) and the merchant (the seller). It little bit more complicated. First, your 100 bucks is charged for The Issuer – Bank or Institution that issue the customer debit – Citi Bank or Well Fargo. They take 1.8 bucks as fee then the transaction goes to VISA.
VISA assesses this kind of transaction. Do the balance enough to make payment? Do the cardholder capable to access the credit? Questions like that. VISA acts as a credit card solution for Citi Bank or Wells. in this transaction, VISA takes only a small fraction, 11 cents. Then the money forwarded to acquirer like Vantiv and First Data.
The acquirer collects 33 cents before sending it to the bank account of the Merchant (Bank of America for example) as final end of the process. See how many parties involved in this simple transaction?
Blockchain promise is to cut the middlemen role.
The Chained Block
At a glance, our VISA position is very fragile. What if Citi Bank or Well Fargo chat Vantiv and First Data then say, “Why we need VISA? We could do this together. We have blockchain technology.”
And then someday, The Issuer doesn’t need them all. It is only Citi Bank and Bank of America – a B2B connection: Bank to Bank.
This could be achieved by making smaller subsystem which consists of two parties and to guarantee the speed and coverage, these subsystem is distributed in a number of ledgers. Expert (read: marketing team, cough) call these subsystems “block”. So this is a block that chained altogether to serve financial transactions.
This is the antithesis of VISA centralistic model.
Just a Little Bit for The Coin
So, we have the winner..
We have to say that Blockchain “communication” is very promising, more cost-efficient….but for much less number of transaction.
Let’s talk about the crypto – celebrity first, The Bitcoin.
As a public ledger, Bitcoin needs 10 minutes just to enter the network (the chain). This number is negligible comparing with Visa which could handle less than 5 seconds to authorize transactions. Etherium is better – 14 seconds – but still far from VISA capability.
Another problem is the volume. Etherium could handle 15 transactions per second while Bitcoin scores only half of that number. They could not compete with 15,000 transactions per second of VISA.
SWOT Threat Analysis of VISA: Raiden
Now I hear a protest.
Well, the crypto enthusiast could make an argument.
An effort to compete with the “old” payment system has been conducted, we have Lightning Network and Raiden Network with Etherium as currency which could challenge the old system. These networks could scale the volume up to 1500 transactions per second. But, man, still could not parallel with VISAnet. At least for now.
But the effort to dethrone VISA isn’t over. Some legit sources have said that networks are getting better and faster day by day. There are EOS and NEOs that could surpass the VISA number. And there are IOTA and Holochain that make VISA capability like a joke.
Well, honestly, this discussion will never end since we deal with tech, it getting advanced exponentially. Ok, to make clear, let assume the blockchain – Etherium duo could deliver that VISA – scale business, and say that they could provide good merchant support services, authenticating, auditing, book recording, refunding, antifraud, and other mandatory features (even this assumption is ), they still have an Achilles heel.
Problem. Since The Beginning
Even when the technology are ready, we face serious problem:
- Even when the pipeline ready, both for volume and speed. It will be useless without the water, the cryptocurrency. Problem is, it is not accepted yet officially. And it is not only about our government, but also the people themselves. 55 years old Uncle Joe or Aunt Martha will hesitate even just to hear “crypto”, and no official backup just worsening the situation.
- VISA just takes a very small portion of the transaction fee, thus, eliminating VISA isn’t solve the cost problem. And remember, this guy could process transactions in under five seconds. Why we have to dump him? VISA is a good man, He works hard with only small money. So let us revisit the transaction process, The bad guy is the issuer of the card, they are Citi and Well Fargo, they collect the largest piece of the cake. So, the problem solved by removing this guy – the technology is ready (said blockchain blogger) and this will bring us to……another problem.
- So we have no banks. It just you and a merchant from the Amazon river. The financial transaction is just between you two with blockchain as a network and Etherium as the currency. The question, why bank – the most powerful institution on this planet – willing to let this happen? They could lobby the regulator or they could force to shut all their services, lending for instance. They could prevent people to withdraw the money, and, the entire system will collapse. The only way to overcome this situation is acceptance of crypto as well as fiat currency.
- Imagine you have no banks, the government finally accepts the crypto and every transaction happened in the blockchain. What will happen if you lose forgot the password? or lose your bank account? Where you will go and request help?
- In the end, the “distributed” system will get greedy and collect more money, yes, it will raise another financial monster, just different at this time. The problem in finance isn’t the system, nor the technology, it always the people.
Reading recommendation: Tesla vs VISA
Now we come to the conclusion
SWOT threat analysis of VISA: Key Takeaway
- We see hurdle and hurdle, the technology is promising, but it needs time. For now, we don’t see it will happen.
- The problem – if it exists – of the financial system is the bank. Not the middlemen like VISA. Removing VISA from circulation isn’t the answer. But removing the bank is recipe for disaster.
- VISA has made several milestones in blockchain adoption, so we won’t worry their business will be disrupted