Q: Major payment processing specialists like Visa, PayPal, and Square have outperformed the broader stock market by a wide margin in recent years. If cryptocurrencies like bitcoin eventually start to gain traction as methods of payment, could this potentially hurt these companies?
It might seem like if more people started using cryptocurrencies to pay for goods and services, there would be less of a need for the services these companies provide -- and this could be true to some extent, at least at first. For example, if someone uses bitcoin stored in a Coinbase wallet to pay another person who also uses a wallet stored on a cryptocurrency exchange, none of these companies are seeing a dime in revenue.
However, I think that it's important to realize that the payment processing industry and cryptocurrencies aren't really two distinct concepts.
If cryptocurrencies start to gain serious traction, the major payments companies will be right there to cash in on the trend. Square (NYSE:SQ) has already integrated bitcoin into its ecosystem and wants to make it as easy as possible for its merchants to accept cryptocurrencies as payment. PayPal (NASDAQ:PYPL), Visa (NYSE:V), Mastercard and others are all partnering with Facebook on its new Libra cryptocurrency, so if it starts to gain serious real-world momentum, these companies will benefit.
In other words, most of the major fintech players are well-aware of the long-term potential of cryptocurrencies and are already taking steps to ensure that they'll get a piece of the action if the industry really starts to take off. So if cryptocurrencies become a widely used payment method, I think it will do more good than harm to the profitability of these companies.