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worldnews.nbcnews.com/_ Like the Internet bubble of the early part of this century, the bitcoin phenomenon
news/2013/11/28/21654552- is likely an indicator of where payment systems will head over the next several
it-worker-throws-out-hard- years. However, like the Internet bubble, the cryptocurrency business models
drive-loses-75-million-bitcoin- have significant flaws and risks that need to be mapped and carefully navigated
fortune?lite. by the stakeholders and users.
• Bitcoin has no competitive
advantage. Because there is
no central bank or exchange, Edward Barton, CFA, CPA, JD, is the President of G2 Web Services, a leading provider of merchant
and there are no rules, risk management services including merchant website monitoring, fraud prevention, and mer-
the 21 million limit on the chant boarding risk analysis. For more information about G2 Web Services, or to request a compli-
supply is arbitrary. There mentary risk review of your merchant portfolio, visit www.g2webservices.com.
are no appreciable barriers
to entry, as can be seen by
the explosion of copycat
cryptocurrencies such
as litecoin, dogecoin and
numerous others.
Managing payment system risks
with bitcoin
While bitcoin and its competitors
may have fatal flaws, the market
conditions that gave rise to the
bitcoin movement are likely here to
stay. There will always be a desire,
for both legitimate and illegitimate
reasons, to access bitcoin's perceived
advantages of anonymity and ease of
transfer.
For merchants or merchant acquirers
looking at accepting or underwriting
cryptocurrencies for payment, the
risks may significantly outweigh the
rewards of the incremental business
to be gained. Running afoul of law
enforcement or being on the wrong
side of a transaction when the bubble
bursts can leave a business open to
significant reputational and financial
risks.
I have seen an increasing number of
acquiring bank clients monitoring
their merchant portfolios for
indicators that merchants are
accepting cryptocurrencies, both at
underwriting and during ongoing
monitoring, and incorporating
that higher risk profile into their
merchant risk management activities.
The increased risk associated with
merely accepting an extremely
volatile cryptocurrency in and of
itself may result in a different credit
risk profile for merchants in the eyes
of their lenders or acquirers.
37
worldnews.nbcnews.com/_ Like the Internet bubble of the early part of this century, the bitcoin phenomenon
news/2013/11/28/21654552- is likely an indicator of where payment systems will head over the next several
it-worker-throws-out-hard- years. However, like the Internet bubble, the cryptocurrency business models
drive-loses-75-million-bitcoin- have significant flaws and risks that need to be mapped and carefully navigated
fortune?lite. by the stakeholders and users.
• Bitcoin has no competitive
advantage. Because there is
no central bank or exchange, Edward Barton, CFA, CPA, JD, is the President of G2 Web Services, a leading provider of merchant
and there are no rules, risk management services including merchant website monitoring, fraud prevention, and mer-
the 21 million limit on the chant boarding risk analysis. For more information about G2 Web Services, or to request a compli-
supply is arbitrary. There mentary risk review of your merchant portfolio, visit www.g2webservices.com.
are no appreciable barriers
to entry, as can be seen by
the explosion of copycat
cryptocurrencies such
as litecoin, dogecoin and
numerous others.
Managing payment system risks
with bitcoin
While bitcoin and its competitors
may have fatal flaws, the market
conditions that gave rise to the
bitcoin movement are likely here to
stay. There will always be a desire,
for both legitimate and illegitimate
reasons, to access bitcoin's perceived
advantages of anonymity and ease of
transfer.
For merchants or merchant acquirers
looking at accepting or underwriting
cryptocurrencies for payment, the
risks may significantly outweigh the
rewards of the incremental business
to be gained. Running afoul of law
enforcement or being on the wrong
side of a transaction when the bubble
bursts can leave a business open to
significant reputational and financial
risks.
I have seen an increasing number of
acquiring bank clients monitoring
their merchant portfolios for
indicators that merchants are
accepting cryptocurrencies, both at
underwriting and during ongoing
monitoring, and incorporating
that higher risk profile into their
merchant risk management activities.
The increased risk associated with
merely accepting an extremely
volatile cryptocurrency in and of
itself may result in a different credit
risk profile for merchants in the eyes
of their lenders or acquirers.
37
