Why credit card companies fear Bitcoin

By Zachary Gruskin Bitcoin, Credit card

Credit cards have become the most popular medium for exchanging money in today's society. The largest credit card company is Visa, and they process $15 billion of transactions per day on average, with a total yearly volume near $5 trillion. Visa accounts for 40% of the credit card market, so the total amount of money transacted via credit cards easily exceeds $10 trillion each year. This is nearly as much as the gross domestic product (GDP) of the United States.

The idea behind credit cards is simple. Essentially a bank gives you a line of credit, and you can purchase almost anything with this credit. This is more convenient than carrying cash around, and can be quite helpful if you need food but don't have the money until your next paycheck. Usually you have until the end of the month to pay, and generally if you pay on time there are no extra fees associated with credit cards. Most of the profits that credit card companies receive are from transaction fees, which are included in the price of products since the merchant pays the fee. This fee is near 3% for each credit card transaction, which yields around $300 billion of profits per year given that the global yearly credit card transaction volume is over $10 trillion. Clearly owning a credit card company is extremely lucrative.

Despite earning extremely large amounts of money from transactions themselves, credit card companies charge all sorts of other fees. Credit card companies will encourage you to use your card at ATMs or to send a Western Union, and won't tell you there's a $20 cash advance fee until it's too late. There are often hidden monthly services fees just for using a credit card too. If you don't pay your credit card bill on time you usually incur a $20 late fee, even if you owe only $1 to the credit card company. On top of this you have to pay 20-30% interest for any credit card debt, which can spiral out of control quickly. For example if you have $1000 of credit card debt at an interest rate of 20%, and you make the minimum payment which would probably be $20, it would take 10 years to pay off the debt and you'd end up spending $2200 for $1000 of debt. Oftentimes people who lose their jobs end up with credit card debt exceeding $10,000, and this can keep you in debt to the credit card companies for your entire life.

Credit card debt is insidious, it does far reaching damage to your finances and life. If your credit score goes bad due to not making payments on time you will be unable to take out loans of any kind. This can prevent you from  buying a house or car. Even finding an apartment to rent becomes difficult when you have a bad credit score. If your credit score gets really bad it is likely that credit card companies will cancel any accounts they have with you, even if you have always paid on time for a particular credit card. This will leave you in a struggle to live, since if you run out of money between paychecks you'll have nowhere to turn. Also your wages will constantly be eaten up by credit card payments well after your credit card is cancelled, and as stated earlier it might take decades or your entire life to get free of the credit card debt. The brutal reality is credit cards can turn you into a slave owned by the financial system. Oftentimes companies won't hire you if you have a bad credit card score, which creates a vicious feedback loop of impoverishment for someone who is in debt.

Bitcoin is a digital currency which launched in 2009, and it has the potential to take over a significant fraction of the global monetary transfer market. With Bitcoin you can send money anywhere in the world near-instantly. Bitcoin is completely decentralized, there is no bank or single entity which controls Bitcoin. Instead Bitcoin runs on a peer to peer network between thousands of computers around the world. There are no cash advance fees, service fees, or late fees when using Bitcoin, only a tiny (~6 cents) transaction fee everytime you send Bitcoin. Compare this to 3% credit card fees. If you send $1 million with a credit card you'll pay $30,000 of fees, while sending $1 million of Bitcoin costs 6 cents. Also, since Bitcoin is decentralized no one can control your money, even if your credit score is terrible. There is no chance of your Bitcoins being frozen even if you have the worst credit score in the world, making Bitcoin a good option for people who have bad credit.

Bitcoin is not only superior to credit cards for customers, but also for merchants. Credit card chargebacks are a major problem for merchants. Essentially any credit card transaction can be reversed up to 180 days after a purchase, the customer just has to claim they didn't receive their product or that someone was fraudulently using their credit card. About 75% of credit card chargebacks are successful, even if the merchant has ample evidence that the customer did receive their product or proof that it wasn't a fraudulent transaction. Credit card chargebacks have destroyed countless businesses, even small businesses lose thousands of dollars every year to chargebacks. This is due to insane financial laws, which allow credit card companies to instantly reverse money for chargeback cases. A decision on the chargeback case is made after a long and secretive review process, and as stated before the merchant loses most of the time. It is impossible to chargeback with Bitcoin, all Bitcoin transactions are final. The only way to get a Bitcoin refund is if the merchant decides to send it back to the customer. This gives business owners peace of mind when using Bitcoin. Considering the massive losses that are possible from credit card chargebacks, using Bitcoin can be the difference between a successful business and a failed business. Also, since merchants don't have to pay the 3% credit card fee when using Bitcoin they can lower their prices and attract more customers.

Currently Bitcoin's total transaction volume is small compared to credit cards. Around $50 million of Bitcoin is exchanged per day, versus ~$50 billion transferred per day via credit cards. Despite this fact credit card companies have become concerned about Bitcoin. Earlier this year the first Bitcoin lobbyists were hired in Washington D.C. There weren't pro-Bitcoin lobbyists however, instead they were hired by MasterCard which is the 2nd biggest credit card company in the United States. The lobbyists' agenda remains secret, but it's possible that they are associated with a flurry of anti-Bitcoin sentiment in the government this year. The securities and exchange commission (SEC) has issued repeated warnings to avoid Bitcoin, and has shutdown several companies just for using Bitcoin. So far Bitcoin remains legal, but government regulation has been getting worse by the month.

Bitcoin has great potential to be the future of currency, never before has it been possible to send money anywhere in the world instantly at almost no fee. Also Bitcoin is the first money transfer service which has no oversight from the government or banks, making it ideal for a free society. Compared to credit cards Bitcoin is obviously superior for use by merchants, since chargebacks aren't possible and there's no 3% transaction fee, so merchants can lower their price. So far Bitcoin has only taken over a small fraction of the global money business, with $50 million of transactions everyday versus $50 billion of credit card transactions per day. However credit card companies fear Bitcoin, and have gone as far as hiring lobbyists to make sure Bitcoin is impeded by government regulations. Essentially credit card companies see Bitcoin as a threat since it is taking away some of their business. The cold hard truth is credit card companies have enslaved most of the populace in order to keep profits flowing. Credit cards seem like a great thing at first, but if someone falls behind on payments they can end up in debt to the credit card companies for their entire life. Credit card debt leads to a vicious cycle of impoverishment, someone who is in debt loses the ability to buy a house, buy a car, rent an apartment, get a job, or even buy food. Credit card companies hire lobbyists to keep these horrible practices legal. Bitcoin has the potential to free the world from the tight grip of the credit card companies, but at this point it seems like a daunting task considering how powerful credit card companies have become. If our society was truly free, and credit card companies weren't able to control the government and population with underhanded tactics, I have no doubt that Bitcoin would become the most widely used monetary transfer service in the world.