Payment Firms, Cryptocurrencies, and CBDCs

We provide a method to identify and classify payment firms and assess the effect of two innovations – cryptocurrencies and central bank digital currencies (CBDCs) – on the payment industry. We find that payment firms’ stock returns are uncorrelated with proxies for the rise and fall of cryptocurrencies, while payment firms’ stock returns react significantly and negatively to central bank announcements on the introduction of CBDCs. Our results are consistent with the narrative that cryptocurrencies are a speculative asset class rather than a means of payment. In contrast, the market regards CBDCs as a potential threat to payment firms’ business model