From chips embedded into consumers hands to make contactless payments to biometric wearable devices, and digital currencies versus a cashless society, The Payments Association speaks to industry experts to find out the key themes likely to dominate the industry over the next decade.
Technology is set to transform the way we pay for goods and services at a blistering pace, bringing greater speed and ease to transactions. But the possibility of slicker payments for consumers may also raise questions over identity, ethics, and inclusion, according to industry observers.
Some of today’s nascent technology delivers a core use, bringing the potential to succeed in the long term and shape the direction of payments globally. On the other hand, some tools may be just be a fad and struggle to move into the mainstream. Here, several experts break out their winners and losers over the coming 10 years.
Need for speed
Consumers are expected to widely adopt account-to-account payments, which directly shift money from a payer’s account to a payee’s bank account, bypassing intermediaries such as debit cards.
“Instead of things being initiated and a delay waiting for the funds to be moved, we are moving to a 24/7 instantaneous sending of money,” says Mark McMurtrie, director at Payments Consultancy Ltd.
“You send, you receive it, you can spend it [almost right away], instead of waiting for three days for things to clear. It’s a transition from the old BACs-based system with clearing and settlement of payments to real-time or instant payments.
“The game-changer device is going to be the smartphone, and in 10 years’ time, most payments will be initiated via the smartphone,” adds McMurtrie. “There will be fewer payments going through a Visa/Mastercard rail and more around a bank account-to-account payments rail.”
Retailers’ traditional hardware of card-reading terminals is likely to be replaced by software-point-of-sale terminals in the form of an app smartphone or a tablet used by the retailer, McMurtrie explains.
According to Peter Harmston, KPMG UK’s head of payments consulting, the cost-of-living crisis will also drive interest in real-time payments facilitated by account-to-account transactions because consumers want to know precisely how much money they have at any given moment.
“People are noticing more and more from a budgeting perspective the delay between a pending balance and the available balance,” Harmston says. He notes that the Payment Systems Regulator (PSR) is an advocate of account-to-account payments because it wants to see more competition in a market dominated by card schemes.
The increased use of the so-called embedded payments – provided within app-based services such as Uber – will also speed up everyday spending, according to McMurtrie. Such apps already have the details and permission of the consumer to make transactions appear seamless, without the friction of further authorisation at the point of payment.
“What that means is that often the payment will become invisible – it will just be initiated from another service you are using,” McMurtrie says.
Eyes on biometrics
Industry experts believe the use of fingerprints or retina identification will become a key means of authentication in the payments industry.
“Biometrics will be the norm for identification,” says David Parker, founder of Polymath Consulting. “Now, whether we have got to the point of using fingerprints at the point of sale, or if we are using tokenised-card identification, that is a different story.”
However, the heightened security offered by biometrics won’t be enough to eradicate identity theft, which may become the biggest issue for this type of technology, he points out.
“Your identity will be your payment method. In theory, it’s more secure – it is you. But if someone fakes it, where do you go from there? Look at all the challenges we have already from people stealing identity,” Parker adds.
Amid all the hype and investment interest in cryptocurrencies, these decentralised digital assets could be transformative in the next decade.
“Crypto will become more of a mainstream product as a way to pay – a lot of merchants are using it already,” says David Carr, chief executive officer at consultancy EU Prepaid Ltd. “Larger merchants tend to be the ones doing it. If you are spending half a million pounds on a Lamborghini, people don’t mind.”
However, while there will be growth in crypto, it won’t become the dominant means of payment, adds McMurtrie at the Payments Consultancy.
While “some consumer groups will want to use crypto”, concerns around regulation, crime, anonymity and tax-evasion will stand in its way, he says.
“It will be a niche option. It will probably maintain interest as an investment opportunity rather than as a means of payment.”
Huge swings in the valuation of crypto assets that aren’t linked to fiat currencies, and scandals in the industry have put a cloud over the currencies. Most notably, crypto-exchange FTX filed for bankruptcy in November, owing creditors more than $3 billion. At one point, the company had been valued at $32 billion.
Polymath’s Parker is scathing about cryptos and the interest among investors in the assets. He says: “They have no use or value. Fools and their money are easily parted.”
Central bank digital currencies
The growth of digital currencies across private networks has seen central banks trying to ensure that the traditional monetary system isn’t bypassed. That has led to some issuing their own central bank digital currencies (CBDCs).
Critically, such CBDCs remove the risk and much of the volatility of cryptos, retaining value over time by being linked to the country’s fiat currency. So far, 11 countries, including Jamaica and Nigeria, have started a digital currency, according to the Atlantic Council; and 114 countries, which represent 95% of global GDP, are exploring its use. China is set to expand a pilot scheme in 2023.
“I can see a big use for them in wholesale banking – you want to move money quickly and easily around the world,” says Parker, adding that for retail however, it “is trying to fit a square peg into a round hole – I’m not sure I see a need for them”.
KPMG’s Harmston sees a case for CBDCs for big business and notes that central banks would be able to gain “great insights into how the economy is going” by tracking spending. However, he raised concerns on privacy asking if “people want their every move watched by central government”?
“This is the central government stepping into the commercial-banking space,” he explains.
Implants and wearables
Walletmor provides chips that can be implanted into the human hand to make contactless payments, and the company has already provided more than 1,000 such devices to customers.
Nada Kakabadse, professor of policy, governance and ethics at Henley Business School, says: “[The technology] is slowly penetrating. In 20 years, it could become the norm. The younger generation are more open to it than the older generation because they have been born with the technology.”
But its adoption brings strong ethical concerns, warns Kakabadse. “What is worrying is, who owns the chip, who owns the information and who has access to the information,” she says.
“Should you have the technology without knowing the consequences? It's unregulated. It’s completely open.”
However, Walletmor CEO Wojtek Paprota insists that implants are secure and says that the company is working on education to help widen acceptance of the technology, which he believes could increase to two million people worldwide over the next decade as medical services are potentially added.
“We need to look at implants in the same way we look at credit or debit cards,” he says. “It’s normal to use a debit or credit card and with implants it’s the same principle.”
The notion of an implanted device may have been around for years for pets. But people might prove a tougher market to crack.
Wearable contactless payment devices, such as wristbands and rings, may provide a bigger opportunity. The global wearable payment market is expected to grow to $80.38 billion by 2028, from about $10.35 billion in 2020, according to data company Fior Markets. But not everyone agrees that there will be a need for such devices, because people are still likely to carry a mobile phone in the coming years.
“The biggest single wearable is your communication device, which will be the most important piece of equipment,” says Polymath’s Parker, who does not believe implants will be the next big thing.
“Humans don’t like to have foreign bodies stuck inside them at the best of times,” he says. “And you are still going to carry a phone, unless you are going to have an implanted GSM chip in your head as well.”
Buy Now, Pay Later
Buy Now, Pay Later (BNPL) provides short-term financing to enable consumers to pay for goods or services at a future date. It’s not a new concept, but its use in e-commerce has grown rapidly in recent years, with fintechs such as Klarna attracting younger consumers.
The market is set to surpass $1 trillion by 2030, according to statistics and analytics company Global Data. It predicts Apple, Google, Mastercard, Paypal and Visa will become leading players, forcing some fintechs out of the market.
However, as the cost-of-living crisis bites, regulators are taking a keener interest in the BNPL sector to ensure customers can afford higher levels of debt.
“Ultimately it is a form of payday loan, so there will be significant regulation to protect consumers of BNPL,” says KPMG’s Harmston. “It will continue in a more regulated environment.”
He adds that there may also be consolidation in the number of products available in the market over time because the proliferation of this type of finance has made choosing the most suitable line confusing for consumers.
Less cash, not cashless
The rapid rise in digital banking and e-commerce, exacerbated by the pandemic and fintech innovation, brings challenges for cash-dependent consumers. Indeed, Link – the UK’s biggest ATM network - estimates that five million people would struggle to cope in a cashless society.
But the social and political drive to prevent financial exclusion points to a future that won’t be entirely cashless. The Financial Services and Markets Bill, expected to become law next year, will cement the need for banks to continue to provide access to cash as part of efforts to prevent financial exclusion. Link has said that the industry is already protecting thousands of ATMs and providing shared banking hubs.
“Cash is certainly not dead,” says Harmston. “It will continue to play an important part in our economy for the foreseeable future. It is the only kind of irrevocable instant form of anonymous payment, which doesn’t discriminate, and is therefore inclusive.”