Payments are evolving fast — and in 50 years the experience could be vastly different to that of today. Three payments experts look to the future.
A greater evolution of technology in the next 50 years will make the payments landscape look vastly different from today, bringing with it unique solutions to current challenges. The payments ecosystem could be transformed by a convergence of novel solutions, from innovations like blockchain and CBDCs to embedded payments and the Internet of Things.
One development set to become viable within the next decade will be the arrival of instantaneous payments, thinks Robert E. Grant, Founder and CEO, Crown Sterling. “As markets become more efficient, they are going to increasingly demand a greater degree of transparency and speed and the ability to make instantaneous payments and transfers, not only related to currencies but also related to securities as well,” says Grant. “This will become especially relevant in capital markets where billions of dollars of value can be generated from just a few seconds of arbitrage opportunity.”
Instant payments have the potential to bring important advances to the payments landscape. But we need to be mindful of potential risks as well as benefits, says Leda Glyptis, fintech trailblazer and author of Bankers Like Us: Dispatches from an Industry in Transition.
“There’s the risk that by making payments completely frictionless it becomes harder for individuals to consent to a payment,” says Glyptis. “We’ve already seen this with ‘buy now, pay later’ consumer solutions where users have got into debt because the seamless nature of these transactions meant they didn’t know what they were doing,” she explains.
Grant sees the need for measures to counteract potential risks presented by instant payments. “There will be a need for measures to ensure there is the ability to look back on past transactions and redress any fraudulent or erroneous transactions that have already occurred,” he says. “Blockchain could help become a facilitator for this, by creating an immutable ledger or historical reference point to allow for scrutiny of transactional history. However, the technology isn’t there yet. Once we get to sub one-second block confirmations it starts to become closer to offering real-time transactions that could lead to the widespread adoption of blockchain technology,” he adds.
As payments systems develop, they will need to adapt to ensure financial data is protected. “We could see blockchains evolving from a ‘proof of work’ consensus model to a ‘proof of self’ model based on biometric data and the Internet of Things,” says Grant. “In recent years we’ve come to realise that data is the most valuable asset, perhaps even more valuable than money itself. It’s likely we will see more and more mechanisms that help us to protect our data as we start realising its value.”
Will blockchain enter the payments mix?
For Tom Zschach, Chief Innovation Officer, Swift, solutions like cryptocurrency and blockchain will continue to expand the horizon of what is possible, although sovereign currencies will remain an important part of the mix. “At Swift we’re agnostic about any specific technology solutions. We believe that the increasing integration of the global payment ecosystem will involve sustained collaboration with a multitude of global and national stakeholders; from financial institutions to governments, regulators and financial services firms,” says Zschach.
“Where we see the potential to get the biggest benefit out of blockchain is having an agreed-upon single source of the truth that can be made publicly available when necessary,” he continues. “But getting a diverse range of financial actors together to implement that is a very hard problem to solve, especially when it comes to agreeing on shared standards and when transacting across borders.
“Ultimately, blockchain technology won’t be able to build a global network; it can’t be used to scale transactions, the technology wasn’t really designed for that. There’s a high level of complexity at the level of implementation,” adds Zschach.
A Quantum of Menace?
Quantum computing – which harnesses the power of physics to unleash exponential computing capability – is already making breakthroughs, and could power an exciting new wave of technological innovation. But, in the wrong hands, this transformative technology could give cybercriminals a new way to exploit existing security models built on classical computing architecture.
Tomorrow’s world of quantum hacking would require payment systems to become fully quantum secure and ensure new and legacy systems are protected. “The quantum computing threat, which is often referred to as ‘day zero’, might be much sooner than what we had originally thought,” says Grant. “In future, I think security, in particular quantum security and quantum encryption, can be deployed in a very speedy and efficient manner,” he adds. “I think it’s going to be critically important for the world of payments going forward.”
As technology continues to develop and firms and regulators align on best practices, what does the future hold for payments infrastructure? “The future will see an expansion of embedded services, from embedded payments to embedded warehousing and capabilities,” says Glyptis. “Looking at the winds of regulatory change, the intention of the regulators globally is pretty clear: the technology now exists to do better, so we need to do better and to put the consumer at the heart of a fairer, more transparent and more responsive payment infrastructure.
“We need regulatory oversight to bring disparate regulatory regimes closer together to achieve this. When it comes to the future of payments, whether that’s clearing and settlement or CBDCs and programmable money, consumers need to be part of the conversation,” she concludes.
Building the future of inclusive payments
The coming decades won’t simply be dominated by the question of how to empower and protect payments, but also how to ensure future payments infrastructure can deliver social value. “We have to take a step back and look at how solutions such as blockchains, AI large language models, or quantum computing can help change the world in a way that not only provides value in terms of corporate objectives, but can also provide greater societal value,” says Zschach. “The aim is to create something that is better, faster and smarter than what we currently have,” he adds.
Globally, innovative solutions may emerge to make greater inroads into under-served markets and to provide greater financial inclusivity while addressing the needs of the unbanked. “We will need to recognise the importance of exploring and integrating alternatives beyond conventional financial systems,” says Zschach. “This might include giving unbanked people access to products and services such as digital wallets, facilitated, for instance, by mobile devices and solutions like digital wearables as they become more sophisticated and accessible.”
Serving the unbanked requires a concerted effort on the part of financial services firms. “We need to think about how to incentivise a greater range of financial actors, like banks, retailers and corporates, to extend embedded finance solutions to the unbanked and to reach into markets that traditional payment systems have struggled to access,” says Zschach. “In that way, the industry can not only provide societal value by offering effective payment solutions to the unbanked but also unlock the value that comes from accessing new markets.”
The views expressed on these pages are those of the authors and/or the institution they represent, and not necessarly those of Swift.