Aleksi Grym, Head of Digitalisation, Bank of Finland
The future is notoriously difficult to predict. This is especially true in the area of payments, where we can currently identify multiple different trends driving the industry forward. Some of these are related to infrastructure, such as new instant payment rails and open APIs, while others are happening on the consumer frontend, like mobile payment apps and contactless payments. Some of these developments tend to get exaggerated, while others are underestimated. At the risk of making an unsuccessful prediction, I will outline one area which is probably being overhyped and another which is probably being overlooked.
"In a world that is increasingly becoming digital, we tend to forget there are experiences and sensations we get in our physical environment that no digital solution can replicate"
In my view, anything related to cryptocurrencies and blockchain technology in payments is overhyped. Originally conceived as an alternative to the official monetary system, cryptocurrencies have failed to realize their intended purpose as payment instruments. Instead, they might be viewed as an asset class of sorts, but only as long as they have a functioning secondary market. It would be more accurate to describe them as exchange-traded virtual collectibles, rather than currencies. Cryptocurrencies have, nevertheless, received a lot of attention. But despite all the noise, their use in everyday payments is practically negligible, and their acceptance at points-of-sale is almost non-existent. Stablecoins are the latest subplot in this narrative and are trying to revive the payment case for cryptocurrencies. A stablecoin is a cryptocurrency system that comes with some kind of mechanism attempting to make its trading price less volatile. While the volatility of a cryptocurrency is certainly one factor that makes it a poor payment medium, it is not the only one, and stablecoins will therefore not make cryptocurrencies any more compelling.
The overlooked area of payments, in my view, is the attraction of physical payment instruments, especially cards. In a world that is increasingly becoming digital, we tend to forget there are experiences and sensations we get in our physical environment that no digital solution can replicate. While there is no doubt that retail is increasingly moving online, there is just something alluring in holding a tangible object in your hand which represents purchasing power in its purest form. Coins and banknotes are still by far the most popular payment instrument worldwide, and even if we are gradually moving towards a cashless society, people will want to continue having access to some physical form of currency. Cards are the best bet. They are practical, intuitive, relatively cheap to manufacture, and very reliable, much more so than mobile phones, which were never designed to function as payment instruments. Cards can be made of a variety of attractive materials and designs, and their low cost makes them far more accessible to a wider population, including the unbanked, than mobile devices. What is more, there is a lot of technology that can be embedded into cards, making them secure and functional. This is especially true when combining a card with a mobile app into one seamless user experience.
In light of these two predictions, it is interesting to see which direction some of the world’s largest technology companies are taking. Some are betting on ideas from the cryptocurrency world, while others have launched innovative card concepts. Not all big techs are alike, it seems. It will be interesting to see which concept emerges as the winner.