Signals | The Future of Payments

The future of payments

By the end of the decade, we will witness significant innovations that will reshape commerce and usher in “the next economy." The transformative changes ahead include a reimagining of money, new ways to exchange value, intelligent experiences that cut across physical and digital environments, and elevated principles of inclusivity and sustainability changing how we design, build and deliver products. As commerce evolves, so too will payments. Against the backdrop of the Next Economy, changing consumer expectations, emerging technologies and collaborative regulatory engagement will accelerate new payment innovations. This report unpacks signals in today's world to cast light on nine payments innovations that could unfold over the next five to seven years.

A tokenized world

Signals

While consumer demand for simplified and seamless journeys is evident, using wallets today is often a fragmented experience. Consumers routinely need multiple tools to transact or gain access to a service, including physical wallets, identity documents, digital wallets and bank apps, to name a few. Adding further fragmentation is the onset of wallet-like capabilities built into internet browsers, IoT devices and crypto wallets, which can often be challenging to leverage due to complex onboarding. As innovation targets these frictions, digital wallets will evolve into a single point of control for an expanded set of services and activities. Advances include a better way to authenticate any credential, not just payments — portending a day when the wallet will play an outsized role in our increasingly digital lives. The wallet of the future will let users verify identities and manage their data, provide customized financial insights, and act as an "in-store remote" enabling personalized online and in-store experiences. This development, driven by the continued digitization of the economy, is leading us towards always-on, ever-present and ubiquitous wallets. Tomorrow's wallet will consolidate how we use cards, digital identity, house keys, office access cards, passwords, driver's licenses and more.

While globalization challenges are ever-present, restrictions on the flow of payments currently exist across two types of borders — geographic and digital. The former are often jurisdictional, resulting in friction when sending cross-border payments and challenges for banks and commercial entities in settlement speed, costs and risks. The latter, including digital platforms and walled gardens (environments like the Apple App Store and Facebook that control user access to content and services), are due to a lack of payment interoperability between digital ecosystems. Geographic borders Use cases for cross-border payments continue to grow. Today, funds must travel across multiple intermediaries and financial institutions as there are no end-to-end systems across geographies. This leads to higher transaction fees and longer processing times than domestic payments. Liquidity provisioning, currency conversion and settlement of funds take time and are costly. The G20 has set a roadmap for making cross-border payments faster, more transparent and accessible at a lower cost. Implementation is underway, but the difficulty in obtaining consensus amongst many participants has slowed progress, with obstacles arising around messaging, data and compliance. The near-term outcome may be pockets of interoperable geographies (as seen in ASEAN markets) rather than global connectivity. Digital borders At the same time, large digital platforms are arising with integrated payment systems (such as super apps) that are not interoperable from one walled garden to another. (Alipay users can't send money directly to Meta users, for example.) Even as consumer expectations are rising for an enhanced payment experience, demand for data control is a significant constraint on interoperability. Despite these headwinds, private and public sector participants continue seeking solutions to bring payment interoperability. Borderless rails — where the friction in sending payments is reduced or removed — will enable greater access to services across any border and vastly improve how we conduct commerce. This aspirational future will result in elevated economic prosperity for all participants. Two forces could help shape a better cross-border experience: consumer demand and regulatory action. Consumers and businesses expect frictionless payment experiences, and money will flow to services that can cut across borders. Fintechs like Wise, Revolut and others have explicitly focused on these flows. Consumers also want access across digital applications, which could lead to new data regulations that meet these demands and real-time payments that link across walled gardens. Regulators striving for fairness could pressure digital ecosystems to open their borders and enable a better flow of payments. In November 2022, the EU Digital Markets Act (DMA) was a step toward stopping unfair practices by companies that act as gatekeepers on online platforms.

The pandemic boosted the call to strengthen support for unbanked and underbanked consumers and small and mid-size businesses (SMBs) that lack access to adequate credit levels. Historically, these excluded groups have had to rely on alternative and high-cost sources of credit, such as payday loans and check-cashing companies. Inclusive credit will become more prevalent as new technology providers help thin credit, credit invisible and underbanked borrowers gain greater access to relevant financial services. Numerous initiatives have aimed to improve access to credit, but the recent emergence of enablers such as tokenization, connected finance and acceptance will make a profound difference. For consumers, improving inclusion and access to credit requires payment products that effectively meet a broad range of transaction needs, widely available access points, and effective awareness and financial literacy efforts. Today, only about one-third of Americans understand interest rates, mortgage rate and financial risk, according to the Financial Industry Regulatory Authority, denoting a fall of 19% over the past decade. In the future, generative AI could enable novel financial education solutions such as virtual financial advisors embedded in banking apps. Meanwhile, groups such as Operation HOPE are working to improve these metrics by providing no-cost, personalized financial coaching and education, helping consumers raise credit scores, lower debt levels and increase savings. Open banking is also being leveraged to raise credit scores through companies like Experian Boost, Nova Credit and TomoCredit. For SMBs, inclusion improves by leveraging alternative data sources to establish risk profiles and expanding the number of sources available to offer credit. While crowdfunding has been around for 20+ years, a cohort of fintechs is helping SMBs access alternative funding: EquityNet connects entrepreneurs to a network of angel investors, while MicroVentures helps startups in the software, mobile and green-tech segments access capital from accredited and non-accredited investors. In addition, marketplaces have provided micro-loans to help SMBs improve cash flow and grow. Emerging technologies will also support more inclusive credit access. Several AI credit scoring models are being leveraged to make decisions based on alternative data, such as total income, credit history, transaction analysis, work experience and even Google Analytics. These new scoring models will drive a future where SMBs and unbanked people have greater access to credit through tools to underwrite them and perform Know Your Customer processes.

The digital age has brought excellent connectivity to consumers, but also has seen increases in cybercrime and fraud which impede trust and lower consumer confidence. Embedded trust signifies a future where companies differentiate their "trust credentials" through accelerated adoption of new technologies including devaluing data, using encryption and tokenization to make data useless to hackers, and leveraging zero trust architecture (ZTA) to verify identification more accurately. Embedding trust is challenging due to the ever-expanding amount of personal data. This data requires protection and the need to balance resilient cybersecurity at any point of sale with the demand for a fast, frictionless checkout experience. Other examples where this balance is required include account opening processes with too many pages before successful completion or updates to account credentials or passwords. There is a widespread belief that “frictionless” is always the answer. While there is a need to eliminate meaningless friction, consumers may prefer additional verification when transferring large sums of money. In these cases, some friction can be a potent enhancer of trust when designed with purpose in the consumer journey. Another eroder of trust has been the fast-growing dynamic of scams. Greater sophistication by criminals launching personalized scams (romance, investment and credential scams, to name a few) is evolving the front end of money laundering, and lowering confidence in who is on the other end of a transaction. Today, there is another layer of tension between the mandate for companies to protect their customers' data and the value derived from leveraging that data to deliver optimal, hyper-personalized consumer experiences. Privacy-enhancing technologies, or PETs, are upending this traditional trade-off. They let organizations analyze and extract insights from their sensitive datasets without revealing the nature or details of the data itself — even to the analysts. In this way, PETs enable systems that enshrine the principles of data privacy by design, protecting the underlying data and the privacy of the individuals and businesses it represents. At the same time, PETs allow enterprises to use that data safely to build and enhance products, services and customer experiences. (Mastercard's Principles for Data Responsibilities can be found here.)

sales of art on non-fungible token (NFT) platforms as of Dec 2022

$2.6b

of consumers will abandon companies they believe mistreat the environment, employees or the community

of consumers think companies should be actively shaping ESG best practices

89%

of the securitized asset-backed tokenization market is real estate, which can be divided into small shares, enabling fractional investments

Check-out has improved over the last two years, with merchants providing QR codes and pay-by-phone, governments supporting via national schemes, and banks enabling pay-by-account and installment options at the POS. Developments have rapidly evolved alongside the acceleration of digital commerce. As consumers express interest in new and alternative payment options, merchants have widened their acceptance methods to keep up. Despite the reduced friction, there are lingering pain points — merchants still need help with certification, often require physical devices and can struggle with integration. Meanwhile, consumers increasingly expect even more flexibility in what they pay with and how and where they do it. They also need protection against fraudulent merchants, whereby criminals use a fake store to acquire a merchant account and process fraudulent transactions, which raises cyber security headwinds for commerce platforms. To solve these challenges, merchants, telecoms and tech players are working at unleashing acceptance by leveraging new technologies that securely extend payment options. Already, merchants can leverage 5G, cloud, and new devices and points of interaction to eliminate the need for a fixed point of sale. Any mobile device can become a commerce device — imagine never waiting in line again and using voice, biometrics and mixed reality-enabled devices to make payments. These solutions also simplify merchant acceptance rollout, reducing the lag in device certification requirements and enabling more services to be embedded at the POS. Also, a drop in the cost of acceptance infrastructure and an increase in the utility of acceptance services will make it more rewarding for small and micro merchants to accept non-cash-based payments, which will drive greater financial inclusion. The next generation of solutions will likely have more robust capabilities. Soon, merchants and consumers will interact in physical stores via longer-distance communication (see Payments Untethered below). This connectivity will let merchants identify shoppers earlier, enabling hyper-personalization in the purchasing journey. Options to enroll in rewards programs, spend with multiple types of loyalty points, get a digitally issued card, or use a greater variety of assets and tokens for payment will be widely available in-store and digitally. Through improved messaging at check-out, consumers will gain visibility and new data insights, including into whether a merchant is trusted and the sustainability and authenticity of goods and services. Digital identity and biometrics will also help secure acceptance in new channels such as virtual environments. Next-gen wallets will connect consumers to merchants with new digital innovations that increase efficiency and provide tailored experiences to shoppers. For example, Instacart’s new Ask Instacart feature, slated to launch in 2023, will employ ChatGPT to give shoppers detailed answers to questions about food and automate grocery orders from stores in Instacart’s network.

Connected finance

Borderless rails

Ubiquitous wallets

Conscious consumerism

One of the current challenges across digital and physical environments is that payment options are often limited, with a lack of instant access in every channel. In digital environments, for example, consumers may need to toggle between different applications to enable payments or access their financial data. Connected finance is an umbrella term to describe the ability to connect our assets in any environment — digital, physical or virtual — providing universal access to payments and other financial services, powered by open banking and consumer control of data. Open banking enables consumers and small businesses to give access to their financial data to third parties: financial institutions, fintechs and other trusted entities. On the basis of this data, which is provided via API, these third parties can create new banking and payment solutions. For example, Citi’s Developer Hub enables companies like Intuit to connect customers to their Citi accounts via API and leverage authorized data sharing to remove friction from using accounting tools like Quickbooks and Mint. Similarly, Mastercard’s API program has enabled companies like Allstate, Adyen and Accelya to deliver new solutions to their customers. Open Banking extends these capabilities to let non-financial companies offer financial products and services within their applications. The result is friction-reducing experiences in any

Unleashing acceptance

Inclusive credit

Embedded trust

A growing cohort of consumers indicate that they prefer to buy from companies that align with their values across a spectrum of environmental, social and governance (ESG) issues. This global trend, driven by Gen Z and Millennials, portends a world where purpose-driven and local brands will receive an outsized portion of spend. In the past, a lack of purchase options and transparency in product sourcing slowed the advent of conscious consumerism, which entails deliberate purchasing decisions that consumers believe have a positive social, economic and environmental impact. Nonetheless, consumers' awareness is increasing, and spending behaviors will likely catch up. Most people in Gen Z will pay more for products from purpose-driven brands and seek to buy locally sourced and ethically produced goods when possible. Technology will enhance consumers' ability to understand how products are sourced and their environmental impact: QR codes, RFID tags and enhanced packaging can provide information at the point of discovery in-store and online. Early indicators show that companies with high ESG performance ratings tend to be more competitive. They are often more profitable, and their earnings are less volatile. Their ability to stay ahead of this trend comes with challenges and opportunities. In the wake of greater awareness of green-washing — when organizations use misleading or false information to deceive the public about their environmental impact — companies must take legitimate steps toward demonstrating their credentials. This may include rethinking supply chain orchestration and improving the visibility of supplier behaviors. There also are opportunities to reimagine loyalty and align programs with the conscious consumer.

cross-border payments among consumers are projected to grow 225% from 2020 to reach $2.9tn by 2027

In searching for reporting solutions providers, companies should examine how effective they are in collating data from sources both external — vendors and other partners, customers and so on — and internal. They should also determine how easy it will be to integrate a certain provider’s solutions into their tech stack. Flexibility is key.

In 2021, authorities linked Singapore's PayNow service and Thailand's PromptPay retail payment systems so customers can transfer funds between the two countries using a mobile number. This initiative was strengthened in 2022 by a collaboration that allowed customers in Singapore to make digital payments at 8 million points of sale in Thailand by scanning the PromptPay QR code.

of women-owned enterprises with credit needs are unserved or underserved

projected value of contactless POS transactions by 2026

Banks, telecoms, fintechs and governments are partnering across different pilots to explore new solutions: ING joined Samsung and NXP to test UWB technology. Mastercard worked with Payface and Brazilian-based retailer St. Marche to pilot biometric check-out in five locations around Sao Paulo in 2022. In November 2022, Malaysia, Singapore, Indonesia, Thailand and the Philippines agreed to integrate their QR code payment systems to let people pay throughout the region by scanning QR codes.

$9.8t

Today, consumers pay for goods and services primarily using fiat currencies or by accessing various forms of credit. They can use loyalty points in rewards platforms or in-game currencies within digital gaming environments. However, significant friction exists when exchanging items of value between these physical and digital worlds. Additionally, consumers may own other less liquid assets that are viable as a source of payment but not easy to access or use. One solution to unlocking the trapped value in things we own is to leverage tokens. We are used to thinking of tokens that mask or protect sensitive data, e.g., credit card numbers. However, security tokens, non-fungible tokens and currency tokens have extended the types of assets most likely to be tokenized in the future to include stocks, bonds, real estate, digital assets (e.g., a tweet or in-game item) and currencies (crypto, stablecoins and CBDCs).

The global tokenization market could reach $24 trillion in financial assets alone by 2027. An early sign of tokenization's overall potential has been the NFT market: There are more than 11 million NFTs in existence today. Despite the hype cycle in this space, NFTs are a novel way to digitize assets and denote ownership of goods — with the potential to revolutionize how value is created and exchanged between consumers and businesses. Another innovation is the hybrid token, which combines elements of payments, utility and assets in a single unit. For example, a hybrid token for cloud services could let users pay fees, access cloud storage and even vote on technology policies enacted by the service provider.

Follow the money

Payments untethered

Early enablers of liquidity

Next-gen digital wallets will be vital in managing our identities and assets, including a wide variety of tokenized valuables. They will feature prominently throughout our daily lives, enabling access to services and payments in any environment.

Companies can demonstrate their environmental commitment by embedding information into payment applications that helps consumers make more eco-friendly spending decisions. Swedish fintech Doconomy, for example, was one of the first startups to offer mobile banking services designed to affect behavior and reward sustainable consumption. Mastercard collaborated with Doconomy to develop the Carbon Calculator, which enables financial institutions and merchants to embed carbon tracking inside their apps so consumers can view the estimated carbon footprint of all their purchases. Bangor Savings Bank, a consumer bank based in the U.S., uses its rewards program to benefit its customers and their communities. Their Buoy Local program is a community-focused initiative that helps local and independently owned businesses drive sales by empowering them with modern mobile engagement and loyalty strategies.

Just as omnichannel retail has transformed how we shop, emerging technologies will expand the ways and places we pay — in stores, arenas, train stations, online games, super-apps, smart cities, metaverses and more.

Our understanding of value and of the range of assets that can be exchanged between parties continues to expand. We have moved from exchanging the cash in our pockets and the balances in our bank accounts to include newer assets such as loyalty points, data, digital goods, rights and new currencies. Asset tokenization provides access to this greater range of assets whilst also promoting trust and security in the exchange itself. As we move towards a tokenized world consumers and businesses will be able to use, combine and exchange new forms of value, unleashing trapped wealth and creating new business models.

Payment rails, the connective networks that enable the movement of money, will break through current barriers that limit the exchange of goods, services and data across both geographic borders and digital marketplaces.

Check-out at the point of sale (POS) is on a transformative path, driven by new technologies and payment options. Merchants will have more flexibility in acceptance and consumers will benefit from a vastly elevated experience and set of services.

Consumers will increasingly reward companies that tangibly support their social, ethical and environmental objectives.

New marketplaces and services will emerge to provide credit to the underbanked and bolster under-financed communities globally.

As the occurence and impact of fraud and identity theft increase with more digital interaction points and associated vulnerabilities, trust will become a critical point of differentiation for companies. Those who win and maintain consumer trust will capture a more significant share of payment flows.

To learn more about changing ideas of value and money and their implications for businesses, individuals and society at large, please look out for the Q3 2023 issue of Mastercard’s thought leadership publication Signals, which will explore the topic of reimagined money.

Read more about Mastercard's activity in this space

Produced by Mastercard Foundry

1.3b

users

900m

users

421m

507m

users

377m

in a survey of nearly 2,000 consumers in North America and Europe, 59% said they would not do business with a company that experienced a cyberattack in the previous year

Sources 1. CBInsights, who is tokenizing digital assets for institutional investors to buy and trade? Oct 2022 2. Economic Times India: Tokenization of fine art a revolutionary development in the art industry Dec 2022 3. CBInsights, who is tokenizing digital assets for institutional investors to buy and trade? Oct 2022 4. Nonfungible.com 5. Atlantic Council, CBDC Currency Tracker 6. Global X ETFs: Exploring the disruptive potential of smart contracts 7. JP Morgan: Programmable payments automation becomes reality 8. Technode Global: DBS introduces programmable money live pilot for government vouchers 9. Novopayment.com: The golden opportunity of Digital Wallets, Nov 2022 10. FIS Global Payments Report 2023 11. Afar Magazine: Apple’s New TSA-approved ID coming to numerous US airports 12. Investopedia.com: what is early warning services, Jan 2023; Techwire Asia: Alipay is still the most popular digital wallet in the world; Payu.com: 14 most popular ewallets around the world; techtarget.com: Top digital wallet companies 13. Citi Developer Hub 14.Mastercard. The Future is here: majority of consumers embrace open banking to power digital financial experiences , Dec 2021 15. Open Banking Tracker 16. Open Banking.org, 5 million users – open banking growth unpacked 17. Pymts.com, Embedded finance will reach a $7tn value globally in the next 10 years 18. Forbes, Embedded finance- what it is and how to get it right 19. Mastercard Signals: Reimagining Digital Commerce 20. European Commission, Digital Markets Act 21. Juniper Research, Total value of remote payments for physical and digital goods cross border 2022 22. Juniper Research, B2B Payments report 2022 22b. Interoperability in payments: for the old and the new? Speech by Mr Agustín Carstens, General Manager of the BIS, Singapore Fintech Festival, 8 November 2021 23. MAS.gov.sg: Singapore and Thailand launch world’s first linkage of real-time payment seconds 24. Channel News Asia, Singapore's PayNow links up with India's UPI for real-time cross-border payments 25. Juniper research, POS Terminals, Competitive Landscape, Device Innovation & Market Forecast 2021-2026 26. Bleesk.com/ UWB blog 27. Grandview Research: Biometric Payment Cards Market Size - 2022-2030 28. FIS Global Payments Report 2023 29. Computerweekly.com: ING pilot project tests payments from phone to phone 30. Mastercard Perspectives - Brazil biometric verification, 2022 31. Thailand Business News - Indonesia, Malaysia, Philippines, Singapore and Thailand sign MOU on cross-border payments 32. Financial Industry Regulatory Authority, US 33. Business News Daily: Crowdfunding small business 34. Kaiser, Small business Installments Opportunity Analysis 2021 35. Straits Research, Microlending market 2022-2030 36. Weforum.org: This new approach to credit scoring is accelerating financial inclusion, 2021 37. PR Newswire: Survey finds the double tap – two ways Gen Z will pay for purpose 38. MSCI.com: ESG 101 – what is ESG, ESG and performance 39. Kantar 2021 US Monitor: Great reset meets great review, 3 trends to watch and accelerate growth 2022 and beyond 40. Beyond compliance: Consumers and employees want business to do more on ESG, PWC, 2021 41. Statista - cybercrime expected to skyrocket in the coming years 42. Arcserve.com – arcserve research uncovers links between ransomware consumer purchasing behavior and brand loyalty 43. Gemalto: Majority of consumers would refrain from doing business with companies following a data breach 44. Okta.com: Governments are ahead of the curve in deploying zero trust networks 45. Global news wire: The Zero trust securities market

19%

16%

13%

15%

stolen or compromised credentials

phishing

business email compromise

vulnerability in third-party software

cloud misconfiguration

malicious insider

physical security compromise

system error

social engineering

accidental data loss or lost device

4.4b

analysts expect 4.4bn unique digital wallet users by 2025 - more than half of the world's population

$2.9t

long-distance payments: Ultra-wideband (UWB) technology lets consumers make contactless payments from up to 200 meters

the global biometric payments market is projected to grow at a rate of 62% CAGR from 2022 - 2030

Digital wallets are now the leading payment method globally at POS (32%), in addition to e-com

Opportunities to empower

$350b

projected value of the global micro-lending market by 2030, growing at a CAGR of 13.7%

the expected global cost of cybercrime by 2027, surging from $8.4t in 2022

$24t

Causes of data breaches

Payments without borders

Increasing adoption

B2B cross-border payments are set to exceed $40t by the end of 2024

$40t

The World Economic Forum recently introduced an alternative credit scoring (ACS) model for unbanked people and merchants who lack the financial data traditionally used to evaluate credit applications. ACS bases credit decisions on the applicant’s electronic transactions, utility payments, cellular data and social media history — creating opportunities for people historically excluded from financial systems. Accion, a global non-profit, makes equity and quasi-equity investments in fintech startups, microfinance institutions and other financial service providers. It aims to identify products and services that benefit the world’s 1.8 billion financially underserved individuals, prioritizing investments in Asia, Latin America, sub-Saharan Africa and the United States.

2021

The digitization of everything

Zero trust requires all users — inside and outside the network — to be authenticated, authorized and continuously verified before being granted access to anything. Compared to companies, government agencies have taken the lead in deploying Zero Trust strategies and technologies (72% vs. 55% surveyed) to identify users better and increase trust in networks. Governments have also led in exploring the use of digital identity to drive inclusion and access to public sector service offerings. So it's not surprising to see early projections that the Zero Trust securities market will reach $60.7bn by 2027.

The market for providing financial services through other applications could double in value from $3.6 trillion in 2020 to $7.2 trillion by 2030. More than four out of five companies implementing these services say they have increased customer acquisition and engagement. Digital players embedding the relevant financial tools throughout a consumer journey have been the early movers here — enabling consumers to open a bank account within Instagram, for example, or instantly use a digital issue, co-branded card during checkout. Marketplaces and super apps such as Amazon, WeChat, Grab and Rappi have all integrated financial solutions for their customers or merchants or both, and new players are emerging with a dedicated focus in this space.

Many entities are pursuing the digital wallet that does it all. While tech players have led digital wallet use, the phenomenon of super apps has continued to expand globally. It is emerging as the next battleground for players such as Amazon, Rappi and Grab as well as tech giants Apple and Google. Meanwhile, global banks are teaming up to launch competitors, such as the recently announced wallet managed by EWS, a fintech co-owned by Bank of America, Chase, Wells Fargo, Truist, Capital One, PNC and U.S. Bank.

Fintechs are helping SMBs access alternative funding: One built a platform connecting entrepreneurs to a network of angel investors, while others have developed corporate crowdfunding platforms. In addition, marketplaces have provided micro-loans to help SMBs to improve cash flow and grow.

Enhanced micro-lending

Buy-now-pay-later solutions for SMBs

AI-driven credit-scoring models

Payments with purpose

Partnerships in acceptance

Accelerating credit inclusion

Trust no one

Bank anywhere

The cost of losing trust

250m

potential users

consumers believe businesses don’t do enough to protect customers’ personal information

7/10

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The next generation of services providing inclusive credit includes:

In 2023, Singaporean and Indian authorities announced the launch of a link between the two nations' real-time payment systems to let participating banks offer their customers smoother, cost-effective and secure cross-border transactions between bank accounts or digital wallets.

2023

While tokenization is not new, extending this technology to cover more real-world assets over the next five years will transform how we conceive of value and what we use for payments. The result could be a broader set of payment options for consumers. At the same time, banks, digital players and merchants will discover opportunities to create business models to support new value exchanges.

Outlook

The promise of connected finance is just starting to unfold. As digital commerce expands, the ability to provide instant access to financial services at scale will enable consumers to bank and pay from anywhere in any channel. Banks will benefit from greater reach through partnerships and merchants will be able to offer more options in their commerce experiences.

Outlook

Apple wallet IDs are accepted in three US states (with seven more underway) and are TSA-approved

While today's mobile wallets store tokenized cards and account information, tomorrow's super wallets will move beyond the single-function app approach and become command central for our daily lives. Given the level of competition and regulatory oversight, no one wallet provider is likely to dominate. Banks and digital players competing in this space will advance by providing increased utility and seamless experiences, delivering on the promise of one wallet to manage everything.

Outlook

The demand for faster and more convenient payment services is growing among consumers and businesses. While "fast payments" exist in at least 60 countries, they’re often a unilateral proposition, with services available within a country but not integrated with other nations. Multilateral cross-border systems are more challenging to orchestrate because they require cooperative governance. However, there are a few early explorations linking real-time payments bilaterally.

Today, some governments are moving further from this future with data localization policies and mandates to use local rails. By the decade's end, however, we could see the dual forces of consumers and businesses (demanding integrated multinational access) and regulators (pushing digital ecosystems) drive cross-border payment interoperability.

A purpose-driven future

With greater awareness in the near term, we expect accelerating momentum in purpose-driven payment flows as consumers favor businesses that realize ESG or net zero goals, are locally sourced and operate ethically. Banks and merchants that demonstrate that they can align their products and services with the customer's values will outperform cohorts that don't evolve with the conscious consumer.

Outlook

Greater and more inclusive access to credit will accelerate in the near term, potentially transforming the lives of the excluded and powering global economic growth. Banks, fintechs and other digital players that can provide more equitable and inclusive credit will also benefit from additional growth opportunities.

Outlook

Global wallet growth

2. Connected finance

1. A tokenized world

3. Programmable payments

4. Wallet-takes-all

5. Borderless rails

6. Unleashing acceptance

7. Conscious consumerism

8. Inclusive credit

9. Embedded trust

Summary

payments made from digital wallets will account for 54% of global e-commerce transaction value by 2026

Protecting customers is becoming table stakes due to regulations. By the end of the decade, companies that earn and maintain trust with both customers and regulators will have the opportunity to commercialize that trust by extending their business models and differentiating themselves from competitors.

Money will include tokenized assets and other new forms of value.

A tokenized world

Complex, conditional commercial payments will be automated to speed commerce.

Programmable payments

Next-gen e-wallets will manage our identities, assets, payments and more.

Ubiquitous wallets

Our assets will be accessible in any environment.

Connected finance

Payments will break through today’s geographic and digital boundaries.

Borderless rails

Next-gen points of interaction will drive new ways for consumers to pay.

Unleashing acceptance

New financing solutions will empower underbanked people and communities.

Inclusive credit

Consumers will increasingly spend with companies that align with their values.

Conscious consumerism

Trust will become a critical point of differentiation for companies.

Embedded trust

Banks are challenging tech giants for wallet share

In the next few years, we can expect a proliferation of acceptance options and new interaction points to permeate consumer experiences. The implications will be far-reaching — from expanding financial inclusion to enabling large groups to access mass transit, stadiums, etc., with no queue. Innovations in acceptance will provide a cost-effective way for merchants to unlock new revenue opportunities and meet consumer expectations for speed and convenience.

Outlook

Programmable payments could evolve from niche use cases to become an industry norm by 2030. Embedding messaging and other value-added services such as cybersecurity and Know Your Customer verification will lead to more intelligent and contextually relevant payment options. The net effect will be a significant reduction in operational costs for preprocessing, reconciliation and exception handling and improvements in speed and service to customers for both commercial and consumer flows.

Outlook

Today, businesses frequently cite challenges in managing complex payments, with widely acknowledged complaints that current processes are slow, cumbersome and inefficient. Many have touted programmable payment flows as a solution. Already, payments are commonly programmed to occur automatically around certain simple conditions. For consumers, this could be a bank app that pays the mortgage on the first of the month or a media outlet that bills your credit card to renew a subscription. Practical as it is, this is a very elementary level of programmability. Of course, commercial needs are more complex: For example, payments for large supply chains with multiple participants require more advanced automation. Programmable payment solutions are now emerging with greater capabilities. They can connect business events together through APIs and leverage artifical intelligence and smart contracts to execute more complex payments across multiple recipients. They can also be used to execute machine-to-machine interactions, automating exchange between connected devices. Commercial use cases include supply chain transactions and royalty payments. In logistics, for instance, automated payments could be released to suppliers when on-site sensors verify deliveries. In marketplaces, content creators could be paid in real-time with variable royalties based on the channel (mobile, app or in-person). These capabilities let entities manage liquidity more efficiently and reduce back-end processing time and costs. Programmable payments could also enable us to expand existing business models like pay-per-use or leasing. Instead of buying capital-intensive machines we could lease them and pay based on a set of predefined criteria like usage, emission levels, total running time, total idle time etc. A programmable payment could be periodically triggered to gather this data, generate an invoice based on the agreed contractual conditions and then automatically deduct the payment from the digital wallet of the lessee and credit it to the lessor. Cyber attacks are one of the biggest threats to programable payments, and attacks are increasingly automated to penetrate new endpoints. With more participants connected to a programmable platform, there are also increased vulnerabilities through ransomware and malware, posing threats to this nascent ecosystem. New security capabilities must evolve to bring trust in an automated way. Governments are also exploring how to build programmability into money itself via central bank digital currencies (CBDCs). CBDCs act like traditional banknotes but come in a programmable, digital form and hold the promise of lower costs, greater efficiency, improved access to financial services, and greater transparency and accountability in financial flows and payment systems. However, CBDCs also introduce new risks and have a higher degree of technical and regulatory complexity.

APIs, smart contracts and artificial intelligence will combine to enable business logic typically executed before or after the payment to be coded into the payment itself. These programmable payments will create new efficiencies and deliver heightened customer experiences.

Programmable pilots

Various projects are exploring programmable payments from different perspectives. Some examples include: J.P. Morgan and Siemens AG have tested programmable payments since late 2021. Following pre-programmed rules, commercial payments are made automatically, removing the need for human intervention and optimising the use of liquidity buffers during staff downtime, such as weekends, bank holidays and overnight. Singapore-based DBS announced a partnership in October 2022 to run a pilot in which purpose-bound money-based vouchers are issued using tokenized Singapore dollars (SGD) to pay merchants instantly, doing away with the need for back-end reconciliation and increasing productivity and efficiency. The pilot is part of an industry effort led by the Monetary Authority of Singapore (MAS) to develop a programmable digital SGD.

A smarter mousetrap

114

central banks representing 95% of global GDP are exploring CBDCs

~152,000

in 2022, an estimated 152,000 smart contracts powered roughly 11,000 decentralized apps, aiding in the execution of 28.5m transactions daily

Programmable payments

of U.S. consumers connect their bank accounts to other apps using open banking today

>100

countries have established open banking through regulation or market activity

~$116b

open banking is expected to scale at ~25% CAGR over next ~3-5 years to a market size of ~$116B in 2026

Accelerating connectivity

REIMAGINING MONEY

INTELLIGENT EXPERIENCES

SUSTAINABLE FUTURES

Intelligent Experiences

SUSTAINABLE FUTURES

Reimagining Money

digital context: a buy-now-pay-later button to offer credit within a retailer’s shopping app, an e-commerce merchant providing insurance at checkout, or, soon enough, generative AI chatbots dispensing advice in money management apps. Klarna has announced an integrated plugin for ChatGPT that will enable users to ask the platform for shopping advice and receive product recommendations and links to shop for those products. These new capabilities portend a future where financial services could be delivered and distributed via multiple channels, making our assets more accessible in any environment. Messaging apps are another area where connected finance is delivering new payment capabilities. Platforms like WhatsApp are enabling their massive user base to send P2P payments, resulting in rapid growth in social and conversational commerce. Factors that will accelerate the adoption of open banking include establishing consumer confidence in data sharing, upgrading legacy banking systems and using AI to enhance the utility of the underlying data and to improve automation and fraud management.

2021

2023

2021

2023

2021

2023

22b

The process of tokenization masks sensitive data, which improves security and boosts user confidence.

Tokenization can be used to standardize the attributes of the asset, which enables interoperability amongst parties to an exchange e.g., consumers could securely exchange tokens that include their data, while banks and merchants could provide acceptance because the tokens are standardized and exchangeable.

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digital wallets are now the leading POS payment method, at 32% as of 2022

Q2 2023

Reimagining money

The definition of money is expanding to include non-traditional assets such as data, cryptocurrencies and digital goods, changing how we exchange value.

Consumer journeys will be transformed as our physical and digital environments converge and become more connected and intelligent and deliver hyper-personalized experiences.

Intelligent experiences

Societal and environmental changes are going to have a significant impact on how companies are valued by their stakeholders and move ESG strategies from the boardroom into how products are designed, built and delivered.

Sustainable futures

The underlying technology further increases the utility of assets in two ways:

A tokenized world characterizes a future where almost anything can be represented as a discrete digital token. The emerging applications could lead to new assets serving as payment instruments, changing how we conceive of personal property and delivering greater financial flexibility. Tokens enable the exchange of alternative currencies, physical assets and personal data seamlessly and securely — even ownership rights and behavioral data. They also allow "fractionalization," which opens the door to partial ownership of expensive items or physical items that previously couldn't be subdivided — houses, container ships or even asset classes like art or fine wines. The tokenization of financial and private market assets can also bring liquidity to the investor class. Citi estimates that tokenization could "grow by a factor of over 80x in private markets and reach up to around $4 trillion in value by 2030." The bank estimates that holdings of institutional debt, real estate, private equity and venture capital will increasingly be tokenized asset classes.