The Future of Payments

KA2018-02
Mar 2018
The Future History of Payments

How the world is moving away from cash
A report from Kapronasia sponsored by Finastra
Table of Contents
Introduction 3
Key Findings 4
Recommendations 5
The Role of the Regulators 15
Regional Differences 16
The Role of Technology 28
The Role of Traditional Finance 35
The Future History of Payments 36
Conclusion & Closing Words 38
Appendix: Sources 39
Methodology
The Future History of Payments whitepaper from Kapronasia and sponsored by
Finastra is based on both primary and secondary research. Secondary research
sources include both internal and external public and private databases. Primary
research includes interviews with bankers, financial institutions, technology providers
and industry experts involved in the payments industry.
Kapronasia & Finastra - The Future History of Payments Page 2

Introduction
Even as the entire financial industry changes rapidly, nowhere has the change been
as evident as in the payments segment. Around the world, banks, consumers, and
businesses are making a shift in the way they exchange value.
Technological advances such as more affordable smartphones and the growing

footprint and speed of mobile telecommunications networks have enabled this shift
as have social-economic factors. In China, digital payments have underpinned the
development of lifestyle platforms that are used by hundreds of millions of individuals
every day. In Africa, digital payments have created security, transparency and
economic empowerment for millions of farmers, merchants, and individuals who
often live in remote locations.
It is clear that the world is shifting digital, but how and where it is happening is also
critical. There are a unique set of circumstances that have enabled change in China.
Could those same factors influence change in the United States? Change in Africa
was driven by the need to bank the unbanked. Could the African case-study hold
lessons for a well-banked European continent?
These are critical questions for anyone in the financial industry as they consider
future strategic business and technology decisions.
To address these issues, we are pleased to bring you a Kapronasia report sponsored
by Finastra entitled the Future History of Payments. Based on both primary and
secondary research, the report is one of the most comprehensive studies published
looking at the future of global payments.
The report starts by taking a look at where payments are today and the key trends,
issues, and opportunities that the industry faces. The paper then takes a brief look at
the trends that are shaping payments regionally around the world. Finally, we take a
look at the future of payments, including the technologies and business models that
are likely to dominate the future.
We hope you find this report as enjoyable to read as it was for us to research.
Zennon Kapron
Director
kapron
ASIA

Key Findings
• Non-cash payment volumes are growing as the world moves digital. This shift
is driven by increased usage of mobile payments worldwide, especially in developing
markets. Non-cash payments will reach 65% of all payments in China and 45% in India
by 2020.1 Despite this growth, cash remains essential for many countries: particularly
in Africa and South America, where consumer habits and ongoing infrastructure
developments limit mobile payment expansion.
• Socioeconomic conditions have driven the shift away from cash, specifically in
developing markets. Digital payments can increase the transparency and security of
transactions, which can make a huge difference in developing nations. This adds to other
benefits including supporting financial inclusion and economic empowerment. Studies
in India have shown that moving from cash to digital has dropped benefit payment
‘leakage’ from 30.7% to 18.5%.2
• China leads a global rise in mobile payments. China’s mobile payment market is
expected to grow at a CAGR of 35.1% from 2016 to 2022, as compared to 33.4%
globally.3 Although this trend started in Asia, the international reach of the China's tech
giants like Ant Financial continues to grow, challenging incumbents in Europe and the
US who must innovate to stay competitive. Alibaba's recent acquisition of 33% of Ant
Financial is a further indicator of the company's international ambitions.
• The global payment industry’s business model is becoming data-driven, but will
be constrained in places due to regulation. The payment industry’s business model
is moving from fee-driven to data-driven, as companies like Tencent create lifestyle
platforms with a myriad of products and services on the front end, while payments and
big data run seamlessly in the background. This shift in revenue model will be tricky in
regions like Europe, where the PSD2 regulation is opening up new business models, but
GDPR will strongly constrain the potential uses of data.
• A.I. and machine learning will further streamline back-end payment processing.
Despite the hype, A.I. and machine learning will be integral to the payments industry,
operating mainly in the background to make the payment process more seamless and
intuitive. On the other hand, IOT and Augmented Reality will be more apparent as they
change the user experience and integrate mobile payments into consumers' lives.
• Real-time payments will continue to develop globally, but the focus will shift to
new value-added services built on top of the basic infrastructure. An example of
this is Singapore and Thailand implementing real-time cross-border payments between
the two countries. Both countries have launched real-time payment systems and are
now building on top of them to create more value for the customer and open up new
revenue opportunities for the organizations.
• Regulations will create new opportunities, but not without constraints. New rules
and regulations will affect the market in different ways. Governments and regulators are
often positive forces behind initiatives like real-time payment systems, yet at the same
time, can constrain industry growth, such as global regulations like FATCA and domestic
regulations that limit account opening in places like HK and Singapore.
1 Kapronasia Analysis
2 Sanjeeb Mukherjee, “Smart cards cut fund leakage in MGNREGA by 12%: Study”, Business Standard, published 3 April 2014, accessed
16 January 2018, http://www.business-standard.com/article/economy-policy/smart-cards-cut-fund-leakage-in-mgnrega-by-12-
study-114040201339_1.htm
3 Allied Market Research, “Mobile payment market by mode of Transaction, Types of Mobile Payment, and Application”, Allied Market
Research, published January 2017, accessed 16 January 2018, https://www.alliedmarketresearch.com/mobile-payments-market

Recommendations
Every organization, institution, and company is on their own journey of payment

innovation and development, thus there is no one set of recommendations all
organizations. However, this study identifies some vital overall recommendations:
Cross-border expansion – We are increasingly watching domestic champions

expanding internationally, in particular, China’s tech giants Ant Financial and
Tencent. Although most of their international development has focused on
payment acceptance, Alipay and WeChat Pay are launching local-currency
wallets which will pose a competitive challenge to incumbents. Although Asia
may seem geographically far away, paying attention to the expansion of China’s
tech players is critical.
Public-private partnerships are essential – Examples abound around the

world of how relationships between governments and the private sector have
aided or hindered the development of payment innovation. Developing working
relationships between governments and the private sector is crucial for continued
payment innovation, especially as many new projects are state-driven.
Technology for technology’s sake – Twenty years ago, the idea of the Chief
Information Officer having a seat in senior management meetings would have
been hard to imagine. Today, technology has become an essential enabler for
business growth, but organizations need to balance innovation with the sensible
use of technology. Blockchain technology may be elegant but is not a solution to
every problem. Augmented reality might be the new frontier but is meaningless
if customers do not use it. Understanding the applicability and proper usage of
new technology is critical.
Socio-economic factors – A critical driver of the uptake in digital payments

are social economic factors within different countries. These can be financial
inclusion indices, customer habits, or historical industry development. These
vary significantly by country, but understanding them and accounting for
them is critical for being able to understand customers and potential market
opportunities better.
Open banking – A move that has been termed API banking, banking-as-a-
service or open banking, this shift to open banking standards is happening
around the world. In Europe, this is being driven by the PSD2 and through
individual country efforts in other geographies. The shift is inevitable, and it is
crucial that every bank and player in the payment space consider their strategy
for how to deal with open banking.

A Brief Timeline of Payments
2000-Today
2017 IBM launches a cross-border payment system on blockchain technology.
2017 Mastercard issues blockchain payment system for B2B transactions.
2015 EU Parliament adopts Payment Service Directive 2 (PSD2).
2011 Google launches Google Wallet, a mobile wallet.
2008 Satoshi Nakamoto publishes the Bitcoin whitepaper.
2007 Mastercard introduces RFID based PayPass payments.
2007 IOS and Android mobile operating systems launch.
2007 EU Parliament adopts Payment Service Directive (PSD).
2004 Alibaba launches Alipay.
1975-1999
1999 The Euro currency is introduced.
1998 PayPal is founded.
1997 First mobile payment is sent via SMS to a Coca-Cola vending machine.
1994 The first online purchase is made to buy a Pizza Hut pizza.
1994 Amazon launches.
1980s POS RTGS launches in many countries.
1950-1974
1974 French engineer invents the first Integrated Circuit (IC) card.
1974 Electronic credit-card terminals start to replace paper-based systems.
1974 SWIFT launches cross-border payment messaging.
1973 Japan implements real-time payments.
1973 SWIFT is set up by 239 banks in 15 countries.
1958 Bank of America issues first credit card, later becomes VISA.
1950 The Diners Club Card appears in America.
1900-1949
1949 International Monetary Fund launches; form of gold standard effectively resumes.
1933 Suffering from the Great Depression, US gives up on gold standard, USD depreciates 33%.
1930 The Bank of International Settlements is established in Basel Switzerland.
1929 Start of Great Depression
1914 U.S. Federal Reserve System setup as central bank of the United States.
1800s
1891 American Express launches the Traveler’s Check.
1873 The United States formally moves onto the gold standard.
1834 The United States informally starts to use the gold standard.
History
1717 The United Kingdom adopts the gold standard.
1575 French copper coins become the first true minted coins in the West.
1408 Casa delle compere e dei banchi di San Giorgio becomes Europe’s first modern bank.
960 First Paper Currency Appears in China.

The Present History of Payments
Payments, in their most basic form, are a way of transferring value from one person
to another. Millennia ago, in a less developed world, bartering was a critical form of
trade. Payments, in those days, would have consisted of actual products like grain
or fish. You sold a fish, and your payment was grain.
As the world became more interconnected, and as trade increased, the need for
commonly agreed sources of value arose. This change shifted us as a society away
from barter, to a system of payments based on instruments of value, like stones,
beads, or gold, and eventually the coins and notes that characterize physical
payments today.
Paying with cash is simple as it typically involves the exchange of physical currency
in a face-to-face transaction. However, there are some downsides to this oldest form
of payment.
Firstly, carrying around large amounts of money can be physically challenging and is
not always safe. In particular countries, such as Venezuela, the currency has devalued
so much that a simple US$5 equivalent ATM transaction will result in a fistful of bills,
which is not very inconspicuous nor safe.
Secondly, printing, moving, and handling money is costly. The cost of cash across
a typical retail value chain - including the government, banks, merchants, and
consumers - is approximately 13.2% of the total value of the physical currency on
average.4 For governments, this cost includes printing money, distributing it and
replacing it. To manage physical currency, banks need vaults, teller windows, ATMs,
and all the related expenses. Merchants incur security, transport costs and potential
lost interest when money is not in the bank. For the end consumer, physical cash
can be stolen or lost.
Finally, cash is often impractical for both large value transactions and transactions
across distances, again, because of the challenge of moving significant sums of
physical currency.
Thus, although cash is nearly universally accepted, these challenges prompted

economies to develop alternatives such as the check.
The Rise and Demise of Checks

Similar to many other forms of payment, there is no clear consensus on when the first
checks were used. According to most history textbooks, the first extensive use of
checks was in Holland in the early 1500s. Then, Amsterdam was a major international
shipping and trading center, and merchants and traders began depositing it with
“cashiers,” who operated similarly to a bank and would take and hold cash for a fee.
This was the first use of a ‘written instrument’ to transfer value, and the payment
method was soon used in other countries including England in 1780.
A few decades ago, checks were an essential instrument of payment, but today
they are rapidly declining in use, to the point that few in the younger generation
know what they are. The use of checks in the US peaked in 1995 with 49.5 billion

check payments, and has since declined to 40 billion in 2000 and 17 billion in 2015.5
Checks are still used in certain nations and scenarios. The US maintains its love of
checks: each American wrote an average of 40 checks in 2015.6 Certain countries,
including China, still use checks for commercial transactions.
Given the prevalence of digital payment methods, it’s no wonder that checks are
losing favor. The original idea of transferring money via a paper-based instrument has
long been surpassed by technology that achieves the same result, but in a fraction of
the time. One of the first forms of these payments were credit cards.
Figure 1: The fall of checks worldwide

The US has always been, and remains, the world's biggest user of checks.
180
160
140
Checks used per capita
120
100 US
UK
80
France
60 Australia
Canada
40
20
Source: Bank of International Settlements, European Central Bank, Reserve Bank of Australia
The Introduction of Plastic

Although credit cards today mostly run across digital networks, the original concept
was similarly paper-based. According to the accepted industry explanation, the idea
for a charge card was conceived in 1949 by Frank McNamara. McNamara was
having dinner with clients in New York City and when it came time to pay, he realized
that he had left his wallet at home which meant that his wife had to pay. McNamara
returned to the same restaurant a few months later in 1950 and paid for the meal
using a cardboard “charge card” and a signature, which is considered to be the first
‘card’ transaction.
In 1951, American Express launched the first credit card, and acceptance across the
US increased as its usage spread to other geographies. In 2014, global credit card
penetration reached 17.8% as compared to 16.8% in 2011, which represents over
50 million new global cardholders.7
5 Federal Reserve System, “The Federal Reserve Payments Study 2016”, United States Federal Reserve System, published 22
December 2016, accessed 16 January 2018, https://www.federalreserve.gov/newsevents/press/other/2016-payments-
study-20161222.pdf
6 Committee on Payments and Market Infrastructures, “Statistics on payment, clearing and settlement systems in the CPMI
countries”, Bank for International Settlements, published December 2016, accessed 16 January 2018, https://www.bis.org/
cpmi/publ/d155.htm
7 Worldbank Findex

Figure 2: Credit card usage is still growing but slower than before
Global credit card transaction value (USD billion)
12,000
11,284
10,655
10,000
9,130
8,000
6,000
4,000
2,000
-
2014 2015 2016
Source: Nilson Report, Kapronasia Analysis
Figure 3: Transaction volume also slowing

Global credit card transaction volume (billions)
140
117.2
120
105.9
100
92.7
80
60
40
20
-
2014 2015 2016
Source: Nilson Report, Kapronasia Analysis
Credit cards removed friction in card-present transactions, but e-commerce

prompted the need for online transactions.

Moving Online
Although there were initial forays into online payments by companies that were
using ‘electronic cash alternatives’, such as e-money, digital cash or tokens, the real
breakthrough came in 1994 when the first transaction was made through a online
food ordering system that Pizza Hut had launched in 1994.8 Customers could fill out
a simple HTML form online and when they clicked send, the order printed out at the
store they were ordering from.
In 1998, Confinity, a company that developed security software for portable devices,
launched. In 1999, Confinity introduced a money transfer service called PayPal,
which today is a publicly listed company that processed US$114 billion payments
in Q3 2017.9 A significant amount of their business also comes from China cross-
border online payments.
Although online payments have proved incredibly popular and have helped drive the
growth of the e-commerce industry, the real game changer was mobile.
8 Pizza Hut, “Pizza Hut Celebrates 20th Anniversary of World’s First Online Purchase with 50 Percent Off Online Deal for Hut
Lovers Members”, PR Newswire, published 2 January 2014, accessed 16 January 2018, https://www.prnewswire.com/
news-releases/pizza-hut-celebrates-20th-anniversary-of-worlds-first-online-purchase-with-50-percent-off-online-deal-for-
hut-lovers-members-238428021.html
9 PayPal, “PayPal Reports Third Quarter 2017 Results”, PayPal, published 19 October 2017, accessed 16 January 2018, https://
investor.paypal-corp.com/releasedetail.cfm?releaseid=1044634

Payments in Your Pocket
The first mobile payment was, oddly enough, facilitated by Coca-Cola. In 1997, a
customer could send a text message to specific Coca-Cola vending machines to pay
for their drinks. The machine would receive a signal when the SMS was sent, and the
can of soda would be released with the charge then showing up on the user’s mobile
phone statement – also one of the first uses of carrier billing. SMS continued to be
used sporadically but struggled due to their high-cost, lack of security, slow speed
and poor reliability.10
As phone technology improved, ‘remote’ mobile payments started in the early 2000s,
enabling users to purchase goods and services on their mobile phone, using a mobile
browser or mobile wallet. Remote mobile payments solved many of the challenges
of SMS payments, but were principally limited in their application to m-commerce
transactions.
Despite the continued growth of remote mobile payments, ‘proximity’ mobile

payments struggled to take off. One of the main challenges was the hardware
communication standard.
Alipay and Tenpay (Tencent’s online payment platform) were making inroads in
online payments, they had yet to break into offline proximity payments because of
the monopolistic control of China UnionPay and the mobile operators. QR codes
however, offered a viable solution. The codes were secure, easy to use, were already
familiar to customers, and most importantly, are hardware independent. QR codes
caught on, and now represent nearly 90% of all transactions on certain segments of
the market.11
10 Although rudimentary at the time, the use of text messages has continued to play a role in the global mobile payment
market especially in Africa where feature phones are much more prevalent that smartphones. Carrier billing too has had
a bit of a renaissance in the past few years around the world as an alternative form of payment, especially in emerging
markets. From 2015-2016, carrier billing average revenue per paying user increased 30% in the Philippines

The integration of payments into Tencent’s WeChat application has been even more
interesting with the combination of chat and payments. WeChat Pay launched in
August 2013, during the WeChat 5.0 update, which included QR code payments.
WeChat’s usage of payments is part of a broader trend towards “social” payments

that are conducted through a chat or social media app. The social aspect of the
WeChat app fits with Tencent’s history of providing some of the key communications
platforms in China, including the still-present QQ messenger. The payments, in many
ways, are simply the plumbing behind all of the other services that Tencent is layering
on-top, including wealth management, taxi booking, etc.
Tencent has indicated that they make very little money on payment fees and so
the company is likely more interested in the data flowing behind the payments.
Leveraging that payment data, they can better understand their customer to be able
to cross/up-sell other products. This is an excellent example of how the industry
needs to look beyond just the profitability of the payment product itself and at the
other products and services that can be layered on top.
Figure 4: Mobile payments continue to grow

Global mobile payment transaction value (USD billion)
1200
1,080
1000
930
780
800
620
600
450
400
200
0
2015 2016 2017 2018 2019
Source: TrendForce
With a Wave of the Card

The first contactless payment was introduced in 1997 by Mobil.12 The initial usage
allowed customers to wave a contactless, pre-loaded “Speedpass” payment device,
clipped to their keyring near a receiver, which allowed customers to pay for gas.
Public transportation would end up being the killer use for contactless cards. In
1997, Hong Kong launched the Octopus card, which allowed individuals to use
the card in the HK metro, ferries, buses and trams. Although the Octopus card is
somewhat limited by its company charter as to what it can or cannot do regarding
card acceptance, many convenience marts and fast food restaurants, amongst other
12 David Parker, “A brief history of payments”, Polymath Consulting, published October 2015, accessed 16 January 2018,

establishments, accept the Octopus card for payments. Hong Kong’s taxi lobby has
however resisted accepting them in taxis.
The turning point for contactless payments in the UK came in 2007 when Barclays
started trialling the UK’s first contactless credit card under the Barclaycard brand.
UK restaurant chains such as EAT began to accept contactless payments as did
public transport. Despite the launch of mobile payments from ApplePay and Google,
contactless transactions number still increased by 174% in 2016 compared to
2015.13
Figure 5: China lags behind in contactless cards

Share of contactless transactions in all retail (%)
60%
50%
40%
30%
20%
10%
0%
United Kingdom Australia China
Source: UK Cards Association, RBA, Kapronasia Analysis
Real Time Payments

Another significant industry trend in the Present History of Payments is the
proliferation of real-time payments. First implemented in Japan in the late 1970s,
real-time payments were somewhat slow to catch on in other markets, but since
the United Kingdom launched “Faster Payments” in 2008, the industry has been
developing rapidly.
Today, all of the top-10 economies in the world have either already implemented real-
time payments or are in the process of doing so. In Asia alone, Australia, Hong Kong,
Thailand and Malaysia have all recently implemented real-time payment infrastructure
and the rest of the region is not far behind.
In many scenarios, real-time payments are no longer optional, but a requirement.

Whether driven by governments or pushed by private industry, all banks will need
to shift to real-time at once to keep their competitive advantage. Often, real-time is
also very useful for establishing new financial infrastructure and increasing financial
inclusion. A good example of innovation on top of real-time payments can be seen in
the growing set of cross-border real-time payment implementations.
13 The UK cards Association, “UK card payment 2017”, The UK cards Association, published 31 December 2016, accessed 16
January 2018, http://www.theukcardsassociation.org.uk/wm_documents/UK%20Card%20Payments%202017%20%20
website%20FINAL.pdf

Real-time Cross Border
Hitherto, most of the development around real-time payments has been for domestic
payment systems. Japan’s Zengin system, despite having been around for nearly five
decades, only serves domestic customers, similar to most other systems around the
world. However, this is starting to change.
For many organizations, the move to real-time payments requires a broader

infrastructure refresh as well, as many legacy infrastructures are not necessarily
ready for the increase in transactions and the immediate nature of transactions.
In this way, real-time payments are only the start of a larger industry transition and
provide a platform for new products and services to be built on top of the payment
rails. Some of these can be in the form of direct value-added services around the
payments themselves, or the basis of larger efforts, such as providing credit scoring,
lending, or cross-border real-time payments.
Real-time cross-border payments connection between Singapore and Thailand.

Singapore’s G3 real-time system had been running for just over a year and Thailand
had just finished the Prompt Pay integration. The integration is among the first of its
kind, but one of many we are likely to see in the future.
Countries with Real-Time Payments

Bahrain Brazil Chile China Denmark
Finland Ghana Iceland India Japan
Kenya Mexico Nigeria Poland Republic of Korea
Singapore Spain South Africa Sri Lanka Sweden
Switzerland Taiwan Thailand Turkey United Kingdom

The Role of the Regulators
Over the past decade, regulators have had their work cut out for them. There has
been rapid change within the traditional financial industry as well as the threat of 3rd
party substitutes like Alipay or TransferWise. Regulatory approaches have typically
fallen into a few different categories:
• Wait and See – China is an excellent example of the ‘wait and see’ approach.
The government recognized the potential benefits of new fintech business models
in the payments and wealth management market, and let the companies grow,
only later to regulate lightly to ensure that they did not generate too much risk.
• Embrace fintech – Around the world, many cities are competing to be fintech
centers, often with government and regulator support. As an example, the
Monetary Authority of Singapore has a director and division focused solely on
fintech; in many jurisdictions we have also seen the development of fintech
sandboxes to facilitate innovation. Many regulators have also pushed innovation
directly through the implementation of real-time payment systems and regulations/
requirements on API and open banking, such as Europe’s PSD2.
• Business as Usual – For many jurisdictions, including the U.S., certain fintech
models are limited by existing regulations. As an example, setting up a payment
business in the U.S. requires different licenses from each of the states where the
system will be operating which can be costly. Although fintech continues to grow
in these jurisdictions, it can be hampered by regulation.
Regulator or Private driven?

Many of the global real-time payment implementations are good examples of how
smart regulation can help the industry and the economy as a whole. Implementations
are often driven by the government and used to support a national agenda of
innovation to drive economic growth. An efficient payment infrastructure can help
accomplish that goal. Singapore’s G3, Hong Kong’s Real Time Payments and
Australia’s NPP have all been government-led.
Banks may be more reluctant, which has caused issues in the past. Australia’s NPP
was delayed by a year in 2014, as five institutions pulled funding; the system will
finally be live in 2018.14 At the same time, third parties like Alipay and PayTM have
taken advantage of the indecision and are using digital payments drive new revenue
streams and enable new products and services. This underscores the importance of
collaboration: private and public need to work together to ensure that benefits and
challenges are understood all around.
The Dutch Payment Association (DCA) is an excellent example of how collaboration

can help. Working with its members, the DCA has created an industry forum where
issues around payment systems can be identified and addressed.15 The DCA, whose
members include banks, regulators, the government and other interested third
parties, even drill down to specific industry issues such as cyber-crime.
14 Shaun Drummond “Payment system’s $1billion overhaul delayed a year“. The Sydney Morning Herald, published 11
December 2014, accessed 16 January 2018, http://www.smh.com.au/business/banking-and-finance/payment-systems-1-
billion-overhaul-delayed-a-year-20141202-11yfoi.html
15 Dutch Payments Association, “Annual Report 2016”, Dutch Payments Association, published 6 June 2017, accessed 16
January 2018, https://www.betaalvereniging.nl/wp-content/uploads/Annual-Report-Dutch-Payments-Association-2016.
pdf

Regional Differences
Although there are many commonalities across payments globally, there are regional
nuances that can be attributed to several factors:
• In regions such as Africa, technology availability and adoption have meant

that digital payments are primarily done on basic feature phones to deal with the
fact that infrastructure is not as developed.
• Regulators and governments have also significantly affected payment

development by encouraging innovations like real-time payments in various
countries around the world development and defining payment guidelines such
as Europe’s PSD2 that will also affect API and open banking and payments in
general.
• Social-economic factors like China’s historical love of cash, are also being
tested, as new generations of millennial customers demand a unique, digital
payment experience.
Europe – Still the Land of the Cards

Today, cards dominate consumer payments in Europe as 46% of the 106 billion
transactions per year in the European Union are done by card payment.
Figure 6: European non-cash transaction growth shows no signs of slowing

Number of non-cash transactions (USD billions)
200
177
150
121
100
87
70
50
0
2005 2010 2015 2020e
Source: A.T.Kearney, European Central Bank

Figure 7: Europe's large growth in alternative payments
Share of transaction volume by payment method (%)
2005 2010 2015 2020e
100%
38
47 Credit Transfers and Direct Debits
75% 53
55
Debit and Credit Cards
50% Cheques
42
Alternative payment method
45
34 40
25%
2
18
10 3
6
0% 5
1 1
Source: A.T.Kearney, European Central Bank
This use of cards instead of mobile, is exceptionally high when compared to mobile
banking. One would think that if a consumer were using their phone for mobile
banking, they would also be using it for payments, yet despite the fact that nearly
68% of Europeans between 18-34 years old use mobile banking, mobile payment
penetration is still low. In France, for example, more than half of smartphone users
polled in December 2016 by Iflop, said they were not willing to use mobile payments,
even for purchases less than €20 ($22).16
French card payment penetration is even higher than the rest of the EU. In 2014,
online and offline card payments accounted for 50% of non-cash payments, a
number that is increasing 5% a year. The growth of card usage is supported by the
French government’s national payment strategy to provide a more accessible and
faster payment method for consumers . This effort will be further supported with
the arrival of open banking which should give consumers more options and better
services.
In Germany, the situation is similar: offline card payments dominate the market. In
2014 only 8.5% of Germany’s retail revenue was done online, while in China, it was
already 11%.17 Online shopping represented 17% of all retail commerce in China,
but it is predicted to be only 15% of Germany’s e-commerce by 2025, likely due to
socio-economic factors.18
16 Karin von Abrams, “Personal Mobile Payments on the Rise in Europe”, eMarketer, published 10 April 2017, accessed 16
January 2018, https://www.emarketer.com/Article/Personal-Mobile-Payments-on-Rise-Europe/1015592
17 Industry Investment, “Ministry of Commerce “2016 China Retail Industry Development Report””, Sohu, published 6 July
2017, accessed 16 January 2018,http://www.sohu.com/a/155050733_465938
18 Denis Beau, “Breakdown of the use of non-cash payment instruments”, Banque De France, published 5 December
2016, accessed 16 January 2018, https://www.banque-france.fr/sites/default/files/media/2016/12/05/mapping-of-

In the UK, the situation has advanced significantly in the past 20 years as fintech
has grown and businesses have moved mobile. For example, Barclays launched
their mobile wallet app in 2012 and attracted over 19,000 users in the first few
weeks. New registrations reached 2 million, and user numbers increased 200% in
2013. Despite this, contactless cards remain popular, with over 50% of UK retail
transactions in 2016 completed using a card.19
The Future – is it mobile?

The usage of cards in Europe is not surprising. With contactless cards in use across
the continent, consumers have gotten used to frictionless “tap-and-go” transactions.
The ease of contactless payments could be part of the reason that mobile payments
have failed to take off in a big way in Europe, as they have in Asia. If the current
model works well, why change? Indeed, when we look at the reasons why mobile
payments have taken off in China, the friction surrounding contactless transactions
was a key driver.
Despite this, European banks are ready for mobile payments. Nearly all of the big
banks in Europe have smartphone banking applications that include some mobile
payment functionality, while many new upstart ‘challenger’ banks are mobile-first and
have no branches. On the consumers’ side, mobile banking is getting more popular
too. According to study conducted by Visa in 2016, mobile banking acceptance has
grown among the people from all the different age groups they surveyed.
Figure 8: More Europeans are shifting to mobile banking

European consumers using mobile banking (%)
100%
90%
80%
68% 68%
70%
61% 64%
57%
60% 2015
55% 55%
46%
50% 2016
40%
30%
20%
10%
0%
18-24 25-34 35-44 45-54
Source: Visa Digital Payments Study 2016
cashless-means-of-payment-2014-data.pdf; Gerold Doplbauer, “Ecommerce: Growth without end?”, Gfk GeoMarketing,

published 31 July 2015, accessed 16 January 2018, http://www.gfk-geomarketing.com/fileadmin/gfkgeomarketing/en/
consultancy/20150731_GfK-eCommerce-study_fin.pdf
19 The Guardian. 2018. “Cash no longer king as contactless payments soar in UK stores” The Guardian, 12 July 2017 Accessed
17 January 2018, https://www.theguardian.com/money/2017/jul/12/cash-contactless-payments-uk-stores-cards-british-
retail-consortium

Alternative payment players such as Apple Pay are trying to shift the market as well,
but still have significant challenges ahead.
One of the key takeaways from Europe’s mobile payments market is that being
‘frictionless’ is critical, and that typically means a digital solution. Although trust in
cash is considered the highest of all payment methods due to its immediacy and
physical nature, the speed and convenience of cards are difficult to beat, even by
mobile phones. Many consumers seem to find it easier to take a card out of their
wallet than to unlock their phone. Despite this, we should continue to see mobile
payments grow in Europe.
Figure 9: Europe slow to accept digital

Non-cash payments (%)
100%
80%
65.8%
62.4%
53.0% 55.5% 55.4% 56.5% 57.9% 59.8%
60%
49.3% 50.0% 50.7% 51.6%
34.0%
40%
27.1% 27.6% 28.2% 29.3% 31.1%
20%
0%
Germany UK Poland
2015 2016 2017 2018 2019 2020
Source: Kapronasia, PYMTS.com, Deutsche Bundesbank, Vaultex

North America
The United States is the world’s biggest economy, Canada 10th and Mexico 15th.20
Consumer spending alone is worth USD$13.2 trillion per year in North America, and
the region is also the second largest e-commerce market in the world with a gross
merchandise value (GMV) of USD$562 billion per year.21
This economic heft makes North America one of the most competitive globally, not
just overall, but in banking and payments as well. However, cash and cards are still
dominant as the uptake of mobile payment is still relatively slow.
Figure 10: Consumers open to digital payment, but tradition remains

Comparison of consumer use of payment options today and future (%)
70%
60%
58%
60%
54%
56% 55%
50% 53%
40%
30%
23% 22%
20% 21% 21%
19%
20% 16%
19% 18% 12%
16%
10% 13% 14% 14% 13%
9%
0%
Cash Debit Card Credit Card Check Prepaid Card Paypal Mobile Mobile wallet Bank branded Mobile wallet Digital
Paymet apps by card mobile wallet apps by tech currency
by retailers, networks giants
restaurants or
Traditional others
Payments Digital Payments
Today Future
Source: Accenture, December 2016
Canada
Canada is one of the most financially inclusive societies in the world. 99% of Canadians
have a bank account, and 73% have credit cards.22 Only 8% of Canadians do not
have access to the internet, and 71% of the population own smartphones. Three-
quarters of the population use online banking. Cash is still the most frequently used
method of payment at the POS, and credit cards dominate the market by value,
primarily driven by their use in e-commerce.
20 Worldbank
21 PPRO Financial Ltd, “PPRO’S Payments & E-Commerce Report: North American & Oceania”, PPRO Financial Ltd, published
2 March 2017, accessed 16 January 2018, http://www.paymenteye.com/wp-content/uploads/sites/19/2017/05/PPRO_
NAO_ecommerce_report_2016.pdf
22 ibid

Figure 12: The rise of Canadian credit cards
POS transaction value in Canada (USD billions)
600
489
500 465
440
415
390
400 365
340
315
300
215 220
200 207
185 193
200 170 178
190 175 165 155 145 135 125 115
100
15 15.1 15.3 15.5 16.9 18.5 20 23
0
2008 2009 2010 2011 2012 2013 2014 2015
Cash Debit Card Credit Card Prepaid Card
Source: Michael Tompkins and Viktoria Galociova, 2016 Canadian Payment Methods and Trends
The United States

The US is also heavily card driven with 95% of Americans holding credit cards.23
84% of Americans use the internet regularly. Although the popularity of shopping
online has increased and the fintech industry has grown rapidly, mobile payments,
eWallets, touch and go, and other payment methods have not taken to the market
quite yet. Only 19% of Americans use an eWallet and at the moment, PayPal is the
leader in alternative payment methods.24
23 Ibid
24 Jim Marous, “US Consumers Won't Change Payment Habits”, The Financial Brand, Published December 5 2016, accessed
17 January 2018 https://thefinancialbrand.com/62691/mobile-digital-payments-usage-awareness-iot/

Figure 13: North Americans losing touch with cash
Retail payment usage of individuals per week (%)
100%
90%
80%
67%
70%
59% 60% 58% 56% 55% 54%
60%
53%
50%
50%
40%
30%
20%
10%
0%
Cash Debit Card Credit Card
2015 2016
Source: Accenture, October 2016, North America Consumer Payment
The Future
The use of cash in North America will slow in the future, but still remains important to
the continent. Cards will still be one of the most used forms or payment and although
usage of debit cards is expected to decline, credit cards should remain strong.
Despite the United States being a tech powerhouse, mobile payments have been
slow to take off. Some of this is likely due to differing standards and lack of merchant
acceptance, but with the convenience of cards, there is no significant incentive to
switch, especially when cards offer miles, discounts, cash-back, and other rewards.
The North American retail payment market is huge and has significant potential. The
question is if the industry can get consumers to use their phones not only to Tweet
and Snap, but to make transactions.
Figure 14: North America relies heavily on non-cash

91.7% 92.3% 92.8% 93.3% 93.6%
100%
91.0%
80% 67.6% 68.5% 69.3% 70.1% 70.8% 71.4%
60%
40%
20%
0%
US（Retail) Canada
2015 2016 2017 2018 2019 2020
Source: Kapronasia, Capgemini, Payments Canada, Cash Product Office; Federal Reserve System, PYMNTS.com

Middle East - Cash is King as governments push for digital
There are only 17 countries in the Middle East. Even so, the economic disparity is
obvious. The Gulf Cooperation Council (GCC) consists of Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia and the United Arab Emirates. The GCC accounts for 20% of
the Middle East's total population but contributes to over 60% of the GDP.25 Because
of the concentration of wealth in these countries, we also see higher mobile phone
penetration. In Qatar, 75% of the population has a mobile phone, the UAE 73% and
Saudi Arabia 60%.26
Despite this mobile penetration, cash still dominates the payment market as the
general payment preference of both buyers and sellers. According to a PwC Middle
East retail survey in 2016, over 80% of the transactions in the Middle East are made
in cash.27 Even for online shopping, cash payment remains people’s first choice with
cash-on-delivery accounting for 80% of all online transactions in 2016. E-commerce
sales volume in the Middle East will expand from USD 22.3 billion in 2016, to USD
43.3 billion by 2020.28 Although it is unclear how many of these transactions will be
made using cash in the future, we should expect a significant amount to remain.
The Future
The Middle East's reliance on cash is due to a number of socio-economic factors:
including education, awareness and habits. Although cash will likely remain king in
the Middle-East, through government promotion, people are gradually learning about
the ease and benefits of a cashless society.
A recent survey from MasterCard indicates that mobile payments in the Middle East
will increase rapidly with over 70% of respondents in the survey stating that they
were willing to use mobile phones to make payments.29 The shift to mobile could also
have a tremendous economic impact, as studies have shown that the Middle East
could add USD 95 billion in GDP by 2020.30
25 Armando Guastella & Alex Menghi, “GCC Market Overview and Economic Outlook 2017: A Challenging Transformation
Ahead to Achieve Desirable Growth”, Value Partners, published December 2016, accessed 16 January 2018, http://www.
valuepartners.com/wp-content/uploads/2016/12/MENA-REGION-122016-DIGIVERSION.pdf
26 Enrico Benni, Tarek Elmasry & Peter aus dem Moore, “Digital Middle East: Transforming the region into a leading digital
economy”, McKinsey, published October 2016, accessed 16 January 2018, https://www.mckinsey.com/global-themes/
middle-east-and-africa/digital-middle-east-transforming-the-region-into-a-leading-digital-economy
27 PWC Middle East, “Total Retail Survey - Middle East 2016”, PWC, published 12 December 2016, accessed 16 January 2018,
https://www.pwc.com/m1/en/publications/total-retail-survey-2016.html
28 BMI Research, “Middle East e-Commerce: A Market In Transition”, BMI Research, published 1 June 2016, accessed 16
January 2018, https://www.bmiresearch.com/articles/middle-east-e-commerce-a-market-in-transition
29 Mastercard, “Mastercard survey shows Kenyans want more digital services”, MasterCards, published 27 September 2016,
accessed 16 January 2018, https://newsroom.mastercard.com/mea/press-releases/mastercard-survey-shows-kenyans-
want-more-digital-services/
30 Enrico Benni, Tarek Elmasry & Peter aus dem Moore, “Digital Middle East: Transforming the region into a leading digital
economy”, McKinsey & Company, published October 2016, accessed 16 January 2018, https://www.mckinsey.com/global-
themes/middle-east-and-africa/digital-middle-east-transforming-the-region-into-a-leading-digital-economy

APAC – The World Leader in Mobile Payments
The APAC region now accounts for three quarters of global payment transactions,
with China accounting for the majority of those transactions. China is also seeing
third-party payment companies take a leading role in the payment industry with
Alipay and Tencent’s WeChat Pay holding an impressive duopoly with over 95% of
the third-party mobile payment market in 2017.
Japan was one of the few countries that first developed mobile payments. Yet, credit
card payments still dominate the Japanese payment market.31 A unique payment
method in Japan is the convenience store payment system called Konbini which, in
2016, accounted for over 16% of the payment market in Japan.32
The Future
Mobile payments will dominate the payment market in APAC, with China continuing
to lead the way. The successful example of the Chinese payment industry has
seemingly inspired other countries in the region, including India and Southeast Asia.
People, and more importantly governments, are starting to realize the usefulness and
advantages of mobile payments.
China’s payment giants Alipay and WeChat Pay are also expanding rapidly overseas.
Their initial expansion was to follow Chinese tourists and provide acceptance in
other markets, but we are increasingly seeing them provide additional products and
services in the local markets.
In Southeast Asia, comparatively open regulation combined with the vast population
and financial services' limited accessibility, has led to the creation of an entirely
new and innovative form of financial services. According to analysis, in 2016 the
e-commerce market reached 50 billion dollars and it is expected to be 200 billion
dollars by 2025, leaving an incredible market for online payments.33 With these
figures continuously growing, online consumption, online payment and mobile
payment markets, are becoming increasingly valuable and important.
Figure 15: APAC leads the digital revolution
100%
71.0% 74.3% 78.5%
80%
64.8% 65.7% 66.9% 68.5%
52.6% 57.8%
60%
43.5% 46.1% 48.8% 45.7%
30.4% 36.6%
40%
22.4% 24.5% 27.1%
20%
0%
China India Australia
2015 2016 2017 2018 2019 2020
Source: Kapronasia, PYMTS.com, People's Bank of China, The Boston Consulting Group, The Institute for Business in the Global Context,
Reserve Bank of Australia
31 KPMG, “Card payments in Asia Pacific, the state of the nations”. KPMG, pulished April 2009, accessed 16 January 2018,
https://www.kpmg.de/docs/Payments_in_Asia_Pacific.pdf
32 Tim Parry, “A Snapshot Look at Ecommerce Payments in Japan“, MultiChannel Merchant, published 27 March 2014,
accessed 16 January 2018, http://multichannelmerchant.com/must-reads/a-snapshot-look-at-ecommerce-payments-in-
japan/
33 Rajan Anandan, et al., “E-Conomy SEA Spotlight 2017”, Google and Temasek, published 12 December 2017, accessed
16 January 2018, http://www.temasek.com.sg/Documents/userfiles/files/e-Conomy%20SEA%20Spotlight%202017%20
Full%20Report.pdf

South America
Just over 400 million people call the world’s fourth-largest continent home. Financial
inclusion across the continent is also a challenge, with only 30% of the continent’s
population having access to a bank account. Furthermore, 60% of SMEs’ transactions
are done with cash and 47% of employees are working in an ‘irregular’ (part-time /
intermittent) economy.34
In general, cash is the most common payment method for individuals in South
America, but credit card usage has grown in the last couple of years, especially in
Brazil, where credit card businesses are very profitable.35 Despite consumer credit
reaching its limits, credit card businesses are growing, albeit in a more challenging
environment, as competition increases.36
At the same time, the e-commerce industry has grown quickly in some countries,
which has led to a wider range of payment options and spurred fintechs to set up
e-wallet and payment businesses. PayPal launched in Brazil in 2010 and now covers
Mexico, Chile, Peru and Columbia. PayU is a Colombian company and covers even
more areas in Latin America. Mercadopago is also competitive in the market and has
a partnership with Alipay.37
However, e-commerce development is different across the continent. In Mexico,

only 14% of consumers shop online, due to high interest rates and fraud. In
other countries, digital banking is less developed, so cash underlies many of the
transactions, meaning that many potential trades are refused. On the other hand,
60% of the population in Peru shops online.38
From the government's perspective, it is important to encourage non-cash payments.

Especially since Latin American governments are fighting a “War on Cash” to stop
tax evasion and corruption in the continent.39
The Future
South America’s future development will remain unbalanced throughout the region
and differ from country to country. The majority of payment choices are influenced by
Brazil, the largest economy and trade partner. Cash will remain an important method
of payment, but the increased issuance of cards and penetration of smartphones will
support a larger shift to digital payments.
34 Ding Pei, “Latin America Digital Payment Market Report”, ISTIS, published 17 July 2017, accessed 16 January 2018, http://
www.istis.sh.cn/list/list.aspx?id=10726
35 Michelle Evans, “How Latin American Digital Consumers Shop and Spend”, Euromonitor International, published 12
November 2017, accessed 16 January 2018, https://blog.euromonitor.com/2017/11/latin-american-digital-consumers.
html
36 Americas Market Intelligence, “Latin America Cards & Payments Trends Whitepaper”, Americas Market Intelligence”,
published 25 October 2015, accessed 17 January 2018, https://www.slideshare.net/AmericasMarketIntelligence/latin-
america-cards-and-payment-trends-whitepaper
37 Ding Pei, “Latin America Digital Payment Market Report”, ISTIS, published 17 July 2017, accessed 16 January 2018, http://
www.istis.sh.cn/list/list.aspx?id=10726
38 ibid
39 AMI Americas Market Intelligence, ”Latin America Cards & Payments Trends Whitepaper”, SlideShare, published 25
October 2016, accessed 16 January 2018, https://www.slideshare.net/AmericasMarketIntelligence/latin-america-cards-
and-payment-trends-whitepaper

The risk in South America is the alignment of the government to driving programs
around payment innovation. With political and economic issues plaguing some of
the continent’s largest countries, payment innovation across the continent will remain
uneven and largely driven by private enterprise.
Figure 16: Latin America still loves cash
100%
80%
60%
44.0% 43.6%
40.0% 40.9% 41.7% 42.5% 43.3% 31.0% 33.4% 35.9% 38.4% 40.9% 30.8% 34.0%
40%
25.1% 27.8%
20.1% 22.5%
20%
0%
Brazil (Retail) Mexico (Retail) Peru
2015 2016 2017 2018 2019 2020
Source: Kapronasia, Central Bank of Brazil, Pew Research Center, Americas Market Intelligence, PWC
Africa – A diamond in the rough for Mobile Payments

In most African countries, cash is the dominant payment method, even for e-commerce
where many transactions are cash on delivery. However, in certain countries such as
South Africa and Morocco, the e-commerce and credit card payment markets are
growing rapidly.
Mobile payments have also had tremendous success in Africa and continue to
grow in popularity, especially in less developed areas. M-Pesa is one of the most
successful mobile payment platforms in the world and has done a lot to help tackle
the challenge of financial inclusion. M-Pesa marked its 10th anniversary in 2017 with
nearly 30 million customers and 287,400 agents across 10 countries. In 2015, 89%
of Kenya’s population was using M-Pesa for mobile payments. The Ivory Coast,
Cameroon, and Nigeria have also developed a large user base of mobile payment
users.40
Figure 17: Kenya leads the pack in mobile payments

Individuals using mobile payment (%)
100%
88%
90%
80%
70%
60%
50%
42%
40%
30%
20% 20%
20%
10%
0%
Kenya Ivory Coast Cameron Nigeria
Source: African Development Bank Group, October 2016
40 Daryl Collins, Julie Zollmann, & Peter Fleming, “Is M-PESA Replacing Cash in Kenya?”, CGAP, published 14 November 2012,
accessed 16 January 2018, http://www.cgap.org/blog/m-pesa-replacing-cash-kenya

Several Chinese companies have also invested in developing mobile payments
in Africa. Alipay, WeChat Pay and Huawei have all set up business there. China’s
Transsion Holdings, is one of the largest mobile phone manufacturers in the world
and second largest smartphone vendor in Africa selling the TECNO, itel and Infinix
brands. Transsion was one of the first Chinese smartphone manufacturer to explore
the African market and have a manufacturing plant in Africa.
Although most of Africa’s mobile phone users are using feature-phones, the arrival
of these reasonably priced smartphone manufacturers is laying the groundwork for
a potential shift from SMS-based mobile payments, to smartphone-based payment
platforms.
The Future
With this increased usage of smartphones in Africa, the mobile payment market is
expected to keep growing. Cash may remain the dominant method for the next few
years, but in areas with high mobile penetration, digital payment will grow quickly.
The investments and footprint of Tencent in Africa may also impact the development of
the payment market. One of Tencent’s earliest investors was Naspers, a South African
VC, which is now helping Tencent to grow its footprint in Africa. The interoperability
of the QR-code based WeChat Payment system, may be incredibly useful in Africa,
where the most likely next step will be cheaper smartphones like TECNO.
Figure 18: Africa & The Middle East shows a dramatic contrast
100%
80%
64.6%
52.0% 53.1% 54.2% 53.5% 55.8% 58.4% 61.2%
60%
48.0% 49.5% 50.8% 51.1%
40%
13.0% 15.9% 19.4%

20%
7.2% 8.8% 10.7%
0%
South Africa (Retail) Egypt (Retail) Saudi Arabia
2015 2016 2017 2018 2019 2020
Source: Kapronasia, Mastercard, PYMTS.com, McKinsey on Payments, World Bank, Payment System Stratergy Boad, Mada

The Role of Technology
The Future History of Payments will be marked by the adoption of new technologies
which will lead to new ways of making payments and interacting with financial
providers. Smartphones ushered in the first wave of the 'new digital payments'; now
technologies like blockchain, biometrics and IoT will usher in the second.
Biometrics
Biometric payments are surprisingly old, and first appeared in 2006 in the United
States. In March 2006, ‘Pay by Touch,’ the leading biometric payment provider
at the time, reported that more than two million customers had enrolled in their
biometric services and that Pay By Touch had authenticated approximately $8 billion
in transactions.41
Despite the failure of Pay by Touch a few years later, Biometrics is seen by many as
the future of payments. Traditional card and digital payments raise concerns over
security breaches, hacking and identity theft, however this could all be a thing of the
past. What better password or authentication system then your own unique finger
print or facial scan?
Biometrics represent the potential for safer, harder to replicate authentication

techniques, with the added advantage of not having to rely on a card, which can
be easily lost, copied or stolen. According to a recent report by Acuity Market
Intelligence, mobile biometrics will increase by 41 percent CAGR from $6.5 billion in
2016, to $50.6 billion in 2022.42 The driving force behind this change is the desire for
increased security.
The payment and technology industry is still exploring how consumers can use their
own bodies to maximize security. Many companies are testing the use of fingerprints,
faces, voices and irises to validate and authenticate a payment or transaction.
MasterCard recently announced that it is testing facial recognition technology to
authorize transactions, with an anticipated roll-out to the general public in 2018.
Alibaba is testing using a 'selfie' to pay and verification through facial recognition.
Samsung is looking at fingerprint, voice and iris recognition for its Samsung Pay
offering; Apple already allows fingerprint authorization for iTunes purchases and
payments with Apple Pay, and the new iPhone X incorporates facial recognition
for authentication. With these industry giants looking at biometrics, there is strong
evidence to suggest the technology will be key to future payment systems.
The downside of Biometric payment systems, particularly facial recognition, is the

lack of privacy. If companies and institutions possess databases with everyone’s
faces or voices, it gives them the ability to identify customers everywhere they go.
This pervasive tracking already exists to a certain extent with location-based software
on most smartphones, however through biometrics, consumers will leave a data trail
almost everywhere they go.
41 Margaret Rouse, “Biometric Payment”, SearchSecurity, accessed 16 January 2018, http://searchsecurity.techtarget.com/

definition/biometric-payment
42 Justin Lee, “Mobile biometrics market to exceed $50.6B in revenue in 2022”, biometricupdate.com, published 18
September 2017, accessed 16 January 2018, http://www.biometricupdate.com/201709/mobile-biometrics-market-to-
exceed-50-6b-in-revenue-in-2022

An even greater risk would be if hackers managed to gain access to this Biometric
database. In fact, according to an article by the Telegraph, researchers have claimed
they have hacked a Samsung Galaxy S6 and a Huawei Honor 7 phone by taking
a photo of someone's finger and printing it out with special ink.43 It has even been
reported that Fingerprints have been copied using molds made from gummy bear
sweets. By exploiting biometrics, hackers could track any individual’s movement
and purchasing habits. However, it is still considerably more difficult to steal and
reproduce a fingerprint than to overcome a password or a pin.
The question which then arises, is how much privacy are consumers willing to trade
for convenience and security? According to a 2016 Experian survey conducted in
the UK, 61% of consumers believe biometric identification is either “just as secure,
or more secure, than current system passwords” and 40% would be “happy to use
a fingerprint scan to access their accounts.”44
Despite some of the concerns highlighted, many countries are choosing to embrace
biometric payment systems, and are using them to their advantage.
In Japan for instance, the Ministry of Economy, Trade and Industry will be rolling
out fingerprint scanning technology that can make payments, check-ins, and other
services a lot more seamless for tourists. Restaurants, hotels and other establishments
visited by tourists in popular destinations will be a specific focus.
The fingerprint experiment is part of a wider effort by the Japanese government

to encourage visitors from overseas to visit the capital leading up to the 2020
Tokyo Olympic and Para-Olympic Games. Officials are hoping to launch the system
throughout the country, including Tokyo by 2020, with as many as 40 million overseas
annual visitors expected by that year.45 The new payment system will be called
‘Touch and Pay’, and will use unique fingerprint technology provided by Liquid Inc.
Liquid Inc’s technology uniqueness lies in the fact that it doesn’t rely solely on
fingerprints, or what the prints look like. Instead, their patented scanners use
feature points such as branch points and endpoints. This improves its reliability by
over 90,000 times, which translates to one error every 9 billion scans.46 Like most
advanced fingerprint scanners, the technology doesn’t store fingerprint images.
Instead, it stores data derived from fingerprint features which are impossible to revert
to an image.
Fingerprint payments should make retail payments easier for visitors during the
Olympics and the government also wants to make them faster. Regulators have set
the ambitious goal of having all retail payments be real-time by the Olympics in 2020.
43 Danielle Demetrio, “Tourists in Japan to use fingerprints as ‘currency’ instead of cash”, The Telegraph, published 11 April
2016, accessed 16 January 2018, http://www.telegraph.co.uk/news/2016/04/11/tourists-in-japan-to-use-fingerprints-as-
currency/
44 Experian, “UK now ready for biometric banking”, Experian, published 13 January 2016, accessed 16 January 2018, https://
www.experianplc.com/media/news/2016/uk-now-ready-for-biometric-banking/
45 Danielle Demetrio, “Tourists in Japan to use fingerprints as ‘currency’ instead of cash”, The Telegraph, published 11 April
2016, accessed 16 January 2018, http://www.telegraph.co.uk/news/2016/04/11/tourists-in-japan-to-use-fingerprints-as-
currency/
46 Lexi Golden, “Facial recognition technology will replace IDs, credit cards, and passwords”, VentureBeat, published 11
October 2017, accessed 16 January 2018, https://venturebeat.com/2017/10/11/facial-recognition-technology-will-
replace-ids-credit-cards-and-passwords/

In the US, HSBC has enabled voice-based authentication for its customers. Called
‘Voice ID’, the system uses voice biometrics for authentication, where a customer
needs only to repeat a passphrase to confirm their identity. In a statement announcing
the system, HSBC US Head of Direct Channels LuAnne Kingston emphasized the
superiority of this kind of biometric authentication over security based on passwords
and security questions, which are “a common consumer frustration, both from a
convenience and security standpoint.”47
It is another example of HSBC’s growing interest in biometric authentication, with

the bank having launched a selfie-based account registration system for business
customers in autumn 2016, and a Technology Advisory Board with a strong focus on
biometrics at the start of 2017. However, according to a BBC investigation, a man’s
non-identical twin was able to access his brother’s account my mimicking his voice,
leading to concerns over the system’s effectiveness and security.48
In China, Alibaba ran an experimental café that replaces cashiers with biometric
recognition and a mobile app. It’s called the Tao Cafe, and it was run as part of
the Taobao Maker Festival, an event meant to showcase participants in Alibaba’s
Taobao mobile marketplace. Using Alibaba’s AI and data technologies, Tao Cafe
invited customers to shop at the offline store without having to wait in queues to pay
for drinks or food.
The cafe had a few employees on hand to prepare the food and drinks, however, no
cashiers were required as all transactions were done digitally.
A customer could walk up to the counter and order an americano, which prompted
the system to scan her face through the screen and withdraw the price of the coffee
from her Alipay account.49
Digital Ledger Technology

The original concept of Bitcoin was to create “A Peer-to-Peer Electronic Cash
System” to allow individuals or entities to move value cross-border for very lost cost
and relatively quickly. Although that concept is still possible, technical challenges in
the Bitcoin code mean that transactions have become relatively expensive and slow.
There have been several attempts to remedy the challenges, but any change to the
direction of Bitcoin’s development requires a hard-fork and getting consensus on
what that hard-fork should look like has not been easy.
There have also been some attempts to layer technology around bitcoin to address
these issues, such as the Lightning network, but the view of Bitcoin seems to have
shifted from viewing Bitcoin as a payment tool to viewing it as a store of value,
effectively a digital gold. Indeed speculation is that the interest from institutional and
hedge-fund investors is behind a significant increase in Bitcoin’s value in the last 2-3
years.
47 FindBiometrics, “HSBC Launces Voice ID Biometric Authentication System for US Customers”, FindBiometrics, published 25
April 2017, accessed 16 January 2018, https://findbiometrics.com/hsbc-voice-id-404253/
48 Dan Simmons, “BBC fools HSBC voice recognition security system”, BBC NEWS, published 19 May 2017, accessed 16
January 2018, http://www.bbc.com/news/technology-39965545
49 FindBiometrics, “Alibaba’s Experimental Tao Café Replaces Cash With Biometrics, FindBiometrics, published 21 July 2017,
accessed 16 January 2018, https://findbiometrics.com/alibaba-tao-cafe-biometrics-407218/

Although Bitcoin’s direction and future use may be as an asset, the Blockchain
technology that came with it, will be essential for cross-border payments.
Cross-border payments & Blockchain Technology

Cross-border payments play an important role in the global payments flow. According
to a McKinsey report, in 2014, cross-border payments volume accounted for 20% of
global payments, it contributed to USD 360 trillion in revenue, which represents 50%
of global transactional revenue.50
Despite this, for years cross-border payments have encountered the following main
problems:
• Lengthy: a cross-border payment can take more than two working days,
depending on the payment system and the connections among banks.
• Expensive: Cost is not really an issue in a large transaction in terms of the

percentage, but can make a difference for smaller retail transactions. On average
the remittance fee is 7.45% per transaction.51 For small transfers like USD 200,
the remittance fee can take around 10% to 15% of the principal amount. For
small and medium companies or certain groups of people, the fee can be a
significant financial burden, especially when dealing with frequent payments.
• Unclear information: The information on money flow is not transparent enough.

Most of the time, during the transfer period, clients understand the money is on
the way but they have no way of tracking where the money actually is until it is
received. Although they can check with the banks, each bank can only share the
information for its own role in the payment transfer and are unable to offer further
details after they hand off the money to the next party.
To solve those problems, some companies have decided to connect blockchain

technology to enable cross-border payments such as Stellar. The company claims
that its blockchain-based payment system can settle international payments in 2-5
seconds at a 40% cost reduction as compared to a traditional banking wire. This
system has been verified and proven to be able to support over 1,000 transactions
per second.52 Stellar has already launched in Europe, the Philippines and India.
New fintech companies are not the only ones to focus on the business, traditional
players have also been innovating. SWIFT’s Global Payment Innovation (GPI) system,
developed a Tracker database to enable banks to provide their clients with end-to-
end payment tracking.
In the first phase, SWIFT is improving the speed and transparency of cross-border
transfers and has so far implemented GPI in 110 banks.53 In the current second
50 McKinsey & Company, “Rethinking correspondent banking”, McKinsey & Company, Pg.4, published June 2016, accessed
16 January 2018, https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/
Rethinking%20correspondent%20banking/Rethinking-correspondent-banking.ashx
51 World Bank, “World Bank Remittance Prices Worldwide”, World Bank, published 5 January 2018, accessed 16 January 2018,
https://remittanceprices.worldbank.org/en
52 Coingog “Stellar partnered with IBM to develop a blockchain cross-border payment solution“, Coingogo, published 17
October 2017, accessed 16 January 2018, https://www.coingogo.com/news/2888
53 SWIFT, “SWIFT GPI Brochure“, SWIFT, Pg.4, published 2017, accessed 16 January 2018, https://www.swift.com/resource/
swift-gpi-brochure

phase, SWIFT plans on introducing distributed ledger technology to allow banks to
immediately stop or recall payments and further increase the accuracy and efficiency
of the payments.
HSBC, VISA, Finastra, and others, have also launched their own blockchain-related
payment systems. It is widely anticipated that this new technology has the potential
to start a new chapter in the history of payments.
Internet of Things
The internet of things (IoT) is the concept of having everyday objects being connected
to the internet, as well as being able to distinguish and identify other objects. This
ability to interconnect and discern is referred to as "ambient intelligence."54
The concept has enormous appeal for both consumers and manufacturers.
Consumers would benefit by having an object which can potentially learn and adapt to
their habits and needs, whereas manufacturers would benefit from increased access
to valuable data on their product's usage. In the past, when a consumer purchased
an item such as a fridge or a washing machine, unless the product expressed a
fault down the line, the relationship between consumer and manufacturer essentially
ended when the item was paid for. With the concept of the internet of things however,
the product can now be a gateway for an ongoing relationship, through the continual
transmission of data and information.
For example, imagine if your fridge was connected in some way to the internet
and was able to distinguish or scan the items placed inside of it, the fridge could
potentially inform you, via your smartphone, that you are running low on milk, or that
your eggs are about to expire. Combine this with location software on phones and
you could even receive a notification when close to a supermarket, or better yet,
have the fridge directly connected to your grocery ordering app.
This adds value to the customer’s experience, as they reduce waste, save time and
money, yet arguably, this adds even more value on the manufacturer’s end. In this
example, the fridge manufacturer could sell this valuable data to the supermarket
chains or other third parties, such as milk and egg suppliers, who may be interested
in how their product life cycle fairs and how quickly people consume products.
The concept of IoT is already a reality. Smart Fridges, thermostats, ovens and
even smart cars already exist. In the UK, smart thermostats are the most popular
household form of connected device, with British Gas’ ‘Hive’ the largest, with over
150,000 users in 2015.55 On the global scale, research by Fortune on 150 existing
IoT applications estimates that these platforms could have a total economic impact
of $3.9 trillion to $11.1 trillion per year by 2025.56
54 Techopedia, “Internet of Things (IoT)", Techopedia, accessed 16 January 2018, https://www.techopedia.com/

definition/28247/internet-of-things-iot
55 Nicole Kobie, “The internet of things: convenience at a price“, The Guardian, published 30 March 2015, accessed 16
January 2018, https://www.theguardian.com/technology/2015/mar/30/internet-of-things-convenience-price-privacy-
security
56 James Manyika & Michael Chui, “By 2025, Internet of things applications could have $11 trillion impact“, Fortune,
published 22 July 2015, accessed 16 January 2018, http://fortune.com/2015/07/22/mckinsey-internet-of-things/

The issue however, as with any new technology, is the price and relative ease of use.
LG showcased a smart fridge which can detect when you are running low on milk,
although it cost over £2,000 in 2015, a hefty investment for a relatively trivial level of
convenience. Another example is Philips Hue, a smart light that can be turned on
and off from your phone, and even be set to wake you up in the morning. However,
the installation kit cost $240 and a single bulb will set you back over $30.
Another issue with the technology so far, is its current capabilities regarding
ambient intelligence. Many of the IoT products currently available offer very niche
and unilateral services. In addition to this, the varying products and services are
seemingly disconnected from one another. The difficult task at hand is therefore to
bring all of the available technology and merge it into one platform, allowing for better
interoperability. If each individual item possesses its own standalone app or platform,
it makes both the user experience more complicated and leads to higher costs for
providers, as they need to develop and maintain their own app.
Some companies that have developed several ‘smart’ devices possess a certain
degree of interoperability. LG for instance, has developed a platform called
‘SmartThinQ’, and partnered with external firms allowing for its devices to be operated
via voice control, firms such as Google, through its Google Assistant on the Google
Home device and Amazon’s Echo voice control system, powered by Alexa.57
A final obstacle for IoT businesses is concerns of privacy and data security. Businesses
operating IoT platforms need to ensure consumers data is stored securely and only
shared with trusted external parties. In addition, the system's firewalls must be able
to withstand inevitable hacking attempts, as in a world where all our appliances are
connected to the internet, the opportunities for hacks increase.
One example of IoT usage which offers great convenience coupled with considerable
risk, is fully automated retail checkouts which would allow customers to simply exit a
store with no requirement to scan, swipe or wait in line. Using data scanning beacons,
the technology would track and scan the customer’s purchases in a shopping cart
and deduct the required amount from their mobile wallet as they exit the store.
Industry forecasts for this kind of technology predict that it could lead to as much as
$380 billion per year in cost saving for retailers around the world in 2025. However,
the risk of this technology falling into the wrong hands, or the potential for hackers
to intercept these beacons and illegally extract funds from shoppers, is a cause for
great concern. As a result of all this, IoT will seemingly require a high level of trust
from consumers and a demanding level of responsibility from businesses.
IoT and the payments industry

The opportunities for the payment industry are significant. Visa estimates that the
number of devices connected to the Internet will rise from 6.6 billion today to over
20.4 billion by 2020, including 90% of cars produced.58 This substantial increase
will undoubtedly benefit corporations such as Mastercard, American Express, Visa
and PayPal, due to an increase in non-cash payments and access to priceless data.
57 LG Life’s Good, "SmartThinQ“, LG Life’s Good, accessed 16 January 2018, http://www.lg.com/us/discover/smartthinq/thinq
58 BI Intelligence,“ Visa makes major loT play with IBM partnership“ Business Insider, published 17 Feburary 2017, accessed
16 January 2018, Visa, “Visa brings secure payment solutions to the Internet of Things“, Visa, accessed 16 January 2018

These opportunities are not going unnoticed, with Visa opening an office in 2014 with
over 500 employees whose sole purpose will be to ensure that devices connected
to the internet can be enabled with a secure platform for commerce.59 More recently,
Visa announced a partnership with IBM in 2017, giving IBM’s IoT platform’s clients
access to Visa payment services.
The partnership will provide Visa with new access to around 6,000 IoT businesses,
in turn, giving them access to Visa’s tokenization through their devices or platforms.60
This would effectively transform these devices into point of sale terminals, enabling
users to pay on the go. Going back to the example of our fridge earlier, Mastercard
in fact launched a smart refrigerator in 2016, which offers users the ability to pay and
order groceries from a touchscreen panel embedded in the fridge.
The opportunities regarding IoT and payments are not exclusive to payment services
companies, as many technology firms as well as retailers are seeing the potential
in the sector. Technology firms are specifically looking into developing payment
tracking systems, firms such as Libelium, a provider of wireless sensor network
technology. Applications of such technology could allow businesses to effectively
charge customers for the exact time they spend using their services.
For example, a gym could charge you for the amount of time you spend in their facilities
or more specifically the time spent on an individual machine, and transportation
services such as buses could charge people for the duration they spent riding the
bus. In addition to the precision afforded to charges, businesses utilizing this kind of
technology will gather a wealth of valuable data.
The same technology can similarly monitor machine performance both in a supply
chain or in the final product, enabling the user to effectively schedule and pay for
maintenance or track the machine’s usage, facilitating predictions on the chance of
a breakdown. If applied properly, the technology could reduce maintenance costs
by 25% and limit the amount of unforeseen equipment failure by 50%, thereby
prolonging the lives of machines.61 Amazon has also announced that Amazon Pay
will be available to third party developers on the Amazon Alexa virtual voice assistant,
cementing Alexa's place in the homes of the tens of millions of people who have
bought one.62
In light of all these recent developments regarding the IoT, it is safe to say that the
technology will undoubtedly be pivotal in the future of payments. Businesses must
learn to harness the technology’s capabilities, whilst being mindful of the potential
risks and responsibilities attached. One thing we can be certain of is that the IoT will
facilitate and accelerate the process of moving into a cashless society.
59 Hailey Winston, “The Internet of Things Will Revolutionize the Payment Industy“, Yale Economic Review, published 11
Novemeber 2014, accessed 16 January 2018, http://www.yaleeconomicreview.org/archives/2204
60 BI Intelligence,“ Visa makes major loT play with IBM partnership“ Business Insider, published 17 Feburary 2017, accessed
16 January 2018, http://www.businessinsider.com/visa-makes-major-iot-play-with-ibm-partnership-2017-2
61 James Manyika & Michael Chui, “By 2025, Internet of things applications could have $11 trillion impact“, Fortune,
published 22 July 2015, accessed 16 January 2018, http://fortune.com/2015/07/22/mckinsey-internet-of-things/
62 Rachel Green, "Amazon Pay coming to Alexa for in-app purchases", Business Insider, 1 December 2017, accessed 7
February 2018, http://www.businessinsider.com/amazon-pay-coming-to-alexa-for-in-app-purchases-2017-12, Bret
Kinsella, "Bezos Says More Than 20 Million Alexa Devices Sold", voicebot.ai, 27 October 2017, accessed 7 February 2018,
https://www.voicebot.ai/2017/10/27/bezos-says-20-million-amazon-alexa-devices-sold/

The Role of Traditional Finance
Although financial technology has been around for decades, it has only been over
the past few years that we have seen the uptake and interest in “fintech.” It is then
no surprise that banks globally have shown increased interest in, and responses to,
fintech. These responses typically fall into one of three categories:
• Setting up either jointly or solely-led fintech programs (i.e., Hackathons /

incubators / accelerators) designed to drive innovation. Banks typically play a
collaborative role with other banks, fintech companies, or external organizations
and provide mentorship, program sponsorship, and branding in exchange for
access to fintech networks, as well as the latest trends. If they run the programs
on their own, they also gain a first mover advantage. As an example, Standard
Chartered was a partner of Hong Kong’s first SuperCharger innovation program.
• Some banks set up internal innovation structures through venture funds, teams,
or internal innovation groups. These are typically separate entities within a group
that are supported by investment funds, research tools, or proprietary technology
for developing innovative solutions. Citi, HSBC, and many others have setup
fintech focused corporate development arms.
• There is a certain subset of banks that have no fintech focus.
Globally there are a number of banks that are seen as market leaders in the fintech
space. DBS has a full-time Chief Innovation Officer and opened a dedicated innovation
center. Santander, a Spanish bank, launched a US$100 million fintech fund “to get
closer to the wave of disruptive innovation in the fintech space.” Citi Fintech was set
up in November 2015 and is staffed by employees hired from Amazon, PayPal, and
other external tech companies.
The Ping An Group is one of the traditional financial industry players in China that
has taken a significant interest in China’s fintech landscape. First, Ping An invested
in, and is a 43% owner of, Lufax, the largest P2P lender and digital financial product
distributer in China. Secondly, they have co-invested with Ant Financial in Zhong An,
China’s first digital-only insurer. Finally, Ping An has embraced blockchain technology
by being the first Chinese member of the R3, a fintech consortium of banks and
service providers cooperatively exploring the potential uses of blockchain technology.
The challenge for traditional banks is to avoid losing relevance. Europe’s current
PSD2 effort will be a good test of this, as the market will likely open up rapidly to
new competition. At the moment, it is too early to tell how the banks will react
and how PSD2 will affect their business. Most European banks have set up teams
and working groups within the organization to prepare for this. As part of the PSD2
implementation, third parties will be able to access nearly the same customer
information as banks and create their own products and services to supplement or
even replace those of a bank.
How banks handle this competition and differentiate themselves will be key. Those
that do, will be successful. Those that do not, will simply be utilities that may not have
a role in the future of finance. The risk is great: even PayPal has recently found itself
the disruptor being the disrupted with E-Bay deciding to launch its own payments
platform to process payments.

The Future History of Payments
If we were to sum up the Present History of Payments in one-word, it would be:

digital. Whether it is a mobile payment or a card transaction, payments globally
are inexorably going digital. In certain places like Sweden, over 80% of all retail
transactions are card-based, a 20% increase from five years ago.
It is not only consumer demand and availability that is affecting the shift to cashless,
but also the governments themselves. India, as an example, pushed a demonetization
drive at the end of 2016, that has drastically re-shaped their consumption patterns,
and around the world, governments are looking at 'sovereign digital currencies' to
replace cash and existing digital payment methods. China’s support of the payment
giants and Europe’s PSD2 are two other good examples of programs that provide a
socio-economic push to move into digital, as well as the infrastructure to enable it.
On the other hand, government involvement may also limit growth. Regulation like
the GDPR (General Data Protection Regulation) will constrain use of user data and
more general regulations like the U.S.’s FATCA will also constrain what is possible
and indeed profitable for banks; ask an American how much fun it is to apply for a
bank account in Hong Kong or Singapore.
The shift to digital will also provide significant benefits for the financially excluded.
Firstly, digital payments tend to be more transparent and secure than cash payments,
especially in countries without a mature payment infrastructure, there is often little
transparency, particularly when middlemen and agents are involved.
A study in India’s Andhra Pradesh showed that the percentage of funds lost through
“leakage” fell from 30.7% in control areas to 18.5% in areas that embraced digital
payments. The estimated total reduction in National Rural Guarantee Act leakage
across the studied districts was $38.7 million per year.63 This was about nine times
the cost of implementing a digital payment scheme. In addition, the 2012 World Bank
Development Report estimated that by digitizing subsidy flows, the Indian government
could save 1% of its gross domestic product annually, an amount equivalent to about
$20 billion. Digitizing has had enormous financial gains for the government and for its
citizens, enabled by the transparency of direct real-time payments.
Secondly, digital payments promote economic opportunity, particularly in developing

countries. As an example, in Ordos, one of China’s ‘ghost cities,’ there are groups
of entrepreneurs who have setup their own Taobao shops which allow them to sell
products and services to a much larger client base than would have been previously
possible.64 In China, Tencent’s WeChat Pay has a variety of different wealth
management products that individuals can invest in. Many of the products have a
very low minimum investment requirement, sometimes as little as 1 RMB (~US$0.15)
and will start paying interest within a day.
These are both economic opportunities that would not be available if not for digital
payments.
63 Sanjeeb Mukherjee, “Smart Cards cut fund leakage in MGNREGA by 12%: Study“, Business Standard, published 3 April
2014, accessed 16 January 2018, http://www.business-standard.com/article/economy-policy/smart-cards-cut-fund-
leakage-in-mgnrega-by-12-study-114040201339_1.html
64 ‘Ghost cities’ refer to cities in China that were purpose built to be new economic centers, but for many reasons, failed to
develop as the government had intended and even today, remain largely uninhabited.

The shift to digital will be further supported by efforts to enable API and open banking.
Europe’s Payment Service Directive 2 (PSD2) will be an interesting case-study in
opening up banking to third party institutions. Previously, most of this experimentation
had been limited to particular bank or set of banks, but this will be the first time that
a regional initiative will be implemented.
While this shift to digital has a number of benefits, many of which we reviewed above,
there are some draw-backs and some argue that going cashless is bad for the poor
or the underbanked who may not have access to financial accounts or services,
or even a mobile phone, which will make it difficult to conduct commerce in the
future. Although Africa has come up with some unique solutions to overcome these
challenges, it remains to be seem if it is a long-term solution or a temporary one;
India will be another telling case-study.
Innovation will drive The Future History of Payments, which will be marked with
substantive change, much more so than what we have seen in the recent past.
Technologies like blockchain, IoT and biometrics will create new payment business
and usage models in the future that few could have predicted today. Open banking
and APIs will open up one of the world’s oldest industries to intense competition.
The Future History of Payments will also be a period of trial and error. The industry
focus on fintech today has completely changed the approach that financial institutions
have to technology. What was once a line-item in the costs of many banks, is now
a potential revenue driver as technologies like AI, blockchain and IoT will potentially
re-shape the future.
But the end-state is far from clear. There have been numerous proof-of-concepts on
both internal and external blockchain-based payment solutions, but only a few that
have gone into production. Similarly, with IoT, the jury is still out on whether people
want their refrigerator helping them to pay their bills.
This experimentation is a natural part of the evolution of technology within the financial
industry and something that we should continue to expect as we move forward into
the future. Technologies will rise and fall in importance. Solutions based around those
technologies might take months if not years to gain acceptance. Even something as
straightforward as Bitcoin has yet to find its 'killer-app' beyond being a speculative
asset.
Despite the benefits of digital payments, some habits are hard to change. In India, the
volume of overall digital transactions grew 42 percent from 672 million in November
2016, to 958 million in December 2016, then declined by 20 percent to 763 million
in February 2017.65 Education, awareness and infrastructure will be key to their
development.
There is uncertainty in the Future History of Payments, but there is also immense
possibility. A famous Chinese saying states: "A crisis is an opportunity riding a
dangerous wind." This is truer today than ever before: although the challenges for
the traditional financial industry are great, this new technology renaissance brings
incredible opportunity change and growth. The only challenge is staying ahead of the
change to ensure you have a place in the Future History of Payments.
65 Reserve Bank of India

Conclusion & Closing Words
The Banking industry as a whole is undergoing a huge transformation and the payments ecosystem
is no stranger to this disruption. New, all-digital banking entrants and fintechs are muscling in to offer
what could be “the next big financial service,” which the digital savvy institutions are clambering after,
either through partnership, investment or acquisition.
The trend for real-time payments for example has accelerated considerably, acknowledging significant
enhancements with the Faster Payments scheme in the UK, from which 30% of all traffic flows through
Finastra’s Payments solutions. With interest and demand spreading worldwide, the marked necessity
for faster payments is driving the launch of new platforms, for example in Thailand and in the United
States.
As a software leader with a mission to provide the solutions and support for the successful adoption
of real-time payments, Finastra has publicly stated they will be ‘where our customers need us to be’,
further cementing their commitment to succeed in this field, and across the Payments ecosystem.
A typical example would be SWISH in Sweden - a collaboration of Swedish banks which introduced a
mobile phone based instant payments service in 2012, underpinned by Finastra, that was adopted by
over half the population to make domestic payments.
The creation of frictionless payments makes economies more efficient; they support innovation and
serve to accelerate positive growth. The immediate gains from real-time payments in terms of speed,
reliability and transparency are immense. The adoption provides a gateway to accessing further
additional Value Added Services leveraged from the rapid adoption of APIs and “Platformification”.
With this huge capability in mind, it is easy to see when combined with Cloud based services and IOT,
that technology can take us anywhere anyone wants to go.
This report illustrates well the pace at which technology has evolved, the speed of adoption, and in the
case of financial inclusion, its positive contribution to socioeconomics. By leveraging the capabilities
of just a smart device and a 3/4G signal, Finastra’s digital solutions power the ability to open an
account using facial recognition, create financial goals and milestones, make/receive payments and
remittances. Even organise loans through crowdsourcing via the LenderCom platform.
The power of payments transcends all elements of Financial Services, from consumer micro payments
of mere cents and dollars, to sovereign payment transactions in the hundreds of millions or billions
of dollars. Whether looking to transform banking services in the traditional on-premise installations or
harness the power of the Cloud through Microsoft Azure, Finastra is the trusted partner on the journey
to giving your customers the service and experience they expect in the Future of Payments.
Matthew Williamson
Global Head of Payments
www.finastra.com

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What is the purpose of the report?

What is the purpose of the report?

What trends are shaping payments regionally around the world?

What trends are shaping payments regionally around the world?

KA2018-02

The Future History of Payments

Kapronasia & Finastra - The Future History of Payments Page 2

Technological advances such as more affordable smartphones and the growing

Kapronasia & Finastra - The Future History of Payments Page 3

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Every organization, institution, and company is on their own journey of payment

Cross-border expansion – We are increasingly watching domestic champions

Public-private partnerships are essential – Examples abound around the

Socio-economic factors – A critical driver of the uptake in digital payments

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Thus, although cash is nearly universally accepted, these challenges prompted

The Rise and Demise of Checks

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Figure 1: The fall of checks worldwide

The Introduction of Plastic

Kapronasia & Finastra - The Future History of Payments Page 8

Source: Nilson Report, Kapronasia Analysis

Figure 3: Transaction volume also slowing

Source: Nilson Report, Kapronasia Analysis

Credit cards removed friction in card-present transactions, but e-commerce

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Despite the continued growth of remote mobile payments, ‘proximity’ mobile

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WeChat’s usage of payments is part of a broader trend towards “social” payments

Figure 4: Mobile payments continue to grow

With a Wave of the Card

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Figure 5: China lags behind in contactless cards

United Kingdom Australia China

Source: UK Cards Association, RBA, Kapronasia Analysis

Real Time Payments

In many scenarios, real-time payments are no longer optional, but a requirement.

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For many organizations, the move to real-time payments requires a broader

Real-time cross-border payments connection between Singapore and Thailand.

Countries with Real-Time Payments

Kapronasia & Finastra - The Future History of Payments Page 14

Regulator or Private driven?

The Dutch Payment Association (DCA) is an excellent example of how collaboration

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• In regions such as Africa, technology availability and adoption have meant

• Regulators and governments have also significantly affected payment

Europe – Still the Land of the Cards

Figure 6: European non-cash transaction growth shows no signs of slowing

Source: A.T.Kearney, European Central Bank

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Debit and Credit Cards

Kapronasia & Finastra - The Future History of Payments Page 17

The Future – is it mobile?

Figure 8: More Europeans are shifting to mobile banking

cashless-means-of-payment-2014-data.pdf; Gerold Doplbauer, “Ecommerce: Growth without end?”, Gfk GeoMarketing,

Kapronasia & Finastra - The Future History of Payments Page 18