The megatrends revolutionising payments, and the world

There are obvious challenges to trying to predict and visualise what the world could look like in 2032. So much change can happen in a decade; what we think today is likely to be very different to the reality in 10 years’ time.

This is as true in life as it is in the payments industry. Few would have predicted the extraordinary change that has happened in payments since 2012, a transformation powered by digitisation and led by the smartphone. Such is their impact, the experience and technology involved in making payments today is a world apart from the past. Yet in the future, the experience and technology involved is expected to be radically different again, and likely to be completely revolutionised.

At the core of that prediction, made in JPMorgan’s report entitled Payments are eating the world, is the power of greater interoperability and data transfer between the mega-sized digital platforms, ecosystems and marketplaces to drive this revolution.

“The first wave of the information revolution was connecting people and devices,” says Jeremy Balkin. “Now, and over the next decades, it’s about enhancing the connections within and between these massive platforms, ultimately enabling the exchange of data horizontally, vertically, and through the full 360 degrees.”

Such data movement is important, forming the foundation on which these platforms can offer and integrate even more value-added services to customers and merchants.

JPMorgan sees the evolution of these platforms as the first of five mega-themes that are shaping the future of payments globally. The other four mega-themes are: online; wallets; embedded; and real-time. Together they represent what the US bank describes as the POWER+ framework, which is its way of understanding and framing the importance of payments to the world.

For Neha Wattas, such is this importance, “payments are not only the new connective tissue of the world, they are also the nervous system providing cohesion, support and intelligence to global commerce.”

And that is not just among large and medium sized multinational companies. It is also among small companies and individuals who are ultimately their own small business because of how they can monetize whatever they do or produce via their smartphone, wherever they are in the world.

“They could be sitting in Afghanistan and transacting with a buyer in Los Angeles, with payment in real-time and in their local currency,” says Wattas. “That is true global connectivity.”

Payments have always been important. Yet, in the next few decades, JPMorgan believes the importance of payments will become ever greater, supported by accelerating technological advancement, including the introduction of 5G coupled with advances in artificial intelligence algorithms, quantum computing and distributed ledger or blockchain technology.

In turn, these innovations are expected to enable new technologies to flourish, including next generational conversational AI, the Internet of Things (IoT), connected cars, and scalable augmented and virtual reality. Importantly, as these new technologies are introduced to the marketplace globally, they will undoubtedly have a profound impact on how we live, work and consume — shifting value pools and investment allocations, and reshaping the global economy.

Here are the five mega-themes that comprise JPMorgan’s POWER+ framework:

• Platforms – As digital platforms, ecosystems and marketplaces continue to disrupt traditional industries, they are further coalescing their power and transforming themselves into platforms of platforms, more commonly known as super apps. In just over a decade, global payment volumes for these entities have increased to $36 trillion, making them huge disrupters to both traditional retail models as well as the world’s banking and financial systems. “These platforms of platforms or super apps have an insane level of aggregation of supply and demand,” says Wattas. “Whether you are a consumer or merchant, these platforms work to your advantage.”

• Online – The online world has been characterized by a constant flux of new innovations and omnichannel business models over the past 30 years. Online payments is currently being shaped, and will continue to be, by the rise of e-commerce ($5 trillion in annual global retail sales shifted from offline to online due to the pandemic, according to Boston Consulting Group), the growing need for digital identity solutions and the rapid rise in the so-called gig economy (worth $300bn globally in 2020 by transaction value) and creator economy (worth $100bn in 2021). “If shopping malls dominated the 20th century, then digital malls will dominate the 21^st century and beyond. This is not a cyclical change. It is structural,” says Wattas.

• Wallets – The growth of digital technology is not just transforming how we shop, work and pay, but is also disrupting the traditional concepts of what is and what is not money. In today’s economy, there are multiple forms of money, including traditional fiat currency (cash or commercial bank deposits), cryptocurrencies, stablecoins, tokens, central bank digital currencies (CBDCs) and “narrow money” such as rewards cards. This emerging and evolving ecosystem poses interesting questions about where value is stored in the modern economy. It used to be that commercial banks had the sole right to store value, but today, as technology changes and security improves, digital wallets are effectively playing that role for millions of consumers.

• Embedded – Embedded payments refer to the increasingly effortless way consumers are able to make contextual and contactless financial transactions – anytime, anywhere – through connected devices that serve as wallets, like cars, homes or wearable technology. Embedded solutions add a new level of convenience and speed to the payment process and are a key element of the invisible banking concept. In this scenario, financial services are seamlessly embedded into daily activities and have become so automated and frictionless that consumers no longer notice them.

• Real-time – Whether it’s a business making a cross-border payment, a worker sending remittances to his own country, or e-commerce consumers wanting to make instant transactions, the demand for real-time payment capabilities is growing. While there is much work to be done before the reality of instant payments can be realized in more than a handful of use cases, significant progress toward this goal will be made in the coming decade.

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