What are the Key Trends Shaping the Future of Payments?

Introduction

In this blog, we explore the macro perspective and emerging trends that are shaping the future of payments and everything. From economic uncertainty to the impact of climate change and the rise of autonomous economies, there are several key insights to consider.

Insights on Macro Perspective and Emerging Trends

• The global economic uncertainty and the challenges that societies are facing are arising from four core drivers: inflation, stagnant wage growth, emergence of artificial intelligence, and the impact of climate change.

• The economic uncertainty has been a long-standing issue, with wage growth stagnation over the past 40 years in countries like the United States and the UK, largely attributed to financial market deregulation and trade union attacks.

• Globally, protests have doubled in frequency over the past two decades, accompanied by a thousand percent increase in participation, indicating widespread dissatisfaction with the system and a search for solutions.

• By the 2040s and 2050s, highly autonomous and automated ‘Smart economies’ are expected to emerge, posing challenges such as employment shifts due to the influx of artificial intelligence into various sectors.

• China’s advancements in research, development, creativity, and innovation are positioning it to become the world’s largest economy by the 2030s, with substantial progress in areas such as AI, 5G, Edge Computing, and blockchain.

• China’s lead in the development and adoption of Central Bank Digital Currency (CBDC) is noteworthy, with over 100 billion dollars processed through the network and significant utilization across 15 provinces and 40 cities.

• The integration of China’s CBDC with the Belt and Road initiative could potentially challenge the dominance of the US dollar in global trade, indicating a strategic move towards de-dollarization.

• The advancements in CBDC usage also reinforce the importance of smart contracts, wallets, and artificial intelligence in payment gateway operations for cross-border trading and currency transactions.

The Impact of Autonomous Economies on Global Dynamics

• China holds a significant advantage in supply chain automation and smart economies due to its development of autonomous supply chain building blocks and the global standard in 5G technology, which the US does not use.

• Smart city implementation in Shenzhen, China, demonstrates advanced technologies such as image recognition for traffic control, leading to increased revenue and reduced complexity.

• The shift to more distributed energy grids and localized energy production and storage will reshape the design of energy systems as we move towards greener electricity generation.

• Improvements in healthcare technology, including AI for diagnostics, genetic therapy, and bioprinted organs, have the potential to reduce healthcare costs by 70%, but this requires better centralization of healthcare data.

• The rise of robotics and the integration of artificial intelligence in automation will lead to a significant shift in the structure of economies, creating techno unemployment and potential social unrest.

• Climate change poses a significant threat to food supply systems globally, with sensitivity of crops to warming temperatures, leading to potential food scarcity and disruptions.

Impact of Climate Change on Agriculture and Housing

• Warming temperatures are disrupting traditional agricultural regions in Western Europe, while creating new opportunities for wine production in the UK, such as in Kent. The changing climate poses a threat to food scarcity and can lead to an increase in eco-refugees, estimated to range from 300 million to 1.6 billion by 2050.

• The United Nations reported 65 million people displaced by climate change, with a significant portion in Pakistan due to flooding. Additionally, Pacific Islands like Bangladesh, Maldives, and Tuvalu face up to 80% infrastructure loss by the mid-2040s and 2050s.

• Climate change necessitates new thinking and adaptive measures. Advanced technologies like vertical farming, lab-grown proteins, and hydroponics offer solutions for building local food supply chains and reducing carbon footprints. However, addressing the housing needs of eco-refugees presents a challenge, especially with homelessness on the rise in the United States.

• The increase in homelessness in the US, with an estimated 30 million people facing eviction, underscores the pressing need for housing solutions. Innovative approaches such as 3D printed homes offer a cost-effective way to address the housing crisis, providing a potential solution to the growing problem of homelessness.

The Advantages of Chinese Mobile Wallets and the Future of Payments Technology

• Alipay processed 460,000 transactions per second last year, which is more than 10 times the capability of Visa’s global network. Despite this high volume, they had only 0.0006 basis points of fraud, demonstrating an extremely low fraud rate.

• In comparison, North America’s card-not-present transactions experienced a fraud rate of 11.2 basis points, making Chinese mobile wallets nearly 10,000 times safer than using a debit card in the United States.

• The future development of payment technology is highlighted by the unparalleled safety, real-time nature, and contextual capabilities of mobile wallets.

• Despite layoffs in the fintech and tech sectors, there has been significant investment in fintech, reflecting the pivotal role of technology in the payments arena.

• The emergence of augmented reality smart glasses, such as Facebook Meta’s Oculus project, will revolutionize consumer technology and further integrate mobile wallets into everyday life, enhancing the contextual and real-time aspects of payments.

• Smart glasses-based wallets will offer unprecedented context-based payment experiences and financial coaching, bridging the gap between offline and virtual worlds.

• In the future, mobile wallets will be the gatekeepers for various financial services activities, from retail transactions to small business loans, and will rely heavily on data and contextual information to offer personalized financial solutions.

• The shift towards the metaverse and the digitalization of the world will further solidify the role of mobile wallets as key artifacts in controlling our digital profiles and financial interactions.

The Future of Digital Wallets and Smart Glasses

• The speaker discussed the need for wallets that enable machines to hold assets and transact, especially in the context of wholesale Central Bank digital currencies. This reflects a shift towards non-human machine transactions through wallet infrastructure.

• The future of humanity, including sustainable systems in line with climate change, will be significantly influenced by the development of wallet infrastructure. This technology is expected to play a crucial role in shaping the future of payments, money, and currency in the economy.

• Smart glasses are expected to provide enhanced security through biometric signals and behavioral tendencies, making it difficult for potential fraudsters to remain anonymous. This technology offers a new layer of security for identity protection and digital interactions.

• The transformation to wallet-based transactions presents a challenge for existing payment models, such as interchange systems. Organizations need to transition to monetizing data and experience elements rather than relying solely on interchange fees.

• The potential for Central Bank digital currencies, particularly in China, is significant. It is speculated that China may use the digital currency for Universal Basic Income, exerting control over how the income can be used. Additionally, the integration of different countries’ CBDC systems is underway, which may lead to the emergence of a unified digital currency system within the region.

• Energy decentralization and supply chain restructuring are shaping the development of a ‘carbon coin’ and are key factors in addressing climate change challenges. The deployment of renewable energy and innovative energy storage solutions are critical components of this transition.

Conclusion

The future of payments is being shaped by a complex interplay of economic, technological, and environmental factors. Understanding these insights is crucial for businesses and individuals alike to adapt to the rapidly evolving landscape of payments and financial transactions. Stay informed, stay prepared, and embrace the changes ahead.

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