As digital currencies become integrated into the mainstream, payments service providers and technology providers are investigating how consumers will adapt to this new addition to the financial ecosystem. As banks and fintechs become more comfortable with
crypto payments, the role of technology firms becomes more integral to the consumer’s journey.
This is an excerpt from Future of Payments 2023.
To facilitate the integration of digital assets into the financial sector, what is expected of PSPs and technology providers is to be able to support banks and legacy financial institutions in the shift to modern, digital platforms.
Emergence of crypto payments
There is an increasing consumer interest in cryptocurrency, especially in younger generations. According to a survey conducted by Visa, 55% of 18-34 year olds in the US intend to invest in bitcoin in the next five years, a higher percentage than in 2017.
The cultural influence of digital assets online and across social media has swayed millennial and Gen Z interest.
Lewis Sun, global head of domestic and emerging payments at HSBC, notes: “Both PSPs and Banks will need the support from technology providers, which is especially important when the market is embracing very nascent emerging technologies. PSPs surely will
play an integral role and continue to focus on innovations that bring better client experience, such as cheaper, faster or more secure options.”
Major benefits to stem from digital currencies will be automation, transparency, efficiency, and the support of new businesses models. Alongside the induction of digital currencies into the payments system, there will be an increase in infrastructure for
tokenisation, distributed ledger technologies, and smart contracts. To take advantage of these benefits, payments fintechs need to simplify their infrastructure and banks must embrace digitisation.
Annelinda Koldewe, global head of wholesale banking payments at ING, comments: “Regarding crypto payments, we definitely see the importance and potential of stablecoins and tokenised deposits. Not primarily to facilitate a universe of thousands of cryptocurrencies,
but rather to nurture a new and emerging world of tokenised financial instruments and perhaps decentralised finance.”
The possibilities for crypto payments can facilitate cross-border transactions and reduce fees, however, could also exacerbate the digital divide. A large significant portion of the global population remains unbanked and underbanked, and crypto payments
could further create distrust of digital
payment methods.
Leading payments companies such as Revolut, PayPal, and Square have been offering consumers access to digital assets on their platforms. Visa is currently engaging in the crypto economy by evolving the network to integrate digital currency in its payments
processes and allow Visa merchants and consumers to exchange funds using digital assets.
In order for payments providers to remain dialed-in in the transition to crypto payments, research should be focused on interoperability, scalability, fraud detection, and security to ensure that digital currencies can flow smoothly and securely.