In the third and final part of its Future of Payments report, Deutsche Bank has turned its attention to the potential impact of digital currencies. In Part II of the report, authors Marion Laboure and Jim Reid explored how, over the coming decade, digital payments will grow “at light speed”, leading to the death of the plastic card. Over the next five years, we expect mobile payments to comprise two-fifths of in-store purchases in the US, quadruple the current level. Similar growth is expected in other developed countries. However, different countries will see different levels of shrinkage in cash and plastic cards. In emerging markets, the effect could arrive even sooner. Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card.
Digitalisation will give businesses extra incentive to smooth the payments transition. For starters, when customers are comfortable with a payment technology, they tend to think less about how much they spend. Furthermore, as the data gleaned from payments becomes increasingly valuable, payment fees will approach zero. Business-to-business (B2B) transactions will also benefit. Currently, corporates wait almost 70 days for payment from business customers. The number one reason for this is inefficient internal processes which lead to payment delays, something digitalisation can fix.
The report says that much about the future of payments can be deduced from developments in China where the country is developing world-leading digital payments infrastructure. As China (and India) develop electronic, crypto, and peer-to-peer strategies, the epicentre of global economic power could shift. China is working on a digital currency backed by its central bank that could be used as a soft- or hard-power tool. In fact, if companies doing business in China are forced to adopt a digital yuan, it will certainly erode the dollar’s primacy in the global financial market.
Many are sceptical about digital currencies, citing the large energy needs and point out that currencies such as bitcoin and Facebook’s libra have encountered significant regulatory hurdles.
Yet, if the growth in blockchain wallet users continues to mirror that of internet users, then by the end of the decade, they will number 200 million, quadruple the current level. This will be encouraged by governments, banks, corporates, and payment providers who all stand to benefit from the digitalisation of payments. The approach taken by countries and companies in their transition to digital payments will have a big impact on their standing in the world economy.
“My personal conviction on the issue of stable coins is that we better be ahead of the curve. There is clearly demand out there that we have to respond to.” - ECB President Christine Lagarde.
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