The payments landscape is evolving – and fast. The internet and the pandemic have changed our purchasing habits faster than predicted, fintechs now the way we do banking, and smartphones the way we pay.
Fewer people use cash than five years ago, reports advisory firm Gallup. Whereas in 2017, 28% of people said they used cash for most or all of their purchases, today that percentage has decreased to only thirteen.
By 2026, only 10% of point-of-sale payments are made with cash by 2026, financial corporation FIS Global forecasts.
Source: Gallup
As cash usage slowly wanes and traditional payment methods like debit and credit cards continue to lose share in transactional value across global payments, a new ecosystem of digital payments and financial services emerges to fill the void.
Already the payment method of choice for e-commerce purchases, digital wallets are expected to be used 15% more as a POS payment method by 2026.
Source: FIS Global
Under the hood of the payments infrastructure and driving the digitalization of the payments landscape, fintechs continue to disrupt traditional banking through technological innovation and new payment services.
According to McKinsey, the number of fintech unicorns has grown sevenfold over the last five years to 272 companies valued at a combined $936 billion.
Open banking, too, is steadily gaining a foothold in the world of banking.
Deconstructing the traditional banking infrastructure through APIs and open data access, the open banking market is projected to grow ninefold between 2020 and 2031 from $13.9 to $123.7 billion, according to research firm Allied Market Research.
With traditional payment methods in steady decline and the payments infrastructure evolving, what direction is the industry headed? What will be the most popular payment methods in 2023? And what challenges lie ahead?
In this article, we take a deeper look at today’s payment trends to make 3 predictions about the future of payments in 2030.
Read on to find out more.
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From paper to apps: a new era of payments
To better understand where the future of payments is headed, a brief look at the evolution of global payments systems is needed. In their 2023 Global Payments Report, McKinsey traces the payments industry through three distinct eras to arrive at a fourth:
- The paper era was characterized by traditional banking services, payments were made with cash and checks. The majority of payment transactions were initiated through bank accounts.
- The plastic era began with the introduction of credit and debit cards, which revolutionized the way payments were made. Cards enabled electronic transactions and gradually reduced the reliance on cash and checks.
- The account era saw the rise of digital payments, including online banking, mobile wallets, and peer-to-peer payment platforms. This era was marked by the increasing use of smartphones, apps, and other digital devices for making payments.
- The decoupled era, which the report suggests the industry may be on the verge of entering, is characterized by "decoupling" from traditional payment methods and the emergence of new, innovative payment solutions.
Source: McKinsey
In this timeline, the dawning era of decoupling is distinct from the payment trends that defined the industry over the last decade.
Payment technologies like instant transfers, account-to-account payments, and virtual cards are creating a more open payment landscape, yet they represent advancements within an account ecosystem.
Moving forward and towards 2030, payments may be increasingly disconnected from accounts and other fixed repositories of value. This new era will be reliant on emerging technologies and payment providers providing decoupled, open, and perhaps decentralized transactions.
Yet, traditional financial services won’t be completely overturned in this era and the cashless society is not as imminent as you'd think. A hybrid and open payments landscape is shaping the future of payments. We predict these 3 payment trends to shape 2030:
1. The future is blockchain
Of all emerging technologies, blockchain takes center stage in the future of digital payments. But what kind of blockchains will handle payment processing in 2030?
The future of payments is indeed tied to blockchain technology, but whether it will be predominantly centralized or decentralized remains to be seen and depends on advancements in tech and regulations.
In fact, in the payments landscape of 2030, both decentral cryptocurrencies and central bank digital currencies will be staple currencies.
Decentralized payments: cryptocurrencies
The cyclical rise of cryptocurrencies has drawn attention from investors and tech enthusiasts worldwide, but their price volatility shows the currencies have not yet matured.
A report by Boston Consulting Group, Bitget, and Foresight Ventures shows that crypto adoption is still very low compared to traditional investment assets, with only 0.3% of individual wealth invested in crypto.
And while as an asset class crypto is set to grow, it’s their potential as a form of payment that has a lot of potential for growth and adoption. As native currencies in the web3 ecosystem, adoption could mimic the adoption curve of the internet.
Based on this comparison, crypto users may reach 1 billion by 2030 if the trendline continues on its course.
Source: Boston Consulting Group, Bitget, and Foresight Ventures
However, the integration of blockchain in 2030’s payment infrastructure doesn’t depend solely on the adoption of cryptocurrency. As a technology, blockchain has already been embraced by central banks.
Centralized money: CBDCs
As cryptocurrencies gain in popularity, the world’s central banks have realized that they need to provide an alternative—or let the future of money pass them by.
Issued and backed by a central bank, these currencies are set to take up a larger role in payments as physical money is increasingly disused. Worldwide, central banks are currently piloting central bank digital currencies, or CBDCs, which aims to directly provide an alternative to their decentralized cousins with centralized digital money.
Think tank The Atlantic Council reports that the European Central Bank is on track to begin piloting its digital euro in more than 20 of its member states, perhaps including Germany. Australia, Russia, and Thailand are advancing their pilot into 2024 as Brazil and India plan to launch their CBDC in 2024 and China’s digital yuan already reaches 260 million users. A number of countries in Africa and Central America have already launched a CBDC.
In the US, retail CBDC development has stalled but wholesale CBDCs, meaning bank-to-bank, are speeding ahead.
Use cases for CBDCs include faster cross-border payments, B2B payments, easier government-to-person transfers, and the potential to embed programmability and policy directly into money.
But while pilots are advancing and tentative launch dates nearing, fundamental questions around financial inclusion, data privacy and impact on commercial banks still require consideration before full-scale CBDC launches.
So how much will consumers and companies likely have to deal with central bank digital currencies by 2030?
Once CBDCs are launched, their integration in specific transactions will likely follow quickly. Research firm Juniper Research forecasts more than $213 billion to be transacted annually in CBDCs by 2030.
2. The future is instant and borderless
A key payments trend in 2023 and in years to come, real-time cross-border payments are somewhat of a holy grail in payments processing.
Already, over 70 countries on six continents support real-time payments, with $195 billion in transaction volume this year, presenting a year-on-year growth of 63%, reports consulting firm Mordor Intelligence. The Asia-Pacific region is growing at the highest rate.
Source: Mordor Intelligence
Major players in real-time payments, including Paypal, ACI Worldwide, Visa, and Mastercard, have been engaging in partnerships to promote product innovation and attract investments.
These investments typically focus on low-value retail payment systems (RPS) and differ from real-time gross settlement systems (RTGS) between banks and the distributed ledger payment systems of cryptocurrencies like bitcoin and ethereum.
Currently, the rapid adoption of real-time payments is mostly driven by retail consumers who use RPS through the growing penetration of smart devices and booming retail e-commerce across the world.
In 2030, however, financial institutions, payments players, banks, and businesses all over the world will have adopted real-time payments – and will use these for cross-border payments.
A vision for the future of cross-border payments
While instantaneous and cost-effective, most real-time payments are currently low-value and domestic. Cross-border payments remain, on the other hand, expensive and slow, especially for small to medium-sized businesses.
In a vision for the future of cross-border payments, the European Central Bank suggests that linking fast payment systems could reduce costs and increase the speed and transparency of cross-border payments. This could heighten economic integration and benefit migrant workers who pay exorbitant fees for remittances.
The ECB further notes that public institutions have demonstrated their ability to build payment systems that provide payment rails as a public good, and international organizations can lend their support to further developing domestic payment systems for cross-border payments.
Indeed, such efforts are already on the way.
With the Federal Reserve’s FedNow real-time payment (RTP) rail having launched in July 2023, the Fed is now actively onboarding organizations to use its payments system, reports publisher American Banker.
Plans are also underway to introduce new features, including risk management and operational enhancements, fraud prevention tools, and a tech-centric developer resources.
The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, is also stepping up its game to make instant, cross-border payments a reality.
Enabled by SWIFT, the European Payment Council’s One-Leg-Out Instant Credit Transfer scheme (OCT Inst), which went live in October 2023, enables payments to and from Europe to be processed 24 hours a day, seven days a week.
By the end of the decade, many domestic instant payment systems will have been interlinked through similar efforts.
This global payments processing infrastructure will offer cheaper, instant cross-border transfers to a globalizing economy, amounting to a 53% increase in global transactional volume between 2023-2030, according to financial data company FXC Intelligence.
By 2030, cross-border payments will amount to $290 trillion in global transactional volume.
3. The future of payments is about user experience
As we've argued, the future of payments is expected to be characterized by a greater emphasis on digital payments, as well as the continued development of new payment technologies, and the use of cryptocurrency.
This digitalization of the payments landscape creates different expectations from consumers, as has been seen in other industries, notes the founder of global membership organization 20022 Labs.
As pointed out in the McKinsey report, the coming "decoupling" era will be marked by innovative payment solutions that are decoupled from accounts and traditional banking structures.
The payment technologies being developed today give rise to a new form of customizable payments, or what consulting firm Capgemini call payments 4.X.
Experience is a defining feature in payments 4.X, which are embedded, invisible, and enabling to provide an immersive, seamless, and frictionless customer experience.
Already, embedded payments and gamification provide businesses with powerful tools to enhance customer experience while streamlining payments. And through web3 technology, branded tokenization provides programmable value ecosystems that can provide a tailored user experience.
As the digital environment changes in the coming years, more technologies will arise that further customize payments. But how to keep these payments advancements from diverging?
A standard in an open payment landscape
With the rise of novel payment methods in open ecosystems, a standard for payment security becomes more paramount than ever.
In 2023, the ISO-20022 standard was first used for cross-border payments, providing a new standard for payments players worldwide, reports consulting firm Accenture.
ISO-20022 is XML for payments and transforms payments to align with modern computing and messaging conventions. It is designed to simplify global business communication and improve the efficiency of payment processes.
While many banks are currently focused on achieving regulatory compliance with the standard, the true value of ISO 20022 is yet to be realized.
The standard has the potential for the standard to unlock value for banks, their clients, and markets as a whole, particularly through the adoption of enhanced payments data.
Conclusion: payments in 2030
As we've explored, the future of payments in 2030 will likely feature various innovations that change how money moves.
In 2030, instant settlements and interoperable global transaction rails will be the norm. Central bank digital currencies will complement decentralized crypto – and perhaps replace traditional physical money. Highly embedded, invisible payments will enable immersive commerce across environments while still securing privacy. And enriched data will elevate transactions from simple value transfers to gateways for intelligence.
Whether we will have a cashless society by the end of this decade remains to be seen, but for businesses to be successful in 2030, money has to move freely and payments must enable great customer experience.
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