Payments are atomizing...

In my view, electronic payments will accelerate dramatically over the next decade, driven by the “atomization of payments.” New business models are emerging, enabled by technology, resulting in increased transactions that will scale and scale. We are fast moving from batch to real-time transactions, with payments made continuously from bank accounts.

Examples may include shopping: in-aisle buying with an instant payment for every item picked off the shelf; self-driving cars, where ownership will diminish, replaced by on-demand rides, and payment for every journey; salaries, typically paid monthly to be paid daily, even hourly; company dividends paid daily (already evident in the BnkToTheFuture investment platform); smart meters will pay electricity daily and so on.

Benefits to expect from this transformation

The benefits will be broad: new products and services, improved cash flows, financial efficiency, improved certainty for businesses and individuals, better fraud prevention, reduced or eliminated reconciliations and errors. Changes will be driven by technology and new business models, and will be pervasive and profound. For example, payroll, billing systems and processes will be very different, and often unnecessary, and personal and business cash management will be largely automated.

Quantifying the impact of atomization

While it will take years for payments to atomize fully, let’s put some figures to quantify the impact using the UK as an example.

The UK has 19 million households. Assuming they buy 50 items a week (mainly groceries), which translates to 49 billion payments and items purchased. The UK has 37 million vehicles. Let’s assume each averages 10 trips per week—which is 19 billion annual trips and payments. Around 31 million people are employed in the UK—adjusting this for part-time workers, daily salary payments would amount to 7 billion payments annually. About 10 million people own UK shares, assuming they average 5 shares each—which is potentially 18 billion daily dividend payments annually. Finally, if the 19m UK households have smart meters making daily electricity payments, that is 7bn payments annually.

So, with some very basic analysis, we have identified around 100 billion future UK payments, and have barely scratched the surface. Add in other utilities, daily mortgage and other interest payments, on-demand music, phone calls, TV/video, media and new business models that are yet to be invented, and it is easy to see UK payments reaching up to one trillion transactions per year in the future, and multiplying by relative GDP factors, seven trillion in the US, six trillion in Europe and 30 trillion globally.

There are currently about 38 billion payments in the UK (including cash, cards and electronic) according to Payments UK (now part of UK Finance), so payment volume in the UK could rise 25 times or more.

When this will happen is anyone’s guess—10 years? 20 years? 40 years? But we need to plan for it!

In part two I will explain a precedent for this atomization and its implications, and what the payments industry needs to do.

My thanks to Nick Caplan, Chairman of Faster Payments Scheme Ltd, for the inspiration behind this blog.


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