Earlier this year I made a set of payments predictions for 2017, which is living up to expectations as a year with new developments and change occurring on all fronts. In this blog, I give an update on how the payments landscape is shaping up and rotating towards a new world of digital payments.
Contactless and Mobile Payments
Prediction: Contactless card transactions in the UK will rise to between 6BN – 9BN transactions in 2017, (compared to my forecasts a year ago of 3BN transactions for the UK for 2016).
- UK Finance figures show 2.5BN transactions in the first six months of 2017 compared to 1.1BN transactions in the first six months of 2016, a 130 percent increase pointing to at least 6BN transactions for the whole of 2017.
- Contactless payments are an important indicator of rapidly changing consumer behavior, and the experience in the UK is a mirror of a global trend.
Contactless transactions are growing at a huge rate, far faster than most realize, showing a profound change in the way we pay across the globe. They are also spilling over into mobile contactless payments (e.g. Apple Pay) which grew 336 percent in the UK in the first half of 2017 compared to the same period in 2016 according to Worldpay.
Prediction: Voice payments solutions will start making a hit with the public—perhaps through Siri on iPhones, Alexa on Amazon and at POS.
- According to Business Insider research (June 2017), 8 percent of US respondents to their 2017 BI Intelligence survey said they used voice commands to buy something, send money to a friend, or pay a bill.
- Amazon, Apple, Google, and PayPal all have voice capabilities—with, for example, Barclaycard launching a voice payment service with Siri in August 2017.
Voice payments and voice commerce are an emerging trend that is here to stay.
Prediction: Alternative payment mechanisms (APMs) such as PayPal, iDEAL in the Netherlands and Klarna (Europe and US) will continue to grow strongly (20 percent – 30 percent) for e-commerce, driven both by convenience and by high fraud rates in card-not-present transactions.
- PayPal grew payment volume by 23 percent in Q2 2017 over the same quarter last year, while Klarna reported a 37 percent transaction growth in Q1 2017.
APMs are already more popular than cards in some countries for e-commerce, and this continuing trend shows cards dominance is under threat globally.
Real-time Payments Interbank Infrastructure
Prediction: The UK will continue to lead the world in instant payments. Plans will be developed for a new real-time payments infrastructure that leaps ahead of current implementations in terms of ambition and capability.
- The Payment Strategy Forum published its consultation in July 2017, which outlines its blueprint for a New Payments Architecture in the UK and its ambition to deliver it in 2020/2021.
Prediction: Faster Payments will process 1.65BN transactions, 15 percent higher than 2016 (1.4BN transactions).
- Faster Payments processed 790M payments in H1 2017, 15 percent higher than H1 2016. The continuing growth of real-time payments in the UK demonstrates the sustained, and irreversible demand for real-time payments and the beginning of payments atomization—the growth of UK real-time payments in large part is due to more payments being made, rather than just simple substitution of other payment types.
Instant or real-time payment infrastructures are appearing all around the world. Adoption is gradually gaining pace and we can expect years of ongoing renewal, such as in the UK, as they embed and evolve with the demands of the digital economy.
Distributed Ledger Technology
Prediction: Bitcoin transactions for 2017 will be 150M transactions (up from 83M in 2016), miners’ revenue $850M ($562M in 2016), the average hash rate will be 5.7gh/s (1.5gh/s average in 2016), $120BN will be transacted in Bitcoin ($56BN in 2016) and the average number of unique addresses used daily will average 600K (406K addresses daily in 2016).
- In H1 2017, there were 52M Bitcoin transactions, a 36 percent increase implying just over 110M transactions for the full year; miners’ revenue was $567M, a 77 percent increase implying $1BN for year; the average hash rate was 3.8gh/s, a three-fold increase implying 4.6gh/s average for the full year; $77BN was transacted in Bitcoin, a three-fold-increase implying $175BN for the full year; and the average number of unique addresses used daily averaged 535K, a 37 percent increase implying 560K average addresses for the full year.
This is a blizzard of statistics, but they show that the Bitcoin network continues to grow in terms of transactions and users (addresses), that significant sums are transacted over it, and that while miners are multiplying—in fact, tripling—the computing power (# rate) in the Bitcoin network, they are receiving significant rewards for doing so.
The number of Bitcoin transactions is still very low for a payments network, and are constrained by the current network capacity limit (which is supposedly being resolved), indicating that the Bitcoin network is more a store of digital asset value than a payments network. However, while miners’ revenue is dependent for now mainly on block rewards, over time this will diminish increasing their need to compete for transaction fees, and if Bitcoin is to endure, the number of transactions will need to grow significantly.
I suspect that this is part of Satoshi Nakatomo’s game plan for Bitcoin, and if it materializes, Bitcoin will become a mainstream force over the next 10 years as a store of value and as a payments network.
Prediction: Ripple will be the one DLT player in payments that grows, with its technology moving on from use by banks for pilots, bilateral exchange and internal payment flows, to use as a new cross-border payments network with growing transaction volumes between networked banks.
- Ripple launched the Ripplenet payments network this year to standardize participation and access to the Ripple network, has 90+ customers, 75+ commercial deployments in progress, and has a network running with 47 banks in Japan.
Ripple goes from strength-to-strength. While there are some examples of banks experimenting with other DLT, such as R3 in Singapore, no other DLT player comes close to the penetration of Ripple in payments, particularly cross-border payments.