On 29 December 2014, seated by a brightly burning fire at home, I penned 20 predictions for the Payments industry for 2015. So, half way through the year, how are the predictions faring?
At this stage, I can report interesting developments on half of the predictions (for the other half, you will have to wait until the end of the year). Overall, I can confidently say they are holding up well, and are on course to paint an accurate picture for the year. Read on to find out more:
- Bitcoin will develop strongly, but without significant support from the banking sector
Mid-year: Bitcoin continues to attract a lot of venture capital and FinTech attention. H1 2015 saw $373m invested in Bitcoin companies according to Coindesk (with $832m invested in total so far), but no bank has announced plans for Bitcoin payment services (the received wisdom shared by many, including banks, appears to be that it is good to embrace the technology, the “blockchain”, but it isn’t necessary or desirable to embrace Bitcoin the currency – this is somewhat misguided in my opinion, but understandable given regulatory uncertainty – more on this in next year’s predictions).
- Daily bitcoin transactions will rise from around 85 thousand transactions per day at the end of 2014 to an average of 130 – 170 thousand transactions per day by the end of 2015
Mid-year: Daily Bitcoin transactions ranged from 88 – 149 thousand transactions per day in June 2015, averaging 117 thousand transactions per day, a 34% increase over the 87 thousand transactions per day average in December 2014, and a 95% increase over June 2014. At this rate, daily Bitcoin transactions will average 155 thousand transactions per day in December 2015, in the middle of my target range. It is worth noting that the estimated daily limit of 300 thousand Bitcoin transactions per day is getting near, with already a peak of 214 thousand transactions recorded on 10 July (the Greece crisis probably was a factor) – how Bitcoin evolves to cope with this growth will be a key question for 2016.
- The banking sector will experiment with, and form consensus networks such as Ripple, for real-time payments using digital currency technology, favouring these over proof-of-work networks (such as Bitcoin)
Mid-year: Several Australian banks have announced experimenting with Ripple – ANZ, Commonwealth Bank of Australia and Westpac , but banks are also experimenting with blockchain technologies e.g. Barclays and Santander. These announcements are good PR, but it will be interesting to see over the next 6 – 12 months whether these experiments and proofs-of-concept progress into commercial or core operational use in the banking industry.
- Ripple will make waves (how many times will this headline appear?)
Mid-Year Ripple has had some good PR such as the Australian announcements above. Lafferty news had a “waves” headline, while Silicon Angle managed a “Rippa for Ripple” sub-headline. Ripple was the talk of the EBA Day in Europe in May 2015, with the CEO Chris Larsen giving the keynote address at this key European banking and payments event. And of course, Ripple interviewed me themselves. Overall, Ripple is on a roll, and its progress with banks, especially in the correspondent banking and cross-border sector is one to watch for the rest of 2015 and into 2016.
- Effective regulation will focus on the KYC, AML and sanctions controls on digital currency wallets, rather than on digital currencies specifically
The UK Government announced in March 2015 its intention to apply anti-money laundering regulation to digital currency exchanges, to support innovation and prevent criminal use. New York State finalised its Bitlicense which covers AML and much more, while the California State Assembly passed its own digital currency legislation.
Contactless and Mobile Payments
- Contactless card transactions in the UK will rise above 1.25bn txns for the year, and above 3bn txns across Europe, continuing to grow at 200% – 300% per annum
Mid-Year – we are only half way through the year and figures are not out, but all the signs are that contactless card transactions are continuing their relentless rise with Visa Europe , MasterCard and Worldpay all reporting surging volumes. I am confident these volumes predictions will be close to the reality when the figures are in for 2015.
- Apple Pay will catalyse strong growth in mobile NFC transactions, accelerating merchant adoption of NFC/contactless POS both in the US and in other countries where it is rolled out
Mid-Year – no figures for Apple Pay transaction volumes are available in the US where it launched last year. So far this year, it has launched only in the UK outside of the US, with banks representing about 35% of all current accounts, in July 2015. The UK is a much more mature contactless economy than the US. Assuming that 10% of UK smartphones can use Apple Pay (iPhone 6), this implies roughly 3% – 4% of UK contactless transactions, or 3m – 4m contactless payments per month could migrate to Apple Pay at the moment. How quickly this happens is anyone’s guess, but with the remaining big UK banks scheduled to go-live with Apple Pay later in the year, expect to see published transaction figures from Apple within 12 months trumpeting its success; for example around a milestone such as 1m Apple Pay UK transactions per month (my guess is this will be in Q1 2016, but I will revisit this at the end of the year).
Alternative, non-card Payment
- New account-to-account payments and alternative payments to card payments will start seeing successful adoption e.g. Zapp (UK)
Mid-Year – The Swedish real-time account-to-account payments system Swish is growing strongly and is being prepared for ecommerce payments. Denmark has a similar very successful account-to-account mobile payment system Mobilepay. Meanwhile Zapp, the consumer-to-merchant account-to-account real-time payment service in the UK has finally revealed it is launch date. Using a new brand, “Pay by Bank app”, Barclays Pingit will be the first bank app to offer the service in October 2015.
- At least two countries in Europe will commission national real-time interbank payment infrastructures
Mid-Year – The Netherlands announced in June this year plans for a domestic real-time payments system to be running by 2019, and later the same month EBA Clearing produced a blueprint for a Eurozone cross-border instant payment system which it intends to be operational in 2018. Expect other European countries to announce plans for domestic real-time systems over the next year.
- Cross-border interoperability of new real-time time interbank payment infrastructures will become a major theme of debate, especially in Europe
Mid-Year – EBA Clearing formed the Instant Payment Task Force in January this year which has met several times so far to debate instant payments including how interoperability of real-time payment systems can work in Europe. In April this year, Payments UK led a roundtable meeting of over 40 organisations worldwide to agree how to harmonise ISO20022 message data formats and processing rules for real-time payments, in order to support global interoperability of real-time payments systems.