Fantom Innovation— Digital Currency Global Overview and Forecast

by Ashton Hettiarachi

Digital Economy Market Overview:

Global Overview:

Global Non-Cash Transaction Analysis: [9]

  • During 2015–2016, global non-cash transaction volumes grew at 10.1% to reach 482.6 billion

Analysis of top ten Global Markets: [9]

  • USA remain on top reaching 148.5 transactions in 2016, an increase of 5.7% over 2015.

E-Wallet Payments:

  • Non-Cash Transactions conducted via E-wallet 41.8 billion

Countries with Minimum Cash Transactions:

Accessibility and Acceptance Devices: [8]

Australia stands out with a high penetration of point of-sale (POS) terminals and low number of ATMs. In March 2018, consumers had access to some 965,000 POS devices, 28% more than in 2012. By comparison, the number of ATMs has increased by 3% to 31,712.

Global Overview on regulatory standpoint on Cryptocurrency:

Open Banking Assessment:

When mapping the open- banking readiness versus open-banking potential of these markets, in terms of openness in the market with respect to new competition, adoption of standards, degree of data-sharing deals between banks and third parties as per open-banking norms, enhanced CSM procedures, and the maturity of instant payment schemes. We observed three categories: pioneers, followers, and conservatives.

Among the pioneers, it is interesting to observe that countries with higher per-capita non-cash transactions such as Sweden, the Netherlands, the US, and the UK, are more mature open-banking markets.

Among the followers, Belgium and France have not made significant progress in open banking, because they wish to protect existing systems and participants in their markets that are fairly consolidated and dominated by a few large banks.

Conservative countries are taking a wait-and-see approach and rank low in per-capita, non-cash transactions

Digital payments Overview and growth: [26]

  • Total Transaction Value in the Digital Payments segment amounts to US$3,952,706m in 2019.

Transaction Value: [26]

Total Transaction Value in the Digital Payments segment amounts to US$3,952,706m in 2019.

Total Users: [26]

In the Mobile POS Payments segment, the number of users is expected to amount to 1,601.8m by 2023.

Average Transactions per user: [26]

Market Overview Australia:

Payment Methods: [1]

  • Cards and Direct Entry:
  • Cash and Cheques Use:

Overview of different payment methods from 2012 to 2017 [1]

Smartphones and Internet activity:

  • 9 out of 10 people owns a smartphone

Cryptocurrencies:

Interest in cryptocurrencies has increased significantly in recent years, together with a sharp run-up in prices and the emergence of new products and intermediaries that facilitate trading in them. The prices of Bitcoin and other cryptocurrencies, the total market capitalization of cryptocurrencies reached a peak of over US$800 billion in early 2018, but has since fallen back to around US$200 billion.

In Australia, [23] around A$6 billion of cryptocurrencies were traded (bought and sold) at Australian digital currency exchanges (DCEs) in 2017.
Around 60 per cent of the total trading value for that year took place in the month of December alone, when cryptocurrency prices and activity spiked higher. The study estimated that Australian DCEs had around 313,000 customer accounts at the end of 2017.

Australia’s New Payments Platforms:

With the New Payments Platform (NPP), the Australian Government and financial industry collaborated to create the necessary supply-side push for Australia’s payments industry.

Advantages of NPP:

Businesses: A 24/7 payments system through the NPP ensures that transactions are no longer restricted to business hours. Improved tracking and receipt of payments, due to richer data, will help businesses lower costs. For example, better remittance information will streamline reconciliation processes.

Banks: Non-cash transactions are expected to increase under the NPP, resulting in higher revenues for banks as they deliver new value-added services and develop an ecosystem of offerings around their core banking solutions.

Card operators and payment processors: Overlay services through the NPP can enable network operators to offer new card products, for example, contactless payments.

Future of Digital Payments in Australia: [15]

  • The factors shaping the future of payments in Australia will have effects on the revenue potential for the players in 2020

New Entrants and Top Trends:

  1. Fintech

Global Payment Trends: [24]

  1. Banks becoming platform to aid collaborations, retain payments role. [24]
  1. Globally, payment infrastructure is being transformed to become faster and more inclusive to new players that will launch valuable offering for retail and businesses. [24]
  1. Payment vendors and banks are expected to consolidate their operations to form larger groups. [24]
  1. With Europe’s 2nd payment service directive comping into force fintech and TPPs are expected to leverage open APIs to examine available opportunities. [24]
  1. Alternate payment channels such as contactless and wearables gain acceptance. [24]
  1. Banks and fintechs explore distributed ledger technology to transform cross border payments. [24]
  1. Instant payment processing likely to become the new normal. [24]
  1. As Cyber-attacks are rising, regulators are focusing on compliance with current cyber security and data privacy laws. [24]
  1. Robotic Process Automation and machine learning help payment service providers in frauds detection. [24]
  1. Payment firms continue to invest in advanced authentication technologies to fight fraud and data breaches. [25]

Future Trends and Opportunities of Digital Payments:

Key Future Imperatives for financial Institutions:

Non Cash Transactions Forecast: [16]

  1. From 2016 to 2021, the CAGR of worldwide non-cash transactions will be 12.7%, with growth in the more immediate future of 11.0% during 2016– 2017.

Various requirements of all stakeholders towards Digital Payments 2020 in the world

Potential for increased consumer benefit and growth stimulation in P2P, POS and E-Commerce: [17]

Ecommerce is booming worldwide. Having launched in December 2017, Amazon Australia had 10,000 sellers by March 2018, and expects to exceed 50,000 by the end of 2018. In 2017 retail e-commerce sales worldwide amounted to 2.3 trillion US dollars. The graph below shows trend for next 4 years.

From a consumer and retailer perspective there are several limitations of Digital Payments today:

  • Often time-consuming, redundant und internationally diverse requirements for registration and KYC/ identification

Need for action in five areas:

Access to essential infrastructure will foster the availability of payment services

Consumers shall have the possibility to use the payment app of their choice in combination with the mobile device of their choice. This is possible with Android devices (e.g. Samsung and others); however, with iOS devices, consumers have no other choice but to use ApplePay. Consumers shall freely select the payment app of their choice and not limited by any given manufacturer of essential infrastructure.

New Emerging Technologies: [17]

  1. Distributed ledger technology (DLT)

Banks are examining the potential of DLT in the short term to enhance customer experience (through its data integrity and security features). Over the longer term, DLT’s potential to bring efficiency to some payments functions, including identity management, remittances, and interbank payments and settlements, is also being considered. Crypto currency developments include Veem and Mastercard. In interbank payments and settlements, the Bank of England (BoE) is developing a DLT-based RTGS solution while UBS’ Utility Settlement Coin could enable FIs to directly transact securities with each other. Two wallet developments of note are Bitcoin Wallet and Exodus.

  1. APIs and RTP

At present API are more used in B2C and C2B payments than B2B sector. Domestic and international RTP schemes, combined with virtual accounts and liquidity management solutions, could form the basis of a number of corporate business propositions.

Domestic RTP Scheme

  • In addition to instant availability of funds, RTP gives corporates traceability and finality of payments.

International RTP Scheme

  • Large businesses operating in multiple countries are looking for speed and convenience for cross-border transactions.

Liquidity Management Solution

  • Corporates are not used to managing their liquidity in real-time and need robust real-time liquidity monitoring and management tools, which will help them to more efficiently manage their liquidity.

Virtual Accounts

  • RTP will provide instant clearing and availability of funds for corporates, but the full benefits cannot be utilized without an instant reconciliation mechanism. Virtual account solutions (for example virtual IBAN) can address this challenge as they provide superior cross-currency payments and collections management in an in-house bank set-up.
  1. AI, IoT and Smart Devices

AI technology offers a wide range of use cases that can help banks orchestrate different elements of the payments landscape.

Conversational Commerce

Spending via voice assistants is expected to grow as much as six-fold in three years. [17]

Digital Identity

Adaptive authentication is capable of supporting AI use cases for high risk and dynamic transactions.

Customer Retention

The growing popularity of AI agents such as Siri and Alexa will push PSPs to offer value- add services and new business models. Companies can monitor and understand customer behavior by using big data and analytics, expanding their portfolio of services.

Commercial Payments and Collections

Optimized treasury pricing will enable firms to capture more revenue while advanced analytics can help to avoid price leakages. Collections and debt restructuring for detecting payment patterns, borrowing trends, and their financial health in terms of delinquencies and late payments.

Analytics and Machine Learning

AI-based analytics for validating user ID as users have increasingly complicated digital histories. Customer segmentation according to their needs, enabling new opportunities for cross-selling and up-selling.

Challenges Faced by New emerging technologies: [22]

There are some challenges that are limiting the adoption of these emerging technologies. Once such challenges are addressed their true potential will be unleashed.

Technology

Challenges

APIs

Security vulnerabilities (malware, social engineering and man in the middle attacks),

lack of standardization

RTP

Interoperability, standardization, synchronization

DLT

Security, interoperability, scalability, cost-effectiveness, lack of regulatory clarity

Factors Limiting the Adoption of DLT (%), 2018 [22]

Cryptocurrency in South Korea:

Cryptocurrency Users in South Korea: [19]

Distribution of South Korean Bithumb users who invested in virtual currencies as of November 2017, by age group

Some Facts about Cryptocurrency users in south Korea:

  • 1/3 person from working class use cryptocurrency [19]

References:

  1. Reserve Bank of Australia, Annual Report 2018

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