Deutsche Bank Research published this January a three-part series called The Future Of Payments examining the past, present, and future of the payments industry. The series analyses the results of a proprietary survey of 3,600 customers across the US, UK, China, Germany, France and Italy and forecast trends in cash, online, mobile, crypto, and blockchain. According to the report the “potential macro and geopolitical consequences are profound”, the authors see the transition to digital payments “as having the potential to do no less than rebalance global economic power”.
The first report, titled Part I: Cash: The Dinosaur Will Survive… For Now predicts that cash will be a part of the economy for decades to come because “people have developed a deep-rooted trust in paper and coins during uncertain times” and because it “allows people to more easily track their spending”. Part II: Moving To Digital Wallets, and The Extinction Of Plastic Cards states that the coming decade will see digital payments (peer-to-peer payments and cryptocurrencies) grow at light speed, leading to the extinction of the plastic card. In emerging markets, the effect could arrive even sooner. Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card. Part III: Digital Currencies: The Ultimate Hard Power Tool is an analysis of payment systems and the need to upgrade. The authors believe a new digital currency could become mainstream within the next two years and in the long run, a digital currency could eventually replace cash. To break into the global payment market, digital currencies must overcome some headwinds and forge alliances with key stakeholders. These might include mobile payment apps (Alipay, WeChat Pay, Apple Pay, Google Pay), card providers, and worldwide retailers (Alibaba, Amazon, Walmart). Assuming that (a) governments back them; and (b) they become stable; and (c) consumers and merchants can get more value by using these new currencies, then increased adoption rates will more rapidly lead to mainstream use. If current trends continue, there could be two hundred million blockchain wallet users by 2030.
According to the report the main contestants for a mainstream digital currency are Facebook’s Libra stablecoin and the Chinese government’s digital currency. Facebook, with nearly 2.5 billion users (one-third of the world’s population), and China, with more than 1.4 billion inhabitants combined the two currencies would cover more than half of the world's population. If China launches their central bank digital currency, it will become the first major economy to use a digital currency, which will pressure other countries to set up their own digital currencies.
As China (and India) develop electronic, crypto, and peer-to-peer strategies, the epicentre of global economic power could shift. China is working on a digital currency backed by its central bank that could be used as a soft- or hard-power tool. In fact, if companies doing business in China are forced to adopt a digital yuan, it will certainly erode the dollar’s primacy in the global financial market.
The reports suggest that Western governments should address and issue regulatory rules soon before technological disruption and changing services in emerging economies creates a potential crisis. Adoption will require, as noted in the final report, legitimacy from local governments and regulators.