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Who’s who in the digital money universe?

Payments are the connective tissue of any economy, moving value around the system, facilitating the allocation of capital and underpinning the ways in which we produce, sell, buy and consume goods and services.

Many of the participants that influence how value moves around the economic ecosystem are long established, while others are new. They include:

  • regulators and policymakers, including central banks and governments
  • Retail, SME and corporate banks, including financial market giants, high-street clearers and emerging challengers
  • payment providers, including card and non-card, and domestic and international schemes
  • ecosystem orchestrators: big techs including Alphabet, Amazon, Meta and Apple, and fintechs including promoters of decentralised finance (DeFi), and crypto-exchanges seeking to rewire the system

service users including consumers, corporates, merchants, asset managers, not-for-profit entities, governments and tax authorities.

Up for adoption

One of the uncertainties we need to contend with when grappling with the future of money concerns the extent to which these players each want to embrace digital finance. How will new technologies be received by regulators and institutions? Will the payment preferences of customers continue to evolve? And what will the outcome be when physical, digital and metaversal financial marketplaces converge? Will we conduct business and complete transactions differently?

The level of appetite and adoption by each of these stakeholder groups will largely depend on the opportunities and challenges they encounter on the path to the future of money. These are likely to include:

  • trust in the system. Above all else, users of payments services want them to be secure and resilient. Nonetheless, as exchange and storage mechanisms evolve they will need to be safe, and perceived as being safe by all users
  • barriers to entry, which could act as a brake on competition
  • costs associated with required infrastructure investment
  • elimination of legacy costs associated with the minting, printing, handling, distribution and safeguarding of physical fiat tokens such as notes and coins
  • opportunities and challenges arising from the trade-offs, for example, between security and convenience, privacy and risk management, innovation and stability

improvement above and beyond what is available today – users want faster, better, cheaper ways to do things, and solutions to problems that aren’t being addressed today.

The importance of data

Powerful forces are putting the world of money into a state of rapid transition. As the system develops, so does the data the generated with the transfer of value. Consider that:

  • data, especially payments data, can be used to deliver deeper insights around firms’ customers and clients, as well as consumers more generally
  • more of us are living our lives online, shopping and communicating through a range of digital channels, with some of us beginning to inhabit the emerging metaverse
  • social media and innovation more generally are also fundamentally impacting the ways in which we interact with each other, changing our expectations of products, services and experiences.

The availability and use of data is changing the very nature of financial services. Products are changing, as are access points and pricing models, as are efforts to meet more closely the complex functional, privacy and security needs of users at an individual level. Some observers have gone so far as to suggest that data is the “new oil”.

Much like the rich and volatile black stuff, the opportunities that come with data have been accompanied by new risks. Safe storage and the appropriate use of data are of particular concern. The relationship we have as individuals with our data – generated as citizens, consumers, patients and as users of financial services – is also being tested. The governance and ownership of data are emerging as hot topics of debate for law makers, institutions and citizens alike. And all of this has consequences for the future of money, impacting the willingness of firms and individuals alike to engage with the digital sources of value.

Cyber-security is, and will continue to be, a front-line battle in the protection of data. With the increasing awareness of data and sensitivity to how that data is looked after, users’ trust in the financial system is at stake.

Money makes things happen

However, not to engage with the future of money, despite the risks, would leave enormous opportunities unexplored. Money does more than serve the global economy. As a critical facilitator, money makes things happen.

The need for (regulatory) speed

In recent centuries, national and international banking institutions have administered sovereign currencies in regulated financial systems that support global trade, finance and welfare. Commercial banking, with its roots in medieval Italy, came first. Central banks, such as the Bank of England, the US Federal Reserve and the European Central Bank (ECB) strengthened the bank-led financial system.

It was never perfect and probably never will be. Even healthy systems suffer the occasional malfunction. However, in its speed, efficiency and enhanced security, digital money will bring faster, cheaper and smarter ways of exchanging, storing and accounting for value, reducing the number of systemic infections overall. Nevertheless, that same speed and efficiency also brings the risk of spreading infections at lightning speed, underscoring the need for regulatory systems, standards and frameworks capable of moving at the speed of innovation.

How do we navigate the future?

Our goal is to create a scenario framework to understand the future of money, one that can be used to support the planning and development of the strategies required for individuals, firms and society at large to thrive.

In the scenario framework we use a matrix of two critical, independent uncertainties that emerged from our research as the two most influential factors on how the future of money unfolds. To derive them we used our proprietary AI tool, Deep View, to screen 2.9 million unique articles and data points, and interviewed experts across four continents and ten countries to arrive at 86 driving forces. These were categorised as social, technological, economic, environmental or political.

We ranked these driving forces and identified 29 critical trends and 26 critical uncertainties. Working with a panel of experts, we clustered drivers with a high impact and high uncertainty into five critical uncertainties that have the power to shift the future. For each critical uncertainty, we defined plausible yet extreme end-points.

We then tested the correlations between these five critical uncertainties and selected a pair that do not affect each other much, i.e., they display a low degree of collinearity, or a high degree of independence. These two uncertainties are the degree to which digital assets are used as mainstream units of value, and the ability of authorities to control the payments landscape.

The combination of these two critical uncertainties yields four distinct and credible long-term outcome scenarios.

The four scenarios represent the futures driven by how these two big influencing factors develop and interact. From there, we unpack what each scenario may mean for each stakeholder group concerned.

We acknowledge, plainly, that the future of money may be shaped by forces and factors we are as yet unable to conceive. Our purpose is to provide a structure for strategy development. Rather than try to draw a precise map of the financial world as it may look in 2035, we offer a framework of ideas and a set of scenarios you can use to help plot your individual path forward.

Our Future of Money research is an invitation. It is an offer to engage with our ideas as you devise strategy, plan investment and undertake transformation in facing the future of money.

Our next set of articles looks at current and future states, including the drivers of change, and the four distinct future scenarios developed from our research. Coming up: What foundations are we building the future of money on?

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