Shaping the future of payments*

  • Speed, convenience and competition are shaping the future of payments.
  • Cash is still king but increasingly seen as a way to store value rather than make payments.

The payments landscape continues to morph. Driven by innovation and shifts in consumer preferences, new systems, new methods and new players are shaping the future of payments. The BIS Red Book statistics offer a look into that future.

Innovation is making domestic payments increasingly convenient, instantaneous and ubiquitous. Systems that offer near instant person-to-person retail payments1 are increasingly available around the world. Many payment systems operate seven days a week, 24 hours a day. Currently, fast retail payment systems operate in 45 jurisdictions. This is projected to rise towards 60 in the near future (Graph 1, left-hand panel). The spread of systems for fast retail payments is thus following a pattern similar to that of real-time gross settlement (RTGS) systems (for wholesale payments) two decades ago.

Not surprisingly, ways of paying fast vary across jurisdictions (Graph 1, right-hand panel). For Mexico and Nigeria, take-up is still relatively low five years or more since inception (fewer than five fast payments per person per year). The more mature systems in Chile and the United Kingdom, which have been operating for 10 years, processed about 30 payments per head in 2018. In Denmark, Singapore and Sweden, adoption has been much faster than for many more mature systems. The average Swede makes about 40 fast payments per year thanks to the popularity of the Swish mobile payments app - now the front end for most payments, with a volume worth over 4% of GDP.

Innovations and consumer preferences continue to shift payments towards more convenient electronic payment methods. The value of card payments relative to GDP is increasing for all but a few CPMI jurisdictions. In contrast, the value of small-denomination notes and coins in circulation (typically used for payment) is either decreasing or flatlining (Graph 2, left-hand panel).

At the same time, the use of large-denomination notes (typically, to store value, ie as an alternative to bank deposits) is generally increasing (Graph 2, centre panel), even faster than that of small-denomination. Overall, this has meant that total cash in circulation has grown in most CPMI jurisdictions (Graph 2, right-hand panel). For most countries, the cashless society, or even a "less cash" society, has yet to materialise. Sweden is the exception: there, cash in circulation is decreasing and mobile payments booming at the expense of card payments.    

Consumers do also crave convenience in paying. This is reflected in the number of contactless cards per inhabitant rising rapidly in both advanced and emerging market economies (Graph 3, left-hand panel). In addition, consumers are increasingly using debit or credit cards when abroad. Cross-border card payments have grown twice as fast as domestic payments since 2012 (Graph 3, right-hand panel). In advanced economies, on average, consumers use their card for overseas transactions 14 times a year, while in emerging market economies the average is twice a year.

Innovation and policy changes have come with new players. The traditional bank-based ecosystem is being disrupted from below by fintechs and from above by well established big techs. When asked which financial products and services are most affected by technological developments and competition, banks often rank payments the highest - both today and over the next five years.

Non-banks are moving into both retail and wholesale payments. Across CPMI jurisdictions, non-banks now account for about a quarter of the institutions offering payment services or payment instruments, up from 14% in only six years (Graph 4, left-hand panel). A similar but less dramatic increase is seen for e-money providers (Graph 4, centre panel).

Central banks are adapting to the emergence of new players by expanding access to their wholesale payment systems. Non-bank providers now account for 10% of direct participants in RTGS systems in CPMI member countries. In contrast, non-banks accounted for only 4% in 2012 (Graph 4, right-hand panel).

*       This analysis was prepared by Morten Bech and Codruta Boar

1      CPMI (2016) defines fast payments as those where the transmission of the payment message and the availability of the "final" funds to the payee occur in real time or near real time on as close to a 24/7 basis as possible.