For the past several years, we’ve seen traditional banks and credit unions steadily disrupted by the emergence and growth of neobanks, cryptocurrencies, new digital payment methods and more. But no one could have predicted or have been prepared for how quickly and radically the COVID-19 pandemic would upend the financial sector as we knew it.
The pandemic dramatically accelerated digitization in financial services and has pushed us much closer toward becoming a truly digital cash society. The growing popularity of digital currencies and digital payments, along with advancements in underlying technologies like artificial intelligence and blockchain, will bring lasting changes to how we spend and exchange our money in 2021 and beyond.
Here are my top four predictions for what the future of digital currencies and payments will look like:
1. We will finally see new standards for safeguarding digital cash and digital payments: Existing standards and regulations were designed for a previous age, one where our financial system was built in silos and relied on central banks, the exchange of physical currency and settlement times.
Today’s digital cash ecosystem makes the transfer of money anywhere in the world instantaneous. Unfortunately, this also increases the risk of fraud. The pandemic exposed the holes in our financial sector’s infrastructure that enabled fraud to run rampant.
I believe this is the year the financial sector finally creates and implements standards for the secure exchange of digital cash, complete with stronger identity verification methods and more advanced technologies for monitoring funds as they move throughout the digital ecosystem.
2. The growth of the underbanked will cause a surge in the digital payments economy: The full financial impact of the pandemic will not be seen for a long time. Businesses are struggling to remain solvent and millions of U.S. citizens are falling further behind on their bills. At the same time, rising numbers of COVID-19 cases across the nation are causing people to avoid visiting bank branches and ATMs.
As a result, we will see tremendous growth in the number of underbanked people in the U.S., many of whom will turn to alternative, digital payment options. The rise of the digital payments economy will help tear down the high barriers to entry that have kept many people out of traditional financial services and will help grow financial inclusion.
3. The impact of the pandemic will accelerate our move towards a cashless society: As consumers and businesses alike eschew cash out of fear that it could carry the virus, we are observing rapid growth in the use of contactless payments, mobile wallets and other forms of digital payments.
Industry research indicates that one in five Americans have made a contactless payment for the first time during the pandemic. Of those, more than half used mobile wallets and said they would continue using contactless payments even after the pandemic is over.
It’s not just payments in stores – with the pandemic accelerating digital transformation plans at traditional banks, we will also see consumers increasingly conduct all their banking through digital channels rather than at branch locations. The result is less reliance on physical cash.
4. Autopay solutions powered by AI will increase: AI has been a game-changer in the financial services sector. It is being leveraged for a multitude of solutions, including to better detect and stop fraud in digital banking channels, make investment decisions and manage wealth portfolios.
And it’s beginning to be used to help people manage how they spend their money. In the coming year, we will see further growth in the use of AI in digital payments, to the point that it will eventually create a neural network that intuitively knows how you want to spend your money before you do.
This will only be furthered by the growing use of geofencing technology that enables retailers to track when you enter a store and automatically debit your purchases from the credit card or bank account information saved on file for easy autopayment in brick-and-mortar stores.
While we were already on the path to a more digital society, the COVID-19 pandemic has hastened the journey. For financial services, the impact will be rapid growth in the use of digital payments and digital cash, which will ultimately lead to greater financial inclusion but will also require new standards in order to stop fraud and safeguard consumers’ money.
Eric Solis is founder and CEO of MovoCash