The Global Payments Innovation Jury has published its 2022 report into the direction of the industry.
Payments Cards & Mobile (PCM) caught up with Jury Chairman John Chaplin (JC) to get his views on the future of BNPL, Open Banking and the Central Bank Digital Currencies (CBDCs) which are very much the topic of the moment.
PCM: BNPL has attracted a lot of heat in recent months, and not all of that is positive. Where do you see things going over the next year?
JC: There’s been staggering levels of investment in BNPL in recent years, something like $3.5 billion in 2021 alone.
In the short term, we can expect BNPL usage to increase given the strong benefits it offers for consumers and merchants.
However, credit losses are viewed as likely to increase significantly, and the sector is certain to lose its unregulated status in many major markets.
So we see this rapid expansion as a short-term phenomenon rather than a long-term game changer: there are plenty of headwinds against it, despite its appealing simplicity.
PCM: Another hot topic for commentators is the advent of CBDCs. Do you think they’re going to happen, and if so how will they be introduced?
JC: The introduction of CBDCs is seen as highly likely in most markets, although in very different timeframes. FinTechs are believed much more likely to benefit from CBDCs than traditional banks, who may well experience significant negative effects.
That said, we’re not convinced there is market demand for CBDCs – what’s more, we can expect to see significant technology costs associated with their deployment.
For instance, in a market like Mexico, only the wealthiest 20 percent have bank accounts, and literacy rates are low. How can CBDCs be introduced into that kind of market?
Then there are other problems, more at the ethical level: you could argue CBDCs push central banks from their current supervisory role into an operational role, which some might say gives them too wide a remit. In essence, we think CBDCs will happen, but the benefits – both for industry and end users – remain unclear.
PCM: What are you seeing in terms of Open Banking – do you think it’s going to take off in the next year or so?
JC: Open Banking is also becoming more widely available but, in some countries, it has been left to market participants to develop, which tends to result in lack of standardisation and slower overall progress.
More broadly, almost all national governments are encouraging competition through policies that allow more new market entrants.
Furthermore, most payments regulators have introduced regulatory frameworks to facilitate this by creating payment institution licenses with lower regulatory capital than full-service banks.
In terms of which initiatives regulators should prioritise, lower-capital licenses are probably most effective at fostering innovation.
PCM SAYS:
CBDCs are becoming something of a negative totem for conspiracy theorists and rights campaigners on the internet.
These groups fear that governments want to introduce CBDCs to control spending and people’s behaviour.
However, truth is CBDCs will prove highly challenging to introduce and risk making certain national currencies highly unstable as modern trading software could create a “run” on a national currency within seconds, exacerbated by the high-speed settlement which is a feature of CBDCs.
Other problems, including how to adapt payment terminals, bank systems and more remain to be solved. In short, while many national governments are said to be “looking” at CBDCs, their introduction would still appear to be a long way off.
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