The future of money and… consumers and business

Consumers have the power to decide how to store, exchange and account for their wealth, determining in no small part the success, or otherwise, of different payment mechanisms. This influence will only intensify further as innovation in areas like behavioural analytics, artificial intelligence (AI) and personalisation deliver ever more valuable, frictionless and individually relevant experiences. As the future of money plays out, more businesses will find they need to adapt their products, channels and operating models to match the rapidly evolving needs and expectations of consumers.

The retail and consumer finance sectors will need to adapt to these evolving expectations. For example, new product types, terms and mechanisms will be needed as the delivery of consumer credit evolves. Digital assets will increasingly come to be accepted as collateral for loans, potentially making it easier for consumers to access credit. Elsewhere, at the other end of the spectrum, some traditional sources of finance could be displaced by new forms of peer-to-peer lending between individuals and businesses. And, inevitably, the future of money will also mean change for the businesses serving those consumers, many of whom must acquire the capability to accommodate most, if not all, future forms of payment.

The task for businesses and financial providers is made more complicated by the conflicting needs of consumers. For instance, many customers are increasingly concerned about their privacy and the risk of fraud. However, they may also feel frustration over ID verification mechanisms – those designed precisely to protect their privacy and safety – which they may find both cumbersome and time consuming to deal with. It will therefore benefit all parties to invest in faster, frictionless, interoperable secure verification systems to help customers achieve both objectives.

By providing enhanced customer experiences, built to accommodate the emerging digital assets that will be a hallmark of the future of money, both businesses and financial institutions will have an opportunity to increase the level of trust. Arguably, this work began during the COVID-19 pandemic, continuing more recently in response to the rising cost of living and concerns about fraud, through the provision of more tailored and proactive customer advice and support. This effort is increasingly focusing on education, since gaps in financial literacy are a key risk vector that fraudsters can exploit, for example encouraging retail investors to engage with risky, unregulated third parties peddling speculative investments that they do not fully understand. Clamping down on the mis-selling of digital assets – especially those later revealed to be nothing but scams – will be a key step towards supporting the wider adoption needed to deliver the future of money.

As the digital assets adoption curve steepens, the reliance of consumers on physical cash and coins will continue to fall. This is a trend that we have seen in developed markets since the introduction of ‘chip and pin’ and, more recently, contactless payments. Nevertheless, while physical cash use is declining rapidly in some markets, it will remain part of the payments mix for some time yet, driven by the individual preferences of consumers and vendors. This is despite a preference for cash denying some consumers the cost, speed, convenience, and in some circumstances inclusion, benefits afforded by digital payments. Overall, however, the direction of travel is clearly towards increasing use digital payment methods.

In a business context, this shift will benefit those able to capitalise on the improved access and new competitive opportunities associated with the future of money. As well as benefitting from lower fees, more flexible services and cheaper running costs, individuals, sole traders and small businesses, for example, will be better placed to engage in economic activity – regardless of their location and socioeconomic status. This will enable them to manage their cashflow better and not worry about cash handling and physical proximity to customers.

Larger corporates, meanwhile, should invest in infrastructure, training and education to ensure they are best positioned to face the future of money with informed and well-supported strategies. The decisions they will need to make over the years ahead will be existential in nature. For example:

• Pricing models will have to be reconfigured to reflect changes in the underlying costs of trade. As the economy embraces innovation, leading companies may be able to lower or maintain prices while expanding profit margins.
• Firms will also need new and different sales and marketing propositions. A shift towards digital assets will change the messaging and positioning of firms as they come to grips with the customer response to innovation and absorb the implications for their brands.
• There could be a significant impact on supply chains. B2B activity may drive widespread corporate adoption of digital assets, forcing firms to adapt in a myriad of ways, including in how they train and incentivise their employees.
• New regulatory regimes could require a new approach to compliance for firms. For example, the nature of cross-border agreement, or not, around standards, could influence whether the burden on global enterprises exerted by the future of money is multiplied or minimised.
• For those who decide to build their own digital payment capabilities, it will likely be advisable to enter partnerships with third-party payment services providers (PSPs) that can relieve the administration and cost burdens of multiple systems.
• Digital identification and verification will be an increasing expectation and requirement, that may cause issues for those slower to adapt. Unprepared firms could find themselves with frustrated customers, and/or vulnerable to breaches in security, with the associated brand damage.

Much work needs to be done over the years ahead to prepare the foundations for a future of money focused on wider digital assets adoption. Consumer trust will be essential, and this will only come through the provision of safe, secure, flexible and engaging experiences. That means significant change ahead for businesses across the global economy, all supported by greater co-operation between global authorities on the complex web of standards and regulations underpinning our economy. We believe the outcome will be well worth the effort, since for individuals and businesses alike, the future of money promises a range of compelling benefits and opportunities.

Coming next: We consider how the future of money will require infrastructure investment, new partnerships and adaptability from firms to enable them to handle increased computational, security and storage demands. Embracing change will yield a range of benefits but change agents must be able to clearly communicate these to budget holders and boards to achieve success.