Here are the most iconic moments from the last 10 years in payments.
01 The global financial crisis hits
One of the decade’s most stand-out moments took place on Sunday, Sept. 14, 2008. On that day, thousands of payments professionals from banks and technology companies flew into Vienna to join the Swift International Banking Operations Seminar (SIBOS), a flagship annual banking and financial conference.
Many arrived that Sunday only to find message after message asking them to call back the office to discuss the collapse of Lehman Brothers. The next day most of the conference attendees turned right around and flew out of Vienna to return to their offices. By the end of that week, the banking system was changed forever.
Not only had Lehman failed, but Washington Mutual had been absorbed by JPMorgan Chase, the Royal Bank of Scotland collapsed, and many other banks struggled to stay afloat. The result has been a swathe of regulations that have tightened up the banking system and raised required capital levels to the highest ever. Equally, the result was a major tightening of loans and credit lines, with many credit cards moving into default. U.S. banks wrote off more than $100 billion in credit-card loans over the next two years after the crisis hit and, interestingly enough, credit card levels are back at pre-crisis highs today. Could there be another 2008 on the horizon?
02 The growth of mobile social
In the early part of this decade, most people were just hearing about social media. Yet, Facebook and Twitter were rising as social media stars, and even MySpace was still riding high back then. Equally, the idea of a smartphone had only just appeared the year before, with the launch of the first Apple iPhone in 2007. Remember when no one thought that it would succeed because it didn’t have a keyboard?
What the Nokias and Blackberrys of this world missed, however, is that the iPhone is not a phone but a computer. And once you combine that with social media, it’s a recipe for an addicted consumer base living in a world where we talk less and stare at a tiny screen more. It has also led to a massive wave of payments transformation, with every bank in the world offering mobile banking services and seeing more interaction through mobile than with any other media or channel.
03 The app revolution
Combining the mobile social with a killer app was another real change, especially for those of us in this industry. Apps led to mobile wallets being launched in almost every nation from America to Asia to Africa. The result today is leaders like Alipay and WeChat Pay dominating the payments landscape across China, with $15 trillion transacted last year through the country’s mobile wallets alone.
In the United States, we of course had PayPal growing quickly with email and web-based payments. But what no one could have predicted was the rise of APIs and apps like Braintree and Venmo, now part of the ever-growing PayPal empire along with other strategic acquisitions. In fact, no one would have expected that PayPal would be worth three times more than its parent company, the mighty eBay, a decade later. (It was spun off as a separate entity in 2015.)
Adding payment systems to mobile apps made for a dramatic change. From Square in the United States to iZettle in Europe, mobile dongles have converted any device into a point of sale, and it’s predicted that mobile phones will process more than $55 trillion in payments in 2024, according to Global Market Insights Inc.
04 Pan-European movement — and a laggard
Europe was working toward adopting a single currency in 2008, with regulations for the euro driving changes across all aspects of finance. One was the first iteration of the Payment Services Directive, bringing with it efforts to harmonize all of the payments products used in 28 nations. To make this happen, the banks were working co-operatively through the Euro Banking Association (EBA) to build the Single Euro Payments Area (SEPA). This would allow standing orders, direct debits, credit transfers and any form of payment to move across Europe’s countries as though they were domestic payments.
Meanwhile, over in the United States, a different type of herculean effort was unfolding — the move from magnetic stripes to EMV. Ten years after the UK, the United States finally fully mandated chip-and-PIN cards. Much like the Eurozone, it experienced growing pains with getting all players on the same page. Even today, fractures remain, with some merchants opting to take the liability risk associated with mag-stripe cards rather than making the switch to chip.
05 Building banks with code
One of the biggest changes that took place during this decade was the groundwork for open banking — the open sourcing of banking structures such that anyone with an app or API could play. That change was being driven by cloud-based services and platforms like Amazon, Microsoft’s Azure, Google’s Cloud, and Tencent and Alibaba cloud services in China.
These cloud services allow start-ups to ‘start up’ easily, at a very low cost. For example, in 2010, the Collison brothers wrote seven lines of code to make checkout easy online. These seven lines of code are now valued at more than $30 billion, as this code is used by Apple, Uber, Kickstarter and many other leading innovative online firms. I’m sure you guessed that this code is called Stripe, and it’s taken over the online world in just a few years. (Case in point being the list of heavy hitters above.) Why? Because its simple integration technologies and easy merchant onboarding solve some of the biggest known problems in the payment processing space.
06 The launch of fintech
A decade ago, there was no big ‘fintech.’ There were just a few companies starting out on a road of opening financial systems with software. Today, there are tens of thousands of companies working in this space and each of them focusing on doing one thing really well, like Stripe, Klarna and Adyen. They aren’t trying to boil the ocean, doing everything, but instead are focused on one fundamental area and developing code to solve the issues in that area.
From there, we have seen many other powerful brands emerge, including the rise of fintech unicorns — firms that launched since 2000 and are now valued at more than $1 billion — including names such as SoFi, Kabbage and Robinhood. These are financial software companies that dominate the world of money, with humble origins based upon code. And many of these companies are now global, not just local. In fact, many are starting to come together, like TransferWise and Wirecard, to form regional and global giants.
07 Satoshi Nakamoto and the bitcoin
Another milestone moment came when a mysterious figure (who has never been identified) Satoshi Nakamoto, posted a PDF online called “Bitcoin: A Peer-to-Peer Electronic Cash System.” The white paper posted in October 2008, with the opening line stating that a “purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” This led to the phenomena of bitcoin, also launched by Nakamoto in January 2009. It is interesting to see that, over the last 10 years, bankers continually say that bitcoin is unnecessary and purely exists for criminal activities. Yet it doesn’t go away (even though its value rises and falls faster than a certain world leader can tweet).
08 Distributed Ledger Technology (DLT)
Interestingly, Nakamoto’s paper doesn’t mention the blockchain and instead only talks about time-stamped blocks that are added to the database and then cannot be changed. Yet it is this time-stamped, irrevocable, tamper-proof database ability on the internet that has payments geeks excited, and others too. A tamper-proof internet-based database could be shared with everyone, including people you don’t trust. Once they realized this, banks started developing new ideas and infrastructures based upon it.
It also led to lots of confusion. Now we even have blockchain-inspired developments (like Corda for the banking industry) that don’t use a blockchain. Similarly, we have cryptocurrencies, like Ripple’s XRP, that are completely unnecessary to implement the advantages of their payments protocol. In other words, you can have blockchain-like systems that don’t need cryptocurrencies or blockchain to exist, which is why everyone today talks about Distributed Ledger Technology. Either way, these all evolved from the concepts articulated and implemented by the bitcoin army. In the end, that means we have Satoshi and his crowd to thank for creating this wave of change.
09 Leapfrogging old legacies
What all of these milestones have in common is that the world is changing fast. For example, just as Visa had its initial public offering and left the arms of its former bank owners, the card networks found themselves needing to make room for the mobile network. Just as the mobile networks embrace change, thanks to support from Apple and Google in the form of Apple Pay and Samsung Pay, contactless payments are replaced by QR-code payments such as WeChat Pay, Alipay and PayTM. The reason for the fast rise of electronic payment systems in new markets like China and India is that merchants can take these payments without any special equipment. Hence, as the West grapples with card technologies, the lengthy rollout of chip and PIN and the attempt to create contactless cards and systems, the developing world has leapfrogged us all by moving to simplified mobile-centric systems.
In fact, the real challenge today is for Visa and Mastercard to evolve their old legacies and renew and refresh. They are doing this, but the infrastructures developed for Chinese tourists around WeChat Pay and Alipay using QR codes could just as easily be used by American and European tourists. And there is a strong incentive for them to do just that, as the systems are built around merchants getting more business through personalized offers to consumers as they walk past the store. That’s a good reason to use an app.
10 The race to cashless
And then, throughout all of this history, is the often-discussed ‘war on cash.’ Mobile wallets, digital currencies, peer-to-peer payments and more are all focused upon getting rid of that physical cash in your wallet. Some countries are seeing stunning success in this, with Turkey, Sweden and China all anticipating that they will be cashless within the next decade.
Eliminating cash is good for governments, of course. After all, the more automated the payments going through the systems, the easier they are to track and trace. Electronic payments allow people to avoid cash and the insecurities that go with it, such as getting mugged. And let’s not even get started on the bacteria (and other undesirable materials) carried on cash. The rise of a cashless society is upon us and much of it is down to the major developments of the past decade.
In the end
The seeds of all of these things — mobile wallets, the blockchain, Chinese leapfrogging payments, pan-European structures, an African revolution and the rise of a new American payments giant — were all being laid in 2008. As for the next 10 years? I believe we will see even more transformation through biometrics, embedding payments into devices through the internet of things, the launch of a global digital currency and the rise of code.AbnAsia.org Software. Faster. Better. More Reliable. +84945924877 (Asia# Mobile, WhatsApp, Telegram, Viber, Zalo); +16699996606 (US# Mobile, WhatsApp, Telegram) [email protected]