Payment Methods of the Future


August 16, 2017

Payment Methods of the Future

The August Blog Series | All About Fintech

Issue 7: Payment Methods of the Future

It was only a few decades ago when cash was still the preferred method of payment for most transactions. Now checks have largely disappeared and payments are frequently being made through digital transfer and decentralized currency. The world of banking is changing rapidly, with more individuals taking charge of their finances in an unprecedented way. Vendors are racing to adapt to these new payment methods, and individuals and their personal choices are pushing the way for new and innovative methods of payment. So what can we expect from the future?

Decentralized Cryptocurrencies

There may come a time when there is only a single type of currency -- and that currency is not monitored or controlled by any government. Cryptocurrencies have been making major headway in the past decade, with Bitcoin, Litecoin, Ethereum, and other contenders expanding into mainstream sectors. Cryptocurrencies are essentially a "created" currency; they are "mined" through work, wherein work refers to the solving of complex algorithms. Thus, computers are able to discover cryptocurrency units, and these units are able to be used as payment. Cryptocurrencies are therefore also essentially finite, as eventually mining them will exceed the capabilities of technology. This creates a currency which is constantly appreciating in value rather than depreciating.

Cryptocurrencies are useful in a variety of ways: they can be transferred directly, are not traceable, and (theoretically) never have to be converted into another currency. This avoids many of the traditional issues of foreign currency transactions. But because of their nature they have also introduced some core problems: they can easily be lost, they cannot be traced if stolen, and they may be vulnerable to security issues, such as account takeovers. Cryptocurrency is, however, still in its infancy and improvements are being made to address these drawbacks. It is one method of technology which would fully bring the world's economy out of control of either governments or banks, which is appealing to many individuals.

Wearable Payment Devices

Wearable payment devices have been gathering steam as an alternative to traditional PIN, signature, and card transactions. There are many individuals who simply prefer having a tangible connection to the money they spend, whether it is for the purposes of budgeting or simply being able to physically see their method of payment. This can also be a practical necessity: though it is now possible to make payments with your phone, what do you do if your phone is dead? It is difficult to replace credit cards and debit cards entirely with devices which need to be charged every 12 hours. This is where wearable devices come in.

Wearable devices are a combination of a fashion statement and a payment service, ranging from futuristic revealed microchips to sleek pins. Universally, however, they use approximately the same "tap" infrastructure that credit cards, debit cards, and now smartphones also do. They also come with some of the same risks associated with credit and debit cards; namely the fact that they can easily be stolen.

Biometric Payment Scanners

There is one substantial shortcoming of wearable payment devices: namely, why have a device at all? New systems such as Biyo make it possible to pay for things with the touch of your hand; it is your unique hand print that unlocks your wallet and pays for your goods and services. Biometric scanning involves any unique artifact of your biology, such as retina scanning or fingerprint scanning. It is far more secure than using a PIN or a signature, because either of these things can be stolen -- your hands and eyes, hopefully, cannot be.

The only downside of biometric scanning is that it requires these scanners to be distributed to vendors, and vendors have been notoriously hesitant to adapt new payment technologies. The United Kingdom was able to achieve tap and pay nearly a decade before the United States, and U.S. vendors are still slowly moving to chip and PIN. On the other hand, biometric scanning is already becoming a standard feature in personal devices, and can therefore already be used for remote peer-to-peer transactions.

In the short term, it is very likely that we will see our mobile devices -- most specifically our smartphones -- becoming the central hub for our currency transactions. Android and Apple payment systems are already becoming widely supported across the world, making it easy to complete a transaction with a tap rather than a swipe. But long-term, it is the actual banks that we use that will see the most disruption, as we continually move away from larger banks and towards smaller currency management applications such as Venmo, Biyo, and PayPal. Decentralized currency is likely only decades away as the world continues to go digital and trade actively country to country, and this may provide significant economic disruption.