Arab Monetary Fund: Reflections on the Future of Payments

As you are all aware, the financial services industry is in the midst of a significant transformation, driven mainly by digitalisation, with digital payments at the epicentre of this transformation. This transformation was accelerated by the COVID-19 pandemic.

Sending a text to pay for a bus ticket, using a QR code to pay for groceries, or tapping a sales terminal with a mobile phone are frequently used in our lives today. Even before COVID-19, these ways of paying for goods and services were evidence of a steady shift to digital payments, a shift that might ultimately lead to a cashless global society. Global cashless payment volumes are set to increase by more than 80% from 2020 to 2025, from about 1 trillion transactions to almost 1.9 trillion, and to almost triple by 2030.[1] Within these trends, payments around the world are increasingly cashless, and the industry’s role in fostering inclusion has become a significant priority.

Furthermore, payments also are supporting the development of digital economies and driving innovation, all while functioning as a stable backbone for our economies.

Founding the shift to cashless requires, in reality, a larger and more profound change. Not only do traditional ways of paying for goods and services, including the humble paper check, need to be changed, but also the entire infrastructure of payments to accommodate new emerging business models.

That reshaping involves two parallel trends: an evolution of the front and back-end parts of the payment system (instant payments, bill payments and request to pay, plastic cards, and digital wallets); and a revolution involving huge structural changes to the payment mix and ecosystem (the work underway on central bank digital currencies and stablecoins, to name a few). Both evolution and revolution are sweeping the globe, but in different ways and at different paces, creating a complex payments matrix.

With this in mind, I see five macrotrends, driven by a combination of consumer preference, technology, and regulation, that will affect the future of payments and define how payments will look in the next couple of years.

1. Cross-Border Payments

The first trend I see changing the face of payments is the cross-border payment. Indeed, international payments have been instrumental in the emergence of today’s global economy, and the demand for cross-border payments is expected to continue to steadily grow in the future, driven by the increase of international trade, internationalisation of production, and the growth of cross-border e-commerce. This is displayed by the current global annual average for cross-border transactions of 0.7 per capita, up from 0.5 in 2014, and the average value of total cross-border payments, which has grown to 1.8 times the global nominal GDP.

Nevertheless, payments sent from one country to another are less efficient in terms of cost and time than domestic payments, partly because the former are more complex, riskier, and differently regulated and exhibit lower economies of scale and scope. These are compounded by policy-specific factors such as ...

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