Within 5 to 7 years, digital payments will become more prominent as tech solutions substantially increase in convenience compared to cash. Nevertheless, cash will continue to be perceived and widely used as a store of value. This is, according to SIX, the most-likely scenario among the seven possible futures for money.
In a new whitepaper part of the Picture of the Future series, SIX presents seven scenarios for the future of money.
According to SIX, the most-likely scenario to happen is where digital payments would rule.
In this scenario, banks would be required to open interfaces to their digital vaults and customer data, and allow third parties to seamlessly connect their digital wallets.
Open banking and API banking would become the new normal and lead to increased competition from non-bank players. Banks would have to move into non-banking services to counter falling margins in their traditional businesses and to fight back for the ownership of the customer relationship.
Payment cards would disappear as authenticators and be replaced by digital wallets directly embedded in digital user interfaces (UIs) and/or installed on Internet-connected devices. The number of ATMs would fall 30 to 40%, and infrastructures for “smart banknotes” would emerge. And expectations regarding instant interactions in a digital world would led to instantaneous settlement of digital payments.
In this scenario, the share of wealth invested in nonmonetary assets, such as equities, bonds, funds, data, collectibles and fine art, would increase substantially, driven by the democratization of the investment space due to ETFs, robo-advisors and robo-funds, as well as increased financial literacy and the digitalization of rights to assets, among other factors. Additionally, an increasing number of people would regularly pay with nonmonetary digital assets.
According SIX, there are already early signals of this scenario. These include growing consumer demand for instantaneity, the rapid spread of open banking regulations, rising competition in banking services, increasing convenience of digital payments relative to cash, and growing adoption of digital interfaces.
Another scenario which SIX believes is somewhat likely to happen is where digital currency becomes the new cash.
In this scenario, cash holdings would drop 80%, and digital money/assets would replace cash as the dominant means of payments and store of value. Government would discourage people from holdings cash by, for example, setting higher prices for goods and services paid with cash.
Two scenarios which SIX believes have a medium-low likelihood of happening are where either central bank digital currency (CBDC), or new, centrally-issued, non-sovereign currencies become dominant.
In a CBDC-dominant scenario, people would be able to hold their digital currency either at an account with the CB and/or a commercial bank. The usage of cash would decline and CBs may operate their own digital ledger and/or rely on digital ledgers by third parties.
Finally, SIX names three scenarios, which according to the company, have a low-likelihood. These are a complete cashless world where a digital cash infrastructure would take the place of the physical cash infrastructure, a “moneyless” world where people would not agree on an asset for either medium of exchange, store of value or unit of account, and a world where decentralized digital currencies such as Bitcoin would replace central bank-issued currencies as the dominant forms of money.
Featured image credit: Felix’ Entire Journey at a Glance SIX