By Louis Liu
FOR two decades now, the payments industry has unfailingly kept pace with innovations in telecommunications, spawning novel payment solutions with each new mobile revolution. This trend is set to continue today as 5G (the fifth generation mobile standard) pervades the world. Delivering significantly-higher internet speeds than previous mobile standards, 5G will spur the payments industry to innovate in two pivotal areas: the Internet of Things (IoT) and blockchain technology.
Underpinning this relationship between payments and telecommunications is the premise that every business model is a balance of three flow types: the flow of data, the flow of money, and the flow of goods. With the improvements in communication technology over the years, the flow of data has become more efficient, stimulating the other two flows to catch up. While this is engendering new business models in the commercial world, such as e-commerce and mobile wallets, it is also driving and reshaping the payments industry.
It’s important to recognise that the evolution of payments alongside telecommunications has come a long way, starting in 1991 when 2G was introduced. That generation offered consumers voice calls and text-based SMS messaging, and in payments, a cashless offering known as carrier billing, which allowed customers to purchase ringtones, wallpapers and mobile games by charging them to their phone bill.
In 2001, 3G emerged. Considered to be the first high-speed mobile network at that time, it powered the growth of online shopping or e-commerce, which in turn drove online payments. Consumers would shop on sites like Amazon and eBay, and pay for items using their credit cards, by which they would manually enter their card details on desktop computers or laptops.
Then came 4G, which massively accelerated the shift towards mobile. Launched in 2009, two years after Apple unveiled the iPhone, 4G properly cemented the popularity of smartphones. It went on to enable numerous mobile-based payment offerings, ranging from mobile wallets and QR-codes to affiliated technologies like facial recognition and biometric ways to authorize transactions.
This takes us to 5G, reported to have far superior internet speeds and capacity for a larger number of connected devices that’s going to boost the IoT. A giant network of connected things that include devices (everything from smartphones to refrigerators to street lamps among many others) and people, the IoT will see quicker and more reliable connections between people and people, people and devices, and devices and devices - all by virtue of 5G.
An immense opportunity for the payments industry lies in the IoT. Using an example from home, a 5G-powered refrigerator now knows to contact the supermarket to make an order when it’s running low on beer. The challenge then is getting the refrigerator to pay the supermarket for beer - and payment companies would be remiss to not look into and develop solutions for that, which goes back to the “flow” theory. As 5G ramps up the flow of data, the flow of money simply has to catch up to support new business models.
Smart contracts could be the answer to the refrigerator challenge. Defined as digital contracts that are stored on the blockchain, smart contracts automatically execute an agreement or workflow when predetermined conditions are met. In this case, a predetermined condition could be no less than four cans of beer in the refrigerator, and the workflow could be when there are four cans of beers remaining, the refrigerator will make an order of beers with the nearest supermarket, pay for the beers digitally, and have the beers delivered to home - without any human involvement or time loss.
Blockchain technology is key to providing the assurance and security needed in smart contracts. Firstly, it powers digital payment tokens (DPTs), which refer to any cryptographically-secured digital representation of value that can be used as a medium of exchange, which comprise cryptocurrencies, corporate-issued utility tokens and Central Bank Digital Currencies (CBDCs). Secondly, it ensures the immutable record of clauses and people’s preferences. Collectively, blockchain technology enables payment companies to design smart contracts that let people manage their preferences, and allow transaction payments via the transfer of DPTs. The result? A dramatic transformation of the financial infrastructure for the future payments ecosystem.
Consumers will greatly benefit from 5G’s enhancements to telecommunications, through more effective smart homes, quicker live streaming of videos, and more immersive virtual experiences across social networks and games for example. They will also have access to more payment alternatives like DPTs, which notably, will continue to co-exist with current offerings like mobile wallets. (For perspective, carrier billing still exists in many markets!)
Merchants and retailers, correspondingly, will have to embrace the new payment alternatives to continue serving their customers. An easy way to do that and stay attuned to the rapidly-evolving payments landscape is to partner with an accredited payments enabler like FOMO Pay. The latter would have the authority to operate regulated activities (like facilitating transactions with DPTs), the expertise to advise on new technologies and market trends, and ability to provide the infrastructure needed to help merchants accept new payment methods.
Regulators, encouragingly, have started dipping their toes into blockchain technology and DPTs. More than 80 central banks worldwide are working on their own CBDCs (which are increasingly popular because they have the potential to further improve cross-border payments) or have instituted regulations on DPTs. These actions not only provide guidance and confidence to the market, they evoke deeper innovation from private companies in the fields of blockchain and payments.
Naturally, in the pursuit of the future of payments, cybersecurity must remain a priority. Continuous efforts are needed to enhance the security and compliance of payment systems, in order to prevent incidents like the hacking of cryptocurrency exchanges or thefts of digital assets. It would require industry effort and regulator guidance to ensure that cybersecurity keeps pace with (or is not too behind) the progress in payments.
Today, as 5G carries on permeating the world, and the pre-eminent 6G comes into view, payment companies are tasked with a huge undertaking. To stay competitive and relevant, they will need to (once more) adapt to the innovations in telecommunications and the flow of data, and find creative ways to enrich the flow of money. For now, they are just getting started in an exciting endeavour: investing in the IoT and blockchain technology.
Louis Liu is the founder and CEO of FOMO Pay, a leading Singapore-headquartered Fintech company to enable merchants and financial institutions with digital payment and digital banking solutions. FOMO Pay was recently awarded new licenses by the Monetary Authority of Singapore under the Payment Services Act licensing framework, such as the Digital Payment Token Service which will allow the facilitation of transactions with digital payment tokens, including but not limited to cryptocurrency and the central bank digital currency (CBDC).
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