Pay Your Way 2025 Future of Payments

8/10/2019 Pay Your Way 2025 Future of Payments

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Consumer attitudesTimeline Looking to the futureReport by Dr Ian Pearson

Introduction

PAY YOUR

WAY 2025:Future Payments

Our 2001 predictions


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Our 2001 predictions Consumer attitudesTimeline Looking to the futureReport by Dr Ian Pearson

INTRODUCTIONBy Adrian KamellardChief Executive, Payments Council

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Introduction


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continued

INTRODUCTION By Adrian Kamellard

Introduction

Up until the 1960s we really onlyhad two ways to pay cash orcheque, but improving technologyand changing lifestyles have seena steady stream of innovations since.Nowadays we take for granted theextra choice offered by credit anddebit cards, electronic payments,online shopping and banking.

A single day for any one of us could involvepaying a gas bill by Direct Debit, using a creditor debit card in a supermarket, transferring

money using online banking, taking moneyout of a cash machine connected to the LINKnetwork or even instructing a solicitor to makehigh-value CHAPS payment to buy a house!All of these payments were created in the60s, 70s and 80s, yet during the last fewyears weve seen innovation continue apaceand consequently our choice of ways to paycontinues to grow.

Fast forward to the present day and the worldof payments is changing like never before.The Payments Council is the lead body makingsure UK customers and businesses get thepayments they need and want, both now and in

the future. A key part of the Payments Councilsday-to-day work is acting as a trusted source ofdata on payments and carrying out the researchthat is required to inform the National PaymentsPlan and other plans for the future.

This report, Pay Your Way 2025: FuturePayments, looks beyond the probable to takea broader look at what could become available

in 2025 for the most enthusiastic consumers oftechnological advances. With that in mind, weasked leading independent futurologist Dr IanPearson to use his expert knowledge of trendsin technology and society to offer his view ofthe potential developments in payments.

To set the context for Dr Pearsons predictions,our Head of Policy and Markets, Mike Bowman,reflects on the predictions we made ten years

ago and considers what factors limited or ledthe changes that we actually saw. In that time,chip and PIN was introduced and the internetopened the door to a new world of innovation.

One of the predictions made by Dr Ian Pearsonin this report is that we will start to see moreitems of digital jewellery, which can be usedas a contactless device to either make orauthorise a payment. Other concepts exploredin his report are: transferring data through

handshakes, augmented reality visors,electronic cash and even tiny electronic dataprinted onto fingers to enhance the securityof using fingerprints to authenticate payments.

The Payments Council is the leadbody making sure UK customers andbusinesses get the payments they needand want, both now and in the future.


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Our predictions

Our own predictions already point towards

some potential big changes, long before2025. The adaptability of the chip and PINtechnology used on our bank cards meansthat the chip need not be on a card, butinstead could be on a whole range ofplatforms, which can enable paymentsto be made by mobiles and other devices.

Arguably the biggest factor in the accelerationof innovation over recent years has been theinternet and the changing way that we are using

it. Contactless technology (also known as NearField Communication, or NFC) is also drivingchange it has now been available in the UKfor five years and is approaching a potentialtipping point in terms of usage.

As an indicator of how quickly things canchange, just a few years ago, back in 2008,the Payments Council introduced the first newpayment system in over 20 years. This is calledFaster Payments and it has revolutionised thetime it takes to process a phone, internet orstanding order payment, enabling them to bemade almost instantaneously outside of bankinghours, seven days a week. It was built to meetfuture demand and by only its third birthdayit had processed over a billion payments.

Our projects

It is certainly intriguing to look further ahead

at possible future payments, but there isplenty happening in the way of innovationright now. The Payment Councils mobilepayments project is working to help banksand others make it possible to pay securelyon a mobile without needing to know accountdetails. This collaborative project should delivernew benefits for customers of any financialinstitution that wants to offer the service, witha new central service being built that can linkmobile phone numbers to account details and

make it possible to seamlessly make paymentsfrom one institution to another. It could becomean attractive option when making person-to-person payments such as paying a friendfor lunch or where a business doesnt acceptcards but needs immediate payment whichthey can check at a glance.

Another major project for the PaymentsCouncil goes above and beyond paymentsto help customers switch current accounts.It will deliver a faster, easier switching service.The new service will be up and running inSeptember 2013 and will be backed by acustomer guarantee. It will ensure the samelevel of service across the industry regardlessof where a current account is held.

Arguably the biggest factor in theacceleration of innovation over recentyears has been the internet and thechanging way that we are using it.

continued

Introduction


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Security and virtual worlds

Looking ahead, the next generation of

customers will have grown up online, fullyconnected through social networks. Thiscontinuous and uninterrupted conversation willprobably lead to greater demand for paymentsto be instantaneous or real-time and 24/7.The barriers between real and virtual worldsand communities are not as they can appearto older generations there will be a need fornew payment products to fill this new spacewhilst upholding the high levels of securityand reliability weve come to expect.

Innovation in payments unfortunately isntlimited to new products being created there will always be a battle with criminalswho want to exploit our payments for theirown financial gain. The research we carriedout to accompany this report has demonstratedthat security remains the foremost concern ofpeople using payments more than half of usworry that new technology wont be as secure.

As Dr Pearson rightly points out in hiscontribution to the report, technologicaladvances will offer new ways to authenticate

our payments so could potentially makethings safer. In any case, customers in theUK enjoy excellent legal protection fromfraud and should do in future too. For ourpart, the Payments Council will continue ourproactive work with the public and privatesectors to ensure customer authenticationstandards are set at an appropriate level no matter whether we are talking about asignature, a PIN or a handshake.

Pay Your Way

Pay Your Way already contains a wealth ofinformation on the ways we currently pay inthe UK, ranging from the familiar, like cashand cheques, to what we now consider cuttingedge mobile payments and beyond. Lookingback from 2025, our opinion and usage ofthese payments may have changed. Regardlessof any changes, the Payments Council willcontinue promoting innovation, inclusion andintegrity in payments and strive to ensurethat the right options are available to meetconsumer needs. I hope you enjoy the report.

Introduction

Regardless of any changes, thePayments Council will continuepromoting innovation, inclusion and

integrity in payments and strivingto ensure that the right options areavailable to meet consumer needs.


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Introduction Our 2001 predictions Consumer attitudes Looking to the futureReport by Dr Ian Pearson

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TIMELINE

Timeline

A history of innovation in payments


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1772

First Travellerscheque issued

This new, secure form of

payment was valid in 90

European cities and issued

by the London Credit

Exchange Company.

1717

Bank of Englandintroduces printedcheques

Weve pulled together a simple timeline to show howfar money and payments have come. This certainlyisnt everything, but it gives an indication of particular

milestones in our history.

1797

Bank of Englandissues the 1 note

A series of runs on the

banks compelled the

bank of England to issue

its lowest denomination

notes ever, the 1 and

2 pound note.

600 BC

The earliest coins were

made in the seventh

century BC in the ancient

kingdom of Lydia (part

of what is now Turkey).

Coins

16thCentury

Goldsmith-bankers would

accept deposits of gold

and issue receipts to

the user. These usually

carried the name of the

depositor allowing them to

circulate in a limited way.This lays the foundations

for paper-currency.

Receipts systemdeveloped

12thCentury

Bills of exchange were

the predecessor to

the cheque, allowing

traders to buy and sell

goods without having to

carry cumbersome and

valuable gold and sil ver.

Bill of exchangeintroduced in Italy

1668

There were calls for a

national or public bank

to mobilise the nations

resources and broker a

loan for the government.

William Paterson

proposed a loan schemeof 1,200,000 to the

Government.

Bank of Englandestablished

1659

Cheque use peaked

in 1990, when 4 billion

cheque payments were

made. Since then,

cheque use has fallen

by about 40 per cent,although more than 682m

are still written every year.

Date of the earliestknown survivingEnglish cheque

1881

Postal orders created

After some falling

popularity, postal orders

are now enjoying a

comeback. Last year

the Post Office sold

334 million worth.

continued

Timeline

1946

Worlds firstmobile bank

National Bank of Scotland

introduces a Travelling

Bank on the Isle of Lewis

to save crofters from

having to take the day

off work to visit the

branch in Stornoway.

1965

The first guaranteedcheque was writtenusing a ChequeGuarantee Card

TIMELINE

1966

First UK credit card

The first credit card

in the UK is issued by

Barclaycard. A second

credit card (the Access

card) was introduced

11 years later.


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1972

First magneticstripe card

Lloyds Bank issues the

first magnetic stripe cards

for use at their new online

networked Cashpoints.

1980

Telephone banking

launched

Girobank establishes

the first telephone

banking system.

1967

First cash machineintroduced to the UK

The first ATMs predated

plastic cards, so cheques

impregnated with carbon

14, a mildly radioactive

substance, were used.

By the end of 2011

there were 64,369 cash

machines in the UK.

1968

Bacs established

Bacs is the company

responsible for the

clearing and settlement

of automated payments

in the UK including

Direct Debit and Bacs

Direct Credit.

1971

Decimal day 15th February

Britain officially switches

over to the decimal

system and leaves behind

shillings and florins, even

though the currency had

been circulating for a few

years prior.

1974

Consumer Credit Actcomes into force

Legislation comes

into force, giving extra

protection to people using

their credit cards to buy

goods costing between

30 and 10,000 (the

limits changed to 100

and 30,000 in 2005).

1984

First online shopper

The worlds first online

shopper was Jane

Snowball, a 72 year old

resident of Gateshead.

Using Michael Aldrichs

Videotex technology,

she purchased food

from Tesco, helping

her to work around her

physical disability.

1984

CHAPS established

The UKs real time,

high value electronic

payment scheme.

1987

First debit card

introduced in the UK

The first debit card was

issued by Barclays in

1987. Midland, National

Westminster Bank and

Royal Bank of Scotland

followed soon after

in 1988.

The national cash

machine network

LINK was formed in

the mid 1980s to allow

smaller banks and

building societies to

compete against the

cash machine networks

of the larger banks.

1986

LINK network created

1976

First SWIFTinternational payment

Society for Worldwide

Interbank Financial

Telecommunication

(SWIFT) sends first

message making

electronic international

financial transactions

possible for the first time.

continued

Timeline

1990

Cashback

is introduced

7 million transactions

made in the first year.


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2011

Phones used

as debit cards

Barclays teams up with

Orange to develop the

Quick Tap payment

method. Using near field

communication (NFC)

technology, users can

pay for products using

their phone.

2012

Pingit mobile payments

service launched

Barclays launches

mobile app Pingit,

enabling customers

to send money using

just a mobile number.

Central account

switching service

New Payments Council

switching service will

reduce the amount of

time it takes to swi tch

an account to just seven

working days, with a

customer guarantee.

September 2013 2011

Payments Council

announces decisionto keep cheques

The Payments Council

commits to keeping

the central cheque

clearing open for as

long as customers

still need cheques.

Collaborative project

aims to make it possible

to pay someone else

without knowing account

details, by building a

central service linking

mobile phone numbers

to account details.

2011

Payments Council

announces mobilepayments project

2012

Smartphones for

cash withdrawals

Technology developed

enabling people to

withdraw money from

cash machines using

their smartphone.

Customers are given a

six-digit code to enter

into an ATM which will

then release the cash.

2003

PayPal launchedin UK

2008

First FasterPayment sent

Faster Payments becomes

Britains first new payments

service for more than 20

years, making it possible for

internet, phone and standing

order payments to be

processed almost instantly.

1999

Half of all UK adultshold a credit card

The average value of

a credit card purchase

exceeds 50 for the

first time.

1997

Online bankinglaunches

Nationwide is the first

UK provider to launch an

Internet Banking Service,

Royal Bank of Scotland

launched its own online

banking service slightly

later in June 1997.

2003

Chip and PINintroduced

Rolled out in 2003,

the chip and PIN

was eventually made

mandatory in 2006.

2008

First UK contactlesscard issued

Currently there are about

23 million contactless

cards in issue. The Post

Office has announced

that it will become the

largest adopter of the new

technology in Europe,

with 30,000 countersoffering this payment.

Timeline


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OUR 2001PREDICTIONS

By Mike BowmanHead of Policy and Markets,Payments Council



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continued

OUR 2001 PREDICTIONS By Mike Bowman

For an organisation like thePayments Council, which worksto ensure payment methods are

appropriate for everyone, it is vitalto keep one eye on the future andconsider what changes we needto prepare for, as well as whichinitiatives we may need to facilitate.In addition to this, it is useful to lookback at earlier predictions to seewhat came true and what nevermaterialised, looking at the real shiftin societal need and behaviour, sothat we can refine our next roundof future projections accordingly.

Looking at 2011 from 2001

In The Payment Markets Report 2002, issuedby our predecessor APACS, we looked athow the way we make payments might changeby 2011, tracking against 2001 figures. Thereport was produced at a time in which weheralded a new era in online commerce andwe looked excitedly to the prospects thatmobile technology might bring us. It wasalso produced as we welcomed the Euro andstarted to debate the long term consequencesfor the widely available credit of the time. Muchchange was predicted. Crucially, the report was

also produced soon after it was announced thatchip and PIN would be rolled out from 2003and become mandatory for card payments.

Back then, we said the change to PINrepresented a huge technological andcustomer education challenge and with

good reason. Banks and retailers had toupgrade or replace over 100 million debit andcredit cards, 750,000 point-of-sale terminalsand 35,000 cash machines, and over 40 millioncardholders had to be guided through thetransition process as PIN replaced signature atthe point-of-sale. But all this was done and thechange has led to many further developmentsin security of payments, as well as opening upwider access to e-commerce and paving theway for easier mobile payments. It also madepossible unattended payment terminals, suchas in supermarkets, which we correctly pointedto having a growing prevalence.

It goes to show that if some of the moreimpactful projections made by Dr Pearson inhis Looking to the future report are brought inby 2025, it will be phased and implementedas seamlessly as possible. Major change willonly come about if it genuinely facilitates theway we pay, and the security of transactions.

The report was also produced soonafter it was announced that chip andPIN would be rolled out from 2003 andbecome mandatory for card payments.



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Electronic purses

We explored the possibilities of electronicpurses in 2002, but concluded that there

were too many uncertainties to make any firmpredictions whilst we stated these wouldmake travel much easier (such as that usedfor the Oyster system), we stopped short ofsuggesting they would be widespread ineveryday lives. At the time, most banks werewaiting to see the success (or otherwise) ofOyster, and the limited number of generalpurpose solutions that had been pilotedhad not shown much consumer demand.

Debit and credit cards

Whilst we correctly predicted the increasingdominance that debit cards would have overthe past ten years, the credit crunch was onefactor that meant the gap between the amountof payments made on debit vs credit grewfaster than we had anticipated back in 2002.

We said there would be 26 million peopleusing credit cards to make payments by 2011and there were 19 million. We said debit cardpayment volumes would rise from 2.7 billionin 2001 to 5 billion in 2011 and they rose to7 billion. Debit payments became the nationsfavourite way to pay in 2010 when spendingon debit cards overtook cash.

Exploring how different demographic groupsmake existing payments is a useful way topredict changing need one factor behind

our projections that debit card paymentswould rise sharply was that we knew youngercustomers are more likely to be heavy usersof debit cards and would be entering an agedemographic of heavy spending.

Money moves around much faster today we get paid faster, we use more Direct Debitpayments for bills and our busy lifestyles have

lent themselves to more micro payments thanwe anticipated. This has also boosted the useof debit cards and a share of this will be takenover by mobile payments when this becomesmore widespread.

Cash, cheques and paying another person

In 2002, cash and cheques formed the largestshare of person-to-person (P2P) payments.This was predicted to change as we explored

the emergence of systems which allow us topay each other via email, by mobile phone,or online. Whilst email and mobile have not ledthis change, online payments have certainlytaken a large share of P2P payments fromcheques. Further moves away from chequeshave also been made by small businessesadopting greater card use, greater use ofDirect Debits for paying bills and by manyretailers no longer accepting them. Chequeswere expected to be used for only one non-

cash transaction in twelve in 2011, comparedto one in five in 2001 and one in two in 1991.The use of cheques in 2011 was actuallylower than predicted at one in twenty.

continued

Money moves around much faster today we get paid faster, we use more DirectDebit payments for bills and our busylifestyles have lent themselves to moremicro payments than we anticipated.



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In terms of cash, in 2002 we thought thatcash use would continue to decline with thebiggest uncertainty over the rate at which low

value payments would shift to card payments.In our main forecast we were fairly conservativeand expected the share of all payments madeby cash to fall from 73% in 2001 to 61% in 2011.

Another factor in our predictions for cashwas a 2004 change in the way benefits werepaid, with transfers being made directly tobank accounts. This led us to predict a oneper cent annual rate of decline in the numberof spontaneous cash payments, we also statedthat the growing popularity of cards for lowervalue payments could make this decline steeper

and that turned out to be the case. In reality,there was a steeper decline of 2.9% per year,although that still meant there were more than2 billion spontaneous cash payments madein 2011.

Online and mobile

We were right in saying that the online worldwould become an ever more pervasive part

of everyday life, and we projected that over 18million adults would be using internet banking toaccess their current accounts in 2011, up from6 million in 2001. The real figure is 26 million.

Around the turn of the millennium, there wasa common belief that e-commerce wouldrevolutionise the retail industry. However, by2002, we had scaled down our projections inthe wake of the dot com stock market crash

and were then looking ahead to three maine-commerce channels as drivers: the PCinternet, mobile networks and interactivedigital TV (iTV). As we all know, iTV didnttake off to anywhere near the extent originallyenvisaged and more broadly, as e-commercemarkets became more mature, the generalview of the potential for e-commerce becamemuch less radical.

However, we did predict strong growth and

we felt that mobile payments could potentiallybe a large part of that growth. At the start of1999 just over a quarter of UK adults weremobile phone users; it is now universal in manygroups. This has opened up the internet tonearly everyone and many payments are madeto online retailers now using our mobile phones.

But in 2002, we went further we suggestedthat mobile technology would provide a platformfor innovation in payment systems themselves.

One potential scenario we explored saw themobile device being used as a terminal to helpfacilitate the use of plastic cards. In this scenariothe mobile handset would be used as a secureauthentication and communication tool. We alsosuggested that mobiles equipped with a short-range wireless link capability such as infra-redor bluetooth might be able to communicatedirectly with a point-of-sale terminal.

Another, less secure scenario saw thecardholder key their card number into theirmobile device to authenticate a payment.

Whilst the development of mobile is nowstarting to take shape, it is coming a littlelater than we had anticipated. When mobilepayments do become widespread, we standby our prediction in 2002, that mobiles might,unlike other e-channels, actually changeexisting payment behaviour rather than just

adding new situations for payment.


In reality the ease of making paymentswith chip and PIN has meant that manymore low value payments are now beingmade by debit cards. Cash was used foronly 55% of payments in 2011.


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CONSUMERATTITUDES

TO FUTUREPAYMENTS

Consumer attitudes


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Our 2001 predictions Consumer attitudes

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Pay Your Way commissioned researchinto the predictions, views and concernspeople have around future technologies

and future payment methods. Here aresome of the findings:

General perceptions of the year 2025

65 per cent expect to be able to have

a speech enabled home

Nearly a third (31 per cent) expect to haveself-driven cars

Almost a quarter of men (24 per cent) believethat head mounted 3D displays will be partof everyday life, compared to just 11 per centof women

Nearly a third of men (28 per cent) think thatmicrochips under the skin for GPS tracking,

data and payment transfers will be available,compared to just 18 per cent of women

Perceptions of payments in 2025

42 per cent of Brits think that they

wont need a purse or wallet in 2025

51 per cent of people think well bepaying by fingerprint scan

35 per cent by iris scan

32 per cent anticipate paying byvoice command

CONSUMER ATTITUDES

continued

51% OF PEOPLETHINK WELL BEPAYING BYFINGERPRINT SCAN

IN 2025

1/3Nearly OF PEOPLE

EXPECT TO HAVESELF-DRIVEN CARS

IN 2025

In the year 2025:


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Humans and technology

Most Brits do welcome new technologies,

with nearly three quarters (72 per cent)believing that technological advancementsare good for society

Nearly a third of 18 to 25 year olds areworried about new technology changingthe way they live

Over half of Brits think that science-fictionfilms and books influence the developmentof technology (54 per cent)

89 per cent of Brits like payments to beas fast and efficient as possible and over athird (68 per cent) admit to getting impatientif a transaction seems to take too long.

Security

46 per cent of 18 to 24 year olds think

that new ways of paying for things willnot be as secure as cash or credit cards

Nearly two thirds of UK adults (62 per cent)worry that payments using new technologywill not be secure

Consumer attitudes

Populus interviewed 4,104 GB adults onlineon behalf of the Payments Council between31st August and 7th September 2012. Resultshave been weighted to be representative of allGB adults. Populus is a member of the BritishPolling Council and abides by its rules. Formore information see www.populus.co.uk

2/3Nearly

OF ADULTSWORRY THATPAYMENTS USING

WILL NOT BE SECURE

NEW TECHNOLOGY

89% OF BRITSLIKE PAYMENTSTO BE AS FASTAND EFFICIENTAS POSSIBLE

When it comes to payments:


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TimelineIntroduction Consumer attitudesOur 2001 predictions

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LOOKING TOTHE FUTUREReport by Dr Ian PearsonLead Futurologist, Futurizon

About the author

Ian Pearson is a full time futurologist, tracking and predictingdevelopments across a wide range of technology, business,

society, politics and the environment. He is a Maths and Physicsgraduate and has worked in numerous branches of engineering,from aeronautics to cybernetics, sustainable transport to electroniccosmetics.

He was BTs full-time futurologist from 1991 to 2007 and now worksfor Futurizon, a small futures institute. He writes, lectures andconsults globally on all aspects of the technology-driven future. Hehas written several books including You Tomorrow, and made nearly

500 TV and radio appearances. He is a Fellow of the World Academy

of Art and Science, the World Innovation Foundation, and the RoyalSociety of Arts and a Chartered Fellow of the British ComputerSociety. He holds a Doctor of Science degree from the University

of Westminster. Full contact details are available on futurizon.com.

Looking to the futureReport by Dr Ian Pearson


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continued

Most of us have used credit or debitcards to pay for things for decades,but in the last few years we have also

adopted some new electronic paymentsystems. Many use Oyster to pay tubefares, we may use Girovend in ouroffice restaurants, use PayPal online,and even use our mobiles to pay forcoffees. We are also increasingly usedto alternative forms of currency such asair miles or supermarket loyalty points.Most of us have also got used to havingto remember passwords or personalidentification numbers (PINs) to getinto our bank account or authenticatea card transaction.

New technologies are opening up newopportunities for businesses to offer newkinds of payment and new forms of currency.

Some of these will fail in the market andsome will stay. By 2025, we will all be usedto paying for things in a variety of new ways,and authenticating payments in new waystoo. This paper looks at some of the changesI believe could be coming along and the keyfactors that will determine which ones willhave a lasting impact.

Technology generally succeeds or failsdepending how well it meets our everydaysocial needs, so it is a good idea to look atthese. Then, expanding on one importantarea of these, security, we will address someother key factors that will affect adoption.We will consider how all this could play out inthe 5 and 10 years periods, leading up to anoverview of how payments will look in 2025.

2025 has been chosen for this report becauseit is far enough away for technology to havetime to develop and mature, and for society to

adopt or reject the various types of contenders,but not so far in the future that predictions arejust guesswork or science fiction.


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Human nature hasnt changed much inthousands of years, and technologiesthat work with our nature are more

likely to thrive. Mimicking rituals thatwe have always used in everydayinteractions is a sure foundation forthe long term future. That impliessuccess for interfaces like speakingan agreement to pay someone, makinggood eye contact, shaking hands ona deal, taking a virtual product off anaugmented reality shelf, even tossinga virtual coin into a virtual hat, orpointing a device in their directionand making a gesture.

Simplicity

Adding lots of fashionable technologicalcomplexity can be fun for a while butwould have shorter longevity. Simplicity andnaturalness will be the long term survivors inpayments, as in everything else. That impliesintuitiveness, trust, and security too, as theseare all essentials for something to be takenfor granted and be naturalised.

Social networks and trust

Social networks such as Facebook andTwitter are well established, successful partly

because they tap in to an innate tribalism thatis part of our human nature. This flourishingtribalism makes it easier to form groups forbulk purchase, discount communities andcommunity based cash forms and paymentmechanisms. In a globalised world, community-specific trading systems are flourishing, withtheir own local currencies. These range fromexchanging favours or work chores to simplethings like babysitting circles, and actual

payments being made using anything fromweb databases to exchanging pieces of hosepipe. Users of local exchange trading systemsare creative!

Governments and some companies aremoving away from strictly financial assessmentsof wealth and incorporating more qualityof life measures, and social strengths are

big components. Far future companies willbecome much more integrated into the fabricof communities. This makes community cash

forms and direct peer-to-peer payment systemsmore viable, but also means social networkswill keep companies in check and punishthose that misbehave.

As social entrepreneurs continue to makeclever use of the web and phones, somesocial network based payment systems couldbe developed that are free of commissionand fees, and if so, they will provide strongcompetition for todays payment systems,which charge retailers a percentage of eachtransaction. Governments would encouragethis since removing fees and commissionswill be an economic stimulus equivalent toreducing VAT. Tribal social networks willtherefore be a key driver of change for banks,credit card companies and phone basedcash providers.

This will also make it hard for walled gardens

to survive, where companies try to take a sliceof each transaction on their systems. Peoplewill demand the ability to spend their owncash on any platform without having to paycommissions and social entrepreneurs willdeliver the means to do so. Companies thattry to resist will suffer and likely see peoplesimply boycott their platforms.

continued

SOCIAL DRIVERS



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continued

Walled gardens

A walled garden is a technology termused to describe a carrier or serviceproviders control over the types ofinformation that users have, such asplacing restrictions over the type ofapplications, content and media ona device (such as a mobile phone withinternet access). The carrier retainscontrol over what the user has accessto and therefore can retain exclusivityof that content, but if a rival carrier

provides a more open service with lesscontrol, it may be a tempting propositionfor the customer.


There is huge potential for integrating manyforms of value into the same payment system.Rather than just Pounds Sterling store

rewards, air miles, babysitting tokens or anyother forms of cash could be integrated intothe same exchange systems. This would allowthe creation of structures for direct trading ofthese new types of currency by individuals,and businesses will face increasing pressureto allow this.

Trust is a key factor in any financial service,and companies are learning fast. Google+,requires people to use their real names, unlikeFacebook. Knowing whom you are dealingwith makes any kind of interaction more secureand this will be important for social networkbased payment systems. Social networks willbe important in many future payment systems,and ones that have trust technology built inwill likely flourish.

Accessibility

Accessibility is essential for success. Everyone

needs to be able to make payments, not justthose with a particular kind of gadget. Adoptionof smartphones or keeping investment costslow accelerates deployment, but no deviceor operating system is used by everyone.It is also important that we can still pay forthings even when our phone battery is flat or

there is a poor signal, or no access to satellitepositioning to certify location. Coins and notesused to be universally accepted but the spread

of various electronic payment mechanismsthat offer reduced handling costs for suppliersmeans that, in a few circumstances, theyno longer are. The result is that no universalelectronic payment system exists now andthere is fierce competition to try to grab marketshare, and this may mean some incompatibleparallel systems in place. However, the morecompetition and uncertainty that exists in theelectronic payments space, the more marketshare will be retained by hard cash coinsand notes.

Anonymity

Demand for at least one anonymous form ofpayment will be one of the reasons why hardcash continues to survive. Anonymity is notessential for a payment type to flourish, butelectronic payments wont be used 100%of the time, since they can be more easilytracked. However, governments may use

crime reduction as an argument to justifymaking payments harder to do anonymously.


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We all learn as small children whywe need to take precautions when wehandle money. Security is an essential

part of any financial transaction.With hard cash, it is simply a matterof spotting forgeries and making sureyou keep your purse secure. Withelectronic payments, the risk of theftfrom a distance exists, and so doesthe potential to fake identity to spendsomeone elses money. A lot of securitymeasures have therefore evolvedaround all the various forms of cash

and payment mechanisms. Some ofthese work well in science fiction butnot so well in practice.

Iris recognition is a good example of afantastic technology that sadly is hardto implement in the world of routinepayments. Iris recognition just involveslooking into a camera, and the computerrecognises your eye. In practice, you have

to make sure you hold still to enable thereader to get your iris in focus, which takestime and can be tricky. Youd also need toconvince every customer to participate.

Face recognition

Face recognition as a security measureis at least as old as the technology to takephotographs, yet authentication via photos isnot very secure. Face recognition falls foul ofthe commonest bypass in biometrics (as doesiris recognition) persuading someone that itreally is you in spite of the biometric recognitionfailing (e.g. it is me, but I just got my hair donethis morning). The use of photos as a securityfeature has been incorporated into some newmobile payment systems like Square, the USphone app that allows small businesses to

accept card payments. Yet it sometimes failsas a security measure because some peopleupload pictures other than their own, and itonly works when the person trying to pay hastheir phone with them. Many people are similarin appearance too.

In fact, adding any other security token,such as a PIN, gesture or voice recognition,would make the use of photos better as atrusted payments mechanism. Combinations

of security tokens increases security, but thiscomes at the expense of simplicity, speed andaccessibility. We accept different trade-offsin different circumstances, and are generallyhappier with heavier security measures wherelarger transactions are concerned.

The presence of the phone is a usefuladditional security measure in itself, sincepeople generally take care of their phones

and quickly report them missing if they arelost or stolen. The phone can communicateelectronically with other devices at high speedtoo, to transmit any required data associatedwith the transaction. So they can help confirmthe carrier is who they claim to be. Smartphones can even run security apps such asfingerprint or voice verification, so can helpin authentication at several levels.

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continued

Security jewellery

We will soon see pieces of security jewelleryentering the market for payment authentication,such as electronic signet rings. It is a lotharder to lose a ring than a mobile phone.Other pieces of jewellery could also be used,such as necklaces or ear rings, but rings havethe advantage of being on the finger so arelikely to be easier to get physically close toa reader. Ill talk about jewellery a lot more,throughout this report.

On the fringes of acceptability are security

technologies such as pet identity chips thatcan be implanted into the forearm. A fewpeople are technophile enough to wantto use these, and they are already usedin some clubs, but the vast majority of uswouldnt accept this level of invasiveness.

Some credit cards and mobile phones usenear field communications (very short rangeradio transmission that is only activated near

a scanner) to allow payments just by wavingthem near the reader, (near meaning withina few centimetres). The perception of riskfrom near field comms has been growing oflate, (e.g. concerns about thieves brushingpast with scanners hidden in their clothes)but banks can easily address such concernsby requiring the use of other security tokenssuch as a PIN entry before a payment is made.

Tiny cameras are a problem for security, being

ever easier to hide in bank machines or nearshop counters. If cards can be skimmed insome way (e.g. using readers in the card slotentrances) and PINs picked up by watchingtyping, then this is a clear risk that is likelyget worse.

Smart dust

Smart dust is a term describing dust sizedparticles that contain electronics. It is still partlyscience fiction, since what usually passes asdust today is still several millimetres across.However, in the long term, 2025-ish, it will bepossible to make electronic devices smallerthan a speck of dust that contain significantcapability (i.e. smaller than a tenth of amillimetre, which is the threshold of visibility formost people). These could easily be concealedanywhere, even on banknotes. It will bepossible to make them so lightweight that they

can float into buildings via air conditioningsystems, land on keyboards, and interceptkeystrokes even before the sensitive datagets into the computers security defences, orbrush onto clothes by casual contact to recordgestures. Smart dust could also be sprinkledinto office machines and detect anything printedor copied. The ability of smart dust to interceptsignals, passwords and generally eavesdropon transactions via computers means that itwill undermine the confidence in the security

of electronic payments.



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Handshakes

Not all new technology is a security threat.Some could help make payments easierand more pleasant. In the late 1990s, TheMassachusetts Institute for Technology (MIT)demonstrated that data can be transmittedelectrically through the skin, so that anelectronic business card could be exchangedvia a simple handshake. They showed a datarate of 2Mbits/sec was achievable even then(equivalent to over 100 pages of text duringa handshake). Clearly, this sort of mechanismcould also be used as part of authentication

process for a transaction, with plenty ofcapacity to carry all the data needed.Handshakes are a well-established socialritual that has always been used to expresstrust or friendship, so using them as part ofpayment transactions would feel very natural.

The amount of money transferred during ahandshake could be stated verbally, typedon a smart phone display, or even determinedby a gesture. Electronically augmented

handshakes could enable easy certificationand recording of identities of the two parties,time and location for tax or legal purposes,legalising documents or contracts, or even toinitiate large financial transfers. Any numberof other rituals or tokens could be added toincrease the level of security.

Fingerprint

When people think of how they will authenticatepayments in the future, fingerprint recognitionis often one of the first options they consider.Fingerprint recognition has been aroundquite some time, but at best works to varyingdegrees. It isnt secure on its own either.It is pretty easy to get hold of someonesfingerprints. They could be lifted from a glassused in a pub, or from many surfaces in ahotel bedroom. (DNA samples are similarlyeasy to get hold of, in hairs left in hotels or onpublic transport, so are also inadequate as a

reliable form of ID verification).

By themselves, fingerprints are inadequateto authenticate valuable transactions, andshould only be considered as part of a securityprocess in conjunction with other securitytokens, such as a card, PIN, voice or facerecognition or gesture. But new systems couldbe made that combine these in ways that canbe friendlier and integrate more comfortably intoeveryday social culture, such as handshakes

or other gesture use.

Secured payment zones

Another area where technology can helpreduce inconvenience associated withmaking secure transactions is to make trustedzones, where lighter security is adequate.This can be arranged by using location datafrom urban or satellite positioning systems aspart of the security protocol. This informationcould be used to mark out the physicalboundaries of premises such as a bankbranch, where local physical security wouldoffset some of the risks associated with apayment. Businesses may choose to police

such systems in their own shops or malls,and take on the risk of fraud instead of thecustomer. Making transactions feel easierand safer will often increase business.

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continued

Games technology is likely to be aconvergence point for some of theadvances in shopping. People will

often wander in computer-generated3D worlds when they play games, andwill often use the same technologieswhen they shop. Included in this arethe semi-transparent video visorslikely to become common in the next5 years. These will superimposecomputer generated graphics intoour field of view via a visor. This iscalled augmented reality (simply the

normal view of reality, augmented bythe addition of computer generatedinformation or graphics). They willbe followed by the first generation ofactive contact lenses by 2020 that doexactly the same function, but shrunkdown into a contact lens. These couldbe commonplace in 2025.

A new shopping experience

Augmented reality will be used extensively inshopping, with virtual devices and gesturesused to pay, adding electronic signatures andsecurity onto simple physical transactions andmaking shopping more natural. On the web,shoppers will expect to be able to use similarinterfaces to those they are familiar with in thehigh street, as well as more familiar web ones.This interface-level convergence of the real andphysical will destroy many of the boundariesbetween web and high street shopping, but willalso increase markets for electronic payments.

Augmented reality removes the need forplastic cards, which can be virtualised, andeven mobile phones as we know themtoday are likely to vanish in this technologybackground, replaced by assorted digitaljewellery and video visors. Card providerscould preserve their services with virtual cardsbut they would have to offer them through anaugmented reality interface layer that would becontrolled by other companies such as Apple,

Google or mobile network operators, and thesecompanies will probably look to launch rivalservices of their own.

Plastic cards could fight back against beingabsorbed into smartphones by offering e-ink(like Kindle) displays on the card to provide

useful services, such as navigation, shoppingaround, discounts or even to replace tickets,boarding passes and various other financiallyor identity-related products. Although expensivetoday, costs will fall fast.

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continued


Future kinds of currency

The nature of cash will change. In 2025, manypeople will use PayPal, electronic vouchers,

virtual currency such as BitCoin and others yetto enter the market. Although PayPal is used tofacilitate transactions in other real currencies,there is no fundamental reason why it couldnot have been a currency in its own right,and PayPal could still develop one. Thesekinds of electronic payment need not dependin principle on other forms of currency.

As a promotional tool, to encourage sales in

quiet periods, retailers could issue vouchersthat are worth different amounts in differentcircumstances, such as varying by timeof day. The value of cash would thereforedepend on the circumstances of its use.Algorithms could take into account time ofday, the identity, age, employment status orsocial group of the user, location, or indeedany other measurable factors.

Electronic cash offers the potential for tracking

payments too, enabling a wide range of options for example you could earmark some ofyour kids pocket money for certain kindsof produce, so that they cant spend it all onsweets. Electronic chips could also be addedto physical forms of cash such as notes orcoins to let them also be tracked easily.Tracking electronic cash in this way could

also lead to a situation where, by being able toshow exactly where the money has previouslybeen, an electronic note or coin may be worth

more than its face value, if it has been spentpreviously by someone famous. Cash couldaccumulate provenance and collectability inthe same way as antiques that have beenused by the famous. Also we will see somecelebrities with their own cash brand, orendorsing a particular form, or helping designit, just as they do today with perfumes.

Trackable electronic cash also allowstaxation at the point of sale, where the cost

of the payment depends to some degreeon the tax liability of those taking part in thetransaction. Similarly, benefits vouchers couldbe implemented electronically, reducingblack markets by ensuring they are only spenton what they were intended for. There areobvious political considerations for deployingsuch developments, but the technology iscertainly feasible.

Global electronic currency

Many people would prefer currency that isaccepted globally, since it would avoid many

of the expensive currency exchange costscurrently present in travel. Corporations haveadvantages over governments here, both ingeographic presence and trust, so we maywell see a few corporate currencies, backedup by alliances of large companies rather thangovernments. These could work with existingpayment mechanisms such as PayPal, or theycould incorporate their own mechanisms andcompete with PayPal.

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Miniaturisation

Electronic devices will continue to shrinkin size (except of course where they need

to be large for some reason). As I statedearlier, in the next few years, digital jewellerywill emerge, and ultimately, this might evencause the disappearance of phones in theform we have them now. Many tiny pieces ofjewellery such as lapel pins, rings, badges,necklaces, even ear or nose studs will carryout a wide range of electronic functions,so phones could be replaced by a rangeof jewellery with specific functions. Some

of these will be used in security systems,such as identifiers, encryption devices,accelerometers (the clever device insideyour smartphone that detects and measuresmovement and orientation) and personal profilemanagers. A high degree of personalisationwill be possible, and using combinations ofpersonal devices, gestures or procedurescan increase the level of security enormously.

3D printers already allow small accessories

to be printed at home from downloadabletemplates. Some of these could have chipsadded during fabrication for security purposesuch as authentication. So someone might printtheir own digital jewellery in their home or office,and could incorporate their use in personal or

business-specific security protocols. Localbusinesses that offer commercial 3D printingon more sophisticated machines will also

become widespread.

Social rituals

Humans are social creatures and over millenniahave evolved a range of sophisticated ritualsfor greeting other people, forging agreementswith them and finalising transactions. Theseinclude simple nods, full bows, handshakes,salutes, signatures, and use of wax seals.The first of these lend themselves easily to

adding accelerometers or even the camera-based gesture recognition already commonon games consoles.

The wax seal used with a signet ring toauthenticate letters also is suited tomodernisation. It would be quite easy tomake security wax that incorporates somespecial ID particles. These could work byusing molecular signatures (a personalisedmix of special molecules), fluorescence (shining

with a particular colour mix when exposed toUV), radio or infrared signature or even visiblelight emissions. Or they could just respondelectronically when asked. Much easier.

The special security wax particles could beprogrammed with a code by contact with thering. A fingerprint in the wax at the same time

could be a nice touch too. Security wax wouldtherefore be a good security addition. Anymelting or reforging of it would affect distancebetween the particles, or their temperature,measurement and recording of which couldalso be added as extra functions.

continued


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Fingerprint security enhancement

It is possible to print simple electronic circuitsonto almost any firm surface using inkjet

printers, and this could easily combine withexisting fingernail printers to enhance securitywhen fingerprints are being used. Similarfunctions could be added into digital signetrings of course. Either of these would allowinteraction with an electronic circuit to beintegrated into a fingerprint scan. Dependingon the electronics, this could offer one-timecodes or a personalised algorithm. (One timecodes are codes that are only used once, and

a new one is calculated each time accordingto some clever mathematical procedure thatuses the time and a few equations). Yourinternet banking may already use a calculator-like device that creates a one-time code eachtime you use it. In future, a ring could alsocontain an accelerometer, making it easy toadd gestures into the authentication process.This could be a particular hand movementor a signature.

Fingerprints could safely be used as asimple biometric part of such a system, andif the added security is via electronics on

the fingernails or a ring on the same finger,it would be totally unobtrusive. It would stillbe possible for a mugger to steal the ringand take a fingerprint but the use of one-timecodes makes it easy to cancel it. Adding theaccelerometer and the third security tokenof gesture recognition would make it verysecure, almost impossible to steal.

Further in the future it will be possible to printelectronics into the skin itself, in among skin

cells. This could be done using compressedair jets to blast 10 micron sized electroniccapsules into the skin. This is already donewith similar sized drugs particles today, so nonew technology is required except ongoingminiaturisation and encapsulation in body-safematerial. Depending on the printing depth,these devices could stay in the skin for variableperiods. Surface layers would wash or wearoff in hours to days, whereas deep printed

devices could stay for life. Again this offersan unobtrusive way of adding enormously tothe level of security possible using fingerprintscans. They would be impossible to stealwithout severely physically assaulting thewearer, although the wearer could still beforced to make the transaction themselves.

As an alternative to a complex circuit printedinto the skin surface, a more reliable andless intrusive mechanism may be to print

an 8 x 8 array of magnetised particles intothe skin surface. These could be around amicron is size, maybe smaller, so would beinvisible, but could have their polarity changedeach time they are used to make a readableone-time 64 bit PIN. This could add highsecurity to an otherwise insecure fingerprintrecognition system.

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Looking to the future


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There are a lot of changes ahead forpayments, but they wont all comeat the same time. On these pages,

Dr Pearson summarises his viewof the key changes, and when theyare likely to arrive

5 years

The next five years are critical for thesuccess of electronic payments, particularly

Near Field Communication (NFC), thetechnology used on contactless cardsor NFC-enabled mobile phones.

Rival smartphone operating systems willbattle for supremacy with supposedly saferwalled garden versions such as ApplesiPhone iOS where the company that createdthe software can restrict access to non-approved applications or content, competingwith open but supposedly risky ones such

as Googles Android.

Many new payment systems are emerging,hoping to grab market share, often usingthe phone as both proof of presence andto run the app that processes transactions.Some of these payment systems will be crossplatform, while others wont, echoing thebattle over smartphone operating systems.

Security will be critical for all of theseemerging payment systems the nextfive years will thoroughly test them withimaginative and sophisticated attacks.Significant security breaches for anyof them will tarnish the whole market.

Low battery life and signal coverageproblems will combine with security issues toguarantee the continuation of physical cash.

Particularly at stake are biometric basedsystems such as face, voice, fingerprint andiris recognition security fears will either beconfirmed or proven misplaced, and that willdetermine the longer term future.

Battery drain on phones will remain aproblem, particularly when people haveto use many applications that rely oncontinuous access to wireless commsor positioning systems.

continued

DR PEARSONS PREDICTIONS





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10 years

If electronic cash is shown to be secureand systems proven to meet the other needs

such as universality, interchangeability andconvenience, then electronic cash shouldaccelerate rapidly over the 5-10 year period.

Walled gardens are unlikely to survive muchinto this period, since people will want tospend how they choose. A variety of deviceswill be used to manage payments. Somewill be offline devices, others will use thenetwork, some will use either, such asmobiles. Some will be cloud based, but

systems that need network access willfail if high speed coverage isnt excellenteverywhere.

Digital jewellery will make large advancesin the 5-10 year period, and some will bedesigned as means to hold or transfer cashor authenticate transfers. Pieces of jewellerycould be worn so as to make transactionsvery simple, while verifying presence, andeven combining with electronic data transfer

during a handshake.

There will be many more ways to acceptpayments for businesses and individualsas the technology required to accept credit

cards or contactless mobile phone paymentsbecomes cheaper, and evolves to acceptsignals from tiny Radio Frequency Identification(RFID) chips or QRcode jewellery, providedadditional tokens are present. Rings couldcontain accelerometers too so that signaturesor other gestures could be verified andtransactions digitally signed. Combining thiswith handshaking could permit data transfervia the skin, or via radio to another pieceof jewellery.

2025

By 2025, most of the major battles willbe over and people will be able to spend

their money electronically anywhere withoutworrying about what kind of devices or apps they have or whether there is a goodsignal there.

Even in 2025, there will still be times wherecoins and notes will remain useful, so theywill stay in common use too. The ongoingbattles with fraudsters over security andamong competing businesses and productsfor market share will ensure that it will take

much longer than 2025 for electronicpayments to approach full market penetration.

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TimelineIntroduction Consumer attitudesOur 2001 predictions Looking to the futureReport by Dr Ian Pearson

The far future, 2040

Technology wont stop developing in 2025,but it becomes more and more uncertain.

As we start to use the skin as a platform andlink into the nervous system, and even startto make direct links into the brain, wholenew realms open up for payments. It may bepossible to pay just by thinking the intent to pay,or snapping your fingers. Thought recognitionis feasible, but this is an excellent example ofthe level of uncertainty in the far future. Howreliable it will be, and how much we can learn tocontrol our thoughts to make it useful remain to

be seen. It is possible to read a PIN by thoughtrecognition even in 2012. Security concernscould potentially wreck such payment methodsin the long term. Also in the further future, thereis much more scope for radically new inventionsto change the whole field. So, although 2025 isclose enough that we already know most of thetechnologies that will have enough time to playout properly, that simply isnt the case for 2040or beyond.

Conclusion

By 2020 and certainly by 2025, electronic

payments will have matured to be even moresecure and easy to use, available to everyone,pretty much everywhere, almost all the time.But even in the 2025 period, in spite of arange of electronic currencies, and electronicways of paying, coins and banknotes will still

be in common use.

We wont have to learn lots of new tools.The good news is that some of the newtechnologies will hide in the background orbe integrated into everyday social rituals likehandshakes. The technology will adapt to us,making it easier to pay for things, even forpeople who dislike technology. As in so manyother areas, the more advanced technologybecomes, the less visible it will be, and themore human.

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Consumer attitudesTimeline Looking to the futureIntroduction Our 2001 predictions


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Consumer attitudesTimeline Looking to the futureReport by Dr Ian Pearson

Introduction Our 2001 predictions

[email protected]

September 2012

Documents

Pay Your Way 2025 Future of Payments