The Future of Wallets

Imagine that you deposit money in your children’s digital wallet that cannot be used to buy alcohol or tobacco. Or businesses trading in crypto currency without the hassle of exchange rates or different country regulations. And what about fraud? Or biometrics? Let’s have a closer look at 3 ‘drivers of change’ for our wallet and the financial world: Changing world, Implications and Future path.

Changing world: crypto is here to stay

Is the cryptocurrency market disrupting the economy and established institutions? Actually, it is too soon to tell. First of all, is it really disrupting or merely a natural evolution? It will all depend on whether and how authorities and big techs will react. The reality is that crypto has started a whole new economy, but the conservative banking industry is at a status quo because the legislative framework hasn't chosen a direction yet.

There is clearly no way back, as today 150 million people have cryptocurrencies. Given the present evolution that number will grow to 1 billion people by 2025. The question will be: what problem do we solve for the consumer? In the end, he just wants to buy online and have a frictionless experience and fast payment as possible. Technology today is way ahead of the user experience. When you buy anything over the internet, the currency is irrelevant. Whether it’s dollars, euro, bitcoin or anything else.

Hybrid systems of payment rails are definitely something we will be moving towards. The big techs could convince the masses and make crypto scalable. Different payment options, such as paper meal vouchers, Bankcontact cards, or Apple Pay each providing a different user-experience, will disappear in the foreseeable future. Payments with and by crypto is technically already possible, but the question is under which form this will be.

We already see examples of DNA scanning via infrared. There are of course issues from an ethical and legislative standpoint. Biometrics is primarily a layer with a focus on ease of use, but always comes back to PIN codes as the primary element. The future is behavioural biometrics and how we use our devices. Face recognition is just an intermediate phase in this transition. With behavioural biometrics, we are going to use certain data points, such as the way you type, hold your mobile phone, etc.

So what about fraud? In 2019 there was 3 billion of money laundry in crypto. The new hacking possibilities associated with crypto and blockchain are a global problem, so we need to work out the regulatory framework on a European or global level. As the banks' defence mechanisms can't do much with it today, fraudsters can get away with it easily. Making authentication 100% watertight is not yet possible; it remains a probability calculation. Combining different sources (biometrics, pin codes, behavioural biometrics) will create more trust. Again, we need a legislative framework that provides room for further innovation.

Is Bitcoin the Robin Hood of the Payment Industry? The regulator is surely getting nervous, due to the technological know-how to hack systems. It remains difficult to trace crypto transactions. A big part of the problem still lies with the credit card companies that enable to buy crypto. The first steps towards regulation of crypto exchange platforms have already been taken, such as the KYC and AML procedures. As a result, it has become much easier to trace money. Real anonymous coins and services will disappear in the end.

Implications: trust, poachers and forest rangers

The more user-convenient, the greater the danger. The major problem surrounding security can be traced back to associated human actions. Trust is therefore an important aspect of the (future) business model. The super-app or marketplace business model is an intermediate step towards an ecosystem where parties look for a shared value proposition and act as a keystone within the entire journey. In a healthy ecosystem it is the end user who determines the roles in that ecosystem.

Can mobile wallets effectively secure payments or other assets? Recently, banks have even been abandoning the digital first strategy because they were the victim of a hack. They are focusing again on the old combination of software and hardware to secure the transactions sufficiently. The population of people with technical knowledge who can also be a potential danger has grown exponentially. The best forest rangers are former poachers…

The whole cash payment industry cannot be underestimated either. There are printers, paper, suppliers lobby, etc…. Working towards a cashless society still has a long way to go. There is an acceptance of digital payments due to Covid, but the challenge is to keep those figures at that level. People are falling back into their old habits, with small business preferring cash again. Based on real figures, we can assume that the growth is no longer exponential but is stabilising towards regular growth.

Future Path: wallet as a storage for identity

Some questions remain that may seem unsettling. Is the need to decentralize our data an absolute necessity? Is our privacy under threat? Are we going to own anything at all in the far future? Will we lose control? When trust is widely established, the future wallet will be an interface to protocols and services. Wallets will change from a tool to buy and sell things, to something we use all the time and to store just about everything, from our money to our personal identity.

Money will become programmable. We will be able to use money in such a way that, for example, children will not be able to buy cigarettes and alcohol. The use-cases are endless if we just think of insurances: programmability according to agreements made or the corresponding contract. In this kind of self-sovereign identity approach, users can create and manage their own identity, without being dependent on a central authority.

The regulator must again take an important position. When is something considered a means of payment? What if tech players like Facebook and Amazon come to market with their own currency? We need to think about regulation on a European and even a global level, because prohibiting or restricting innovation, will only push it underground or abroad. So we will have even less control. In addition, we will lose a lot of innovation, because these start-ups will simply move. Again, it is a global challenge. As TomorrowLab, we help organisations to get a deeper understanding of these challenges and make them future proof.