2020-2021 a period of transition
The impact of the pandemic as well as the resulting economic environment indicated significant shifts in the spending pattern as well as payments behavior. A declining cash usage together with the migration from in-store to e-commerce and the growing role of cybersecurity, however, have created new opportunities for payments players.
According to McKinsey, global cash payments declined by 16 percent in 2020. The figure below displays the cash usage by country comparing the years 2010 with 2020.
Besides the declining numbers shown in the illustration, one can also interpret that the global move away from cash has just started in emerging markets such as India and Indonesia. The Asian Pacific region is catching on when it comes to FinTech adoption. It has been the largest and fastest-growing payments revenue region for the past several years. Ranging from fast-growing young economies, such as China and India, to mature markets, such as Australia and Japan, advanced FinTech systems are becoming a crucial part of everyday life.
the combination of strong, unbreakable public key cryptography (…) will produce interesting and profound changes in the nature of economic and social systems.
Timothy May, 1994
Crypto – a new era of financial inclusion?
With an increasingly cashless society, apps and platforms have been created to help us better understand and manage our finances. In the wake of the Global Financial Crisis (GFC) of 2008, Satoshi Nakamoto revealed all the details of bitcoin technology. Bitcoin was the first cryptocurrency launched, designed as a “peer to peer electronic cash system that allows for online payments to be sent directly from one party to the another without going through a financial institution.”1
A first step towards bitcoin, the first decentralized payment system, dates back more than a quarter of a century when David Chaum invented DigiCash in 1982. Motivated to improve data privacy, he developed a virtual monetary unit that mimicked the anonymity of cash. In the following years, the idea of a pseudonymous virtual money unit has been considered, whose system uses public keys as pseudonyms in whose favour or against whose debit transactions can be made. In 1988, Timothy May predicted that a social change driven by the technical possibilities of cryptography would enable a new kind of economic interaction.
Given the size, growth, and adoption of cryptocurrencies, digital assets are already reshaping the FinTech industry. Particularly in 2021, we noticed rapid developments in digital assets, including the listing of Coinbase in April. This was not only driven by increasing user adoption, but also by institutional adoption by companies, governments, and regulators. Financial products and services are becoming fully digital. Moreover, they are increasingly embedded in software that consumers and businesses use on a daily basis. Services include custody, debit cards for account-linked spending, borrowing based on crypto-asset balances and staking, where fees are earned for pledging asserts to validate non-Bitcoin transactions. The adoption of cryptocurrencies and, at the same time, the rise of Web 3.0 seem to be the final piece of the puzzle towards decentralized financial services (DeFi).