Originally published at the Bank of Finland's e-booklet on the Future of Payments, in May 2016. The booklet is written in Finnish and downloadable here.  

“Change will never be as slow as it is today,” said Ericsson’s technology evangelist already in 2012[1]. By 2020 we will see 50 billion devices connected to the Internet[2] – practically everything will be smart. The latest milestone in the development of artificial intelligent was reached in 2016 when Google’s DeepMind won the world championship in the Chinese Go game[3].

As a mental exercise, let’s pause to think about the market entry of self-driving cars and the changes they will bring about to the way we make payments. In the future, self-driving cars will not be owned by any single individual or even group of individuals for that matter; instead, they will be converted into service products owned by a social collective of varying composition. Cars will, to some extent, become autonomous. Cars will have wallets. As cars become smarter, they will be able to manage their own wallets – collective digital accounts – complete with calendars, a booking system and a financial administration application. Using these tools, the cars will plan the daily routes, servicing and fill-ups. They will be able to determine who to pick up where and when and whether there is time to recharge the batteries. Not to mention expense and revenue calculations. “Carpe diem,” says the car, working tirelessly.

Smart devices, including the cars of the future, will be able to react to your speech, and their virtual assistants will be able to answer increasingly complex questions. Biometrics can be used for user authentication and recognition, and soon a smart watch will be able to book tickets for a specific flight with the preferred airline or change the departure time from evening to morning in response to a voice command. Or it may answer your inquiry of whether there is anyone you know on board the same plane or how your finances will be affected if you upgrade to business class. When self-driving cars fill up and recharge themselves, fridges stock up on food and a smartphone orders flight tickets, a question of identity arises: how do you verify the identity of the buyer when the account is not linked to a specific individual but rather to a changing group of people, such as car owners? Will the car drop in to the bank to sign an account agreement or file a card application?

We will be the last generation to pay with plastic

One of the most talked-about trends in recent years is instant and invisible payments[4]. The growth of instant payments is driven by calls for easier and faster methods of payment, particularly by young consumers. This is something that an increasing number of innovative operators are striving for, and there is little need to persuade the payees, i.e. shopkeepers, to join in. According to the developer of the PayPal mobile payment engine, a one-second delay after you click the Buy button leads to a loss of an average of 12 customers. When your phone is able to identify you, act on your instructions to buy travel tickets and transmit them to your wallet application complete with a calendar alert, entering the embossed numbers from a plastic credit card to a digital device seems like an ancient procedure.

The quiet trend away from plastic cards is reflected in the size of women’s wallets, which have been shrinking at a fast pace since loyal customer cards switched to mobile networks or simple identification. Just 5-10 years ago, many women lugged around large handbags and thick wallets with dozens of plastic cards. Now they carry slim wallets containing only indispensable cards. Soon enough, even the last charge cards will be forgotten in drawers or only taken along for trips abroad as a back-up. Our generation may be the last to use plastic for making payments.

Invisible money slips through your fingers?

From the human point of view, it’s paradoxical that at the same time as devices become more intelligent and payments easier, people’s ability to manage their financial affairs lags far behind. When payments get as easy as to be invisible, consumption may also become imperceptible, and control of private finances may suffer. Hyped novelties, be it a sharing economy or payment technology, may not generate the hoped-for savings but increase consumption instead.

The big data accumulated on payment transactions as well as the small data gathered by each of us individually could be harnessed to enhance the understanding and management of financial matters. This new perception of personal finances is described by the term financial literacy. Just like the popular fitness applications, maybe the phone could remind its owner of his or her personal objectives: “If you buy these concert tickets, you may have trouble paying next month’s rent.” Similarly, it could use the positioning services to alert you that you are approaching your favourite café while reminding you that your quota this week for take-way cappuccinos is up.

Until now, the exponentially growing computing power of devices has primarily been harnessed in automation or investment algorithms in the financial sector. Personalised services in the consumer market have remained largely uncorked.

When payments become easier, saving becomes more difficult. This ‘sweet spot’ awaits a solution.

The power of institutions is waning – consumers will be won over by services that facilitate day-to-day living.

Traditional financial institutions face a serious risk of declining importance and loss of control over consumers[5]. The situation is aggravated by the ability of more agile fintech companies to circumvent regulation and operate at the front-line consumer interface, at the same time as banks and payment institutions are burdened by a maze of guidelines and reporting obligations. However, regulation fails to protect operators from market disruptions, rather the contrary: it tends to obstruct invention and development because of the resources required for strict compliance.

Agility is a key success driver: the faster you respond to the changing operating environment, the better you are able to serve the smart-device-addicted consumer. To be successful, you need to question tomorrow’s business model on a daily basis and be aware of the constantly changing consumer preferences and the increasingly rapid stream of smart devices entering the market.

Quick development of new solutions calls for quick adoption to ensure that technology services do not become intolerably overlapped

One significant, even surprising factor is the gender limitation of technology developers: a vast majority of people working with new technology in Silicon Valley are men,[6] while important things affecting women’s lives may be completely ignored. It’s downright absurd that when Apple rolled out its first major health application in 2014, it turned a blind eye to the one single most significant thing that affects world population growth – menstruation. After all, it affects half of the global population, but only 5.8 per cent of the coders hacking away at the keyboards in Silicon Valley[7].

The same over-blown male domination also seems to apply to the development of financial services. Studies show that most of the decisions related to the management of financial affairs at home are made by women[8]. Yet the payment technologies and products look very much like their developers, reasonably well-to-do middle-class men. This may hamper full utilisation of the benefits offered by digitalisation.

The entire field is prone to major market disruptions

Methods of payment are closely linked to daily life: when the day to day changes, the ways of making payments change in the same contexts. Even though we have not yet reached a world where cars are completely autonomous, it’s obvious that payment solutions are not in synchrony with the technology-driven quotidian. 

Predictive analytics, virtual financial assistants and payment applications designed to make life easier are still in their infancy. Further development of these areas would be a natural step for technology giants like Apple and Google. As it is, Google already knows chillingly many details of your life[9], including the purchases you intend to make in the near future. The addition of payment and financing instruments to this framework would be a small yet significant source of revenue or, more precisely, a source of data, for these technology giants. The introduction of new services and consequently new methods of payments calls for completely new thinking on the part of developers. It’s no longer enough just to ask “What can I do for you?” Instead, you need to offer timely hints or advice, much like peer support.

Any physical part of the existing products offered by financial operators (brochure, form, card) will disappear completely over the next few years: everything will be digitalised to become part of a context-dependent experience.

The winners in the 2020s will be the financial companies able to offer a real-time window to the consumption patterns of domestic decision-makers as part of related services and payment solutions and so formulate a comprehensive view of the customers’ daily life and management of financial affairs. Those who succeed in proving their usefulness to people on a day-to-day basis have a splendid future ahead of them. While waiting for the car to take the kids to their hobbies...

[1] http://www.ericsson.com/thinkingahead/the-networked-society-blog/2012/10/01/change-will-never-be-as-slow-as-it-is-today/

[2] http://www.informationweek.com/software/information-management/cisco-ceo-were-all-in-on-internet-of-everything/d/did/1108801?

[3] http://www.economist.com/news/science-and-technology/21694540-win-or-lose-best-five-battle-contest-anothermilestone?zid=291&ah=906e69ad01d2ee51960100b7fa502595

[4] http://bankinnovation.net/2015/10/the-case-for-more-visiblepayments

[5]http://www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf

[6] http://qz.com/640302/why-is-so-much-of-our-new-technology-designed-primarily-for-men/

[7] http://thepotomacreporter.com/tech/

[8] http://www.businesswire.com/news/home/20151015005452/en/Women-Men-Solely-Responsible-Financial-Decisions-Regions

[9] http://www.news.com.au/technology/online/social/googleknows-pretty-much-everything-about-you/newsstory/f80596c0945d7414f338961bd174d680