Ten things impacting the world: the nature of commerce

Innovations in digital payments are expanding the economy. As consumers (most notably Millennials) opt for new ways to pay for goods and services, traditional financial…

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Mark J. Barrenechea

December 5, 20174 minutes read

Innovations in digital payments are expanding the economy.

As consumers (most notably Millennials) opt for new ways to pay for goods and services, traditional financial institutions are being circumvented. Alternative payment methods like mobile wallets, peer-to-peer (P2P) networks, crowdfunding, and cryptocurrencies are moving steadily into the mainstream.

Smartphone companies are leading the disruptive charge with mobile wallets. The physical wallet will disappear as Apple Pay, Android Pay, and Samsung Pay eliminate the need to carry separate cards or cash. The mobile wallet market is expected to grow in market share by 7% in the U.S. by 2020. In some instances, mobile wallets are more attractive to consumers because they offer greater security based on biometrics.

PayPal, Venmo and Dwolla are P2P companies that also offer digital wallet services but are not affiliated with any bank. Instead, users store funds in their P2P account until they are ready to send a payment. If PayPal were a bank, its collective holdings would make it the 21st largest bank in the U.S.

Perhaps the most promising innovation, especially in terms of security, scale, and extensibility, has been the use of blockchain technology to produce cryptocurrencies like Bitcoin.

Bitcoin uses blockchain technology to provide records of transaction in an anonymous, distributed online ledger that protects against modifying or revising data. As one of 1,100 virtual currencies available today, Bitcoin has captivated the market. A growing number of businesses are accepting it as a legitimate form of payment, including 260,000 new retailers in Japan this coming summer.

As traders gain confidence in digital payments, Bitcoin has become an attractive, alternative investment. On March 3, 2017, Bitcoin overtook gold for the first time, trading at $1,290 U.S. compared to $1,228 U.S. for an ounce of gold. And just this past October, Bitcoin surpassed both American Express and PayPal in value in its climb to $100 billion U.S.

Bitcoin Challenges Gold as the Investment of Choice

Cryptocurrencies like Bitcoin are changing our attitudes about the exchange and management of wealth. Fulfilling on the promise of digital, they are faster, easier to access, and more affordable than traditional payment methods because they do not require bank fees. The overall costs of transactions are lower, allowing markets to grow and buyers to connect with sellers across the globe.

What is most compelling about cryptocurrencies is their ability to create a decentralized marketplace that could eventually replace the Amazons and eBays of today. These global, open markets will impact supply chains. As business moves online, transactions and exchanges will become increasingly digitalized. Powered by real-time data, machine learning and agile processes, digital supply chains of the future will transform the way the world trades in goods and services.

Governments and policy makers will be tasked with regulating alternative payment methods. This will be no small feat considering how complex the compliance landscape is and how challenging it is to enforce regulations. And since Bitcoin is a global cryptocurrency, who would enforce these regulations? Finally, how would users or transactions be taxed, and how would this be regulated from country to country?

Individual financial security will have to be protected. Although Bitcoin works based on anonymity, this also makes it very hard to identify a perpetrator if someone hacks the system and accesses a secret bitcoin code. In a recent Bitcoin tax scam, victims sent over $300,000 CAD in bitcoins to scammers who were hard to trace because the transactions were anonymous and unregulated. Eventually, technologies like quantum computing will render unbreakable encryption useless, which will make virtual currencies vulnerable.

Digital payment methods will revolutionize the nature of commerce. The burning question will be how to balance these innovations with security and privacy for individuals. In my next blog, I’ll explore how individuals, organizations, and entire nations will need to be defended on emerging digital fronts.

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Mark J. Barrenechea

Mark J. Barrenechea joined OpenText as President and Chief Executive Officer in January 2012, and also serves as a member of the Board of Directors. In January 2016, Mark took on the role of Chief Technology Officer and was appointed Vice Chair in September 2017.

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