Digital currencies are reshaping cross-border payment processing, offering advantages such as lower transaction fees and elimination of intermediaries. Despite such advancements, the global landscape regarding the adoption of digital transactions is markedly varied, according to panelists at a roundtable discussion titled “The Future of Digital Payments,” which was hosted by Wharton’s Future of Finance Forum in October 2023.
In regions where traditional banking systems are distrusted or inaccessible, such as developing or war-torn countries, the need for alternative payment methods drives wider adoption in contrast to countries with reliable central currencies, the panelists pointed out.
The discussion addressed critical issues for digital payments such as the Federal Reserve’s instant payments system FedNow, antifraud protections, and the impact of open banking proposals by the Consumer Financial Protection Bureau. The roundtable was moderated by Wharton finance professor David Musto, who is also faculty director of Wharton’s Stevens Center for Innovation in Finance. The panelists included leading experts from the digital currency industry.
“A big takeaway from the discussion is that we still have a long way to go to bring the cost of cross-border remittances to a reasonable level,” said Musto. “The problem is fundamentally hard, but the innovation is impressive and I’m now hopeful that we will see meaningful progress soon.”
Concerns Around Digital Payment Systems
The panelists highlighted concerns over data privacy and security in financial transactions. The intersection of consumer data with payment processing brings forth a dual focus – not only on executing transactions but also on securely managing the data associated with these transactions, they stated.
“A big takeaway from the discussion is that we still have a long way to go to bring the cost of cross-border remittances to a reasonable level.” — David Musto
Understanding and addressing consumer needs along with their existing experiences and interactions is critical when introducing new financial technologies, the panelists noted. As advancements proliferate, educating and guiding consumers becomes crucial to ensure they are fully aware of both the opportunities and the risks associated with these new technologies, they said. To predict trends in adoption, it is important to evaluate not only the technology itself, but also how it fits into the larger context of market acceptance and usability, they added.
Regulatory hurdles and trust-building are among the challenges digital payment systems face. The rise of multinational payment methods and decentralized financial models has brought regulatory challenges and potential conflicts in enforcement across various jurisdictions, the panelists explained.
One prerequisite to promoting adoption of diverse payment methods is the need to build trust, manage fraud, and ensure secure transactions, they added. That can be achieved with straightforward, user-friendly interfaces, stable pricing, and transparent transaction processes, they noted.
Key Role for Private Sector Innovation
Private sector innovation is crucial for wider adoption and is supported, albeit indirectly, by public sector infrastructure and regulation. The Federal Reserve and other central institutions are pivotal in developing robust financial systems, but their mandate does not extend directly to consumers or merchants, a domain left to the private sector, the panelists noted. The role of the private sector, hence, is crucial in extending the benefits systems to the endpoints — consumers and businesses, they added.
This article is based on a summary published on LinkedIn.