What are the opportunities for "classic" payment players in the rise of the blockchain revolution?
Dear friends and colleagues in the payments industry, hello,
I am here to share with you an evaluation of the adoption of crypto payments worldwide, with a particular focus on Europe. I will also discuss opportunities for traditional payment industries in light of the blockchain revolution. But first, let me express my gratitude for the honor of participating in this year's France Payments Forum and Pay' Tech Day 2023, in the prestigious headquarters of the Automobile Club de France. France is a global leader in both the automotive and payments industries!
Do I need to remind you that it was the Frenchman Nicolas-Joseph Cugnot who invented the first automobile in history in 1769, even before the French Revolution? In 1807, the first internal combustion engine was invented by the French inventor François Isaac de Rivaz. Can you guess what fuel it used? It wasn't gasoline, but hydrogen! I assure you, the gasoline-powered car was also a French invention by Edouard Delamare-Deboutteville in 1884, and Peugeot and Renault conquered the market from the 1890s until today!
You'll see the parallel with our pioneers in the payment industry as well, with Carte Bleue in 1967 and then Transac, which industrialized the world's first magnetic stripe card in 1971. The magnetic stripe card and smart card are also French inventions, created by our very own Roland Moreno, in contrast to the anonymous Satoshi Nakamoto. We found the Holy Grail to secure all of our proximity payments for 99.99% of amounts, thanks to the cryptography of the smart card, and we set out to conquer the world with Ingenico starting in 1980, where I had the chance to launch my career in payment technology.
50 years later, in 2023, the payment industry is the largest in the world in terms of revenue, generating over 2,000 billion in revenue for participants in this value chain. However, recent acceleration is putting a strain on our traditional solutions. Fraud on remote payments is about 20 times higher. And 90% of fraudulent transactions come from online card payments. Cross-border transactions are very expensive. The delays and frictions on online payments have become unacceptable in the digital age. Our payment infrastructure is no longer adapted to the arrival of instant micro-payments, both in the real economy but also in the metaverse and the internet of things. These challenges have called for a redesign of our innovative and secure payment solutions with the advent of Bitcoin, blockchain, and crypto payments.
Blockchain technology itself carries many advantages that I don't need to remind you of, for example, the reintermediation by redistribution of systems, strong cryptography, identity and access management, request to pay, and instant payments by design, and even the programmability of money and transactions through smart contracts. As early as 2012, I was already talking about the advent of smart payments. To this is added immediate global access with the internet, open source, and without borders.
As a reminder, crypto payments are payments made "with a commercial or central bank digital currency, or by transfer of a crypto asset, or by a scriptural currency, via a payment method using distributed ledger technology". I invite you to consult our France Payment Forum Cryptopayment Glossary online to master this jargon. And if you want to go further in adoption, consult the complete 2-day training on Valuechain.pro and join our France Payments Forum Cryptopayment Workgroup.
The adoption of cryptocurrency payments
It's difficult to talk to you about the adoption of cryptocurrency payments after the communication from the European Central Bank on this subject. Thus, Mr. Panetta declared before the Economic and Financial Committee of the European Parliament that: "Bitcoin does a dozen of transactions per day, every transaction takes some time. It is Impossible: your coffee would be cold before you pay!” Therefore, I will stop talking... because the image will express better than words. Here is a compilation of videos of buying coffee, croissants, popcorn at the beach without a wallet or card:
As you may have noticed, cryptocurrency payments are already here and everywhere in the world. I am specifically referring to Europe, but before that, you may have noticed the "request to pay" feature, which offers astonishingly fast transaction finalization times (an average of 500 milliseconds) compared to the 7 seconds of SCTInst. This is a cross-border, instantaneous payment that can be made both in-person and remotely! Payments are undergoing profound changes. Bitcoin Lightning is already being used in practice in El Salvador, the United States, Switzerland, and even France. Mr. Panetta, it is absolutely necessary to dispel the saying that goes: "Americans do things that are poorly thought out and that work in practice, while the French do things that work well in theory but not in practice”. Are we reduced in Europe, after Rivaz, Cugnot, Peugeot, Renault, and Moréno, to verifying that the crypto inventions that work in practice also work in theory? Fortunately, French ingenuity continues with our unicorn Ledger, the world leader in the security of e-wallets for cryptocurrencies.
My dear friends, today, cryptocurrency payments are already accelerating their adoption worldwide. Bitcoin Lightning alone frequently breaks records with over 16,000 nodes all over the world, more than 75,000 channels that handle ≈ 120 million € of micro-payments in circulation. The commission on a cross-border Lightning transaction is not 10% for remittance or 4% for an online transaction, but 0.000000318€/Tx. The maximum tested capacity of the network already exceeds 1,000,000 Tx/s compared to 1,000 Tx/s in SCTInst capacity in Europe. As for the market cap of Bitcoin, it recently exceeded 1 trillion euros and handles ≈ 700,000 Tx/day (not a dozen, as Fabio Panetta seems to believe)!
I may be reading your thoughts and hearing the counter-argument of volatility... but know that the Bitcoin protocol with its layer 2 and its Tarro evolution already allows, through smart contracts, the issuance of uncollateralized or collateralized stablecoins. In fact, the stablecoin Tether (USDT) is gaining popularity as a means of payment, catching up with Bitcoin and Ether, according to a recent report from Bloomberg from over 2.4 million merchants to reach 20% of cryptocurrency transactions.
I admit, 2.4 million merchants are far behind Visa's 100 million merchants, but the dynamics are important to evaluate. According to a recent BitPay cryptocurrency payment report, nearly half of the merchants (tier 1 and who accept over $250 million per year) report having integrated cryptocurrencies into their mix of payment methods. 77% of merchants who accept cryptocurrencies cite lower processing fees for a crypto transaction compared to other payment methods as a reason for their adoption. Bitcoin payments are giving way to alternative cryptocurrencies, and its share is dropping to about 65%, down from 92% in 2020. In 2021, cryptocurrency payment volumes increased by 57% in 2021, mostly for high-end products.
Bitcoin payments are being replaced by alternative cryptocurrencies and its market share has decreased to around 65%, down from 92% in 2020. In 2021, cryptocurrency payment transaction volumes increased by 57%, mostly for high-end products.
To give you an idea of the speed of adoption of this type of solution, the New York State Assembly introduced a bill to allow payment of fines and taxes in cryptocurrencies. The bill specifies that public agencies can legally accept payments in cryptocurrencies and that these agreements must be enforced by the courts. Cryptocurrency payments are gaining ground thanks to payment institutions such as Mastercard, Visa, PayPal, and several others, which have paved the way for the use of cryptocurrency alongside traditional payment methods. A study by Checkout.com revealed that 40% of consumers aged 18 to 35 want and plan to use cryptocurrencies for payment. And more than 23% of consumers worldwide have already adopted cryptocurrencies and report using them for payment. We count more than 420 million crypto holders worldwide in 2023! And this number is not declining.
However, adoption in Europe is still in its early stages compared to the rest of the world.
In Switzerland, you can already pay in some McDonald's with crypto. The Bitcoin Lightning network will be used for cross-border transfers between Europe and Africa with CoinCorner and Bitnob. A Norwegian airline is working on cryptocurrency acceptance projects, some shops in France accept it, but there is no mass adoption at this stage for the simple reason that switching to new payment solutions is difficult and requires guidance. However, solutions are already available on platforms such as Prestashop or Magento or Shopify, and Valuechain supports merchants in implementing them on their online sites through regulated entities such as PSANs in France.
The mass adoption of cryptocurrencies is already being prepared around the world, with actors such as PayPal and WhatsApp, which has started testing cryptocurrency payments with Meta's Novi. US users can now send and receive money with Novi on WhatsApp. In Brazil, a new law under consideration proposes an option for paying salaries in cryptocurrency, which gives employees the freedom to demand payment in cryptocurrency from their employers. In El Salvador, one year after the adoption of Bitcoin as legal tender, over 25% of Salvadorans still use their cryptocurrency wallets compared to 22% of users of online banking accounts.
Regulations in this sector are also accelerating around the world (PSAN and MICA) and are trying to help structure this sector and limit financial risks or illicit transactions. It is worth noting that less than 0.24% of cryptocurrency transactions are illicit, compared to ≈ 5% for fiat transactions.
We published a position paper drafted by the Cryptopayments Working Group of France Payments Forum, which emphasizes the importance of balanced and proportionate regulation in Europe that promotes innovation. We can regret that regulation will have a greater impact on our European actors and will apply less to dominant international actors.
At France Payments Forum, we are convinced that the opportunities in the European cryptopayment market are numerous: first, to enrich scriptural payments and secure accounts with cryptocurrencies, as many card schemes are already doing. To issue digital currencies from commercial banks on blockchain, stablecoins or not, but with all associated banking services. Blockchain is already revolutionizing credit, insurance, core banking, reconciliation systems, and international transfer systems. Many international banks (such as JP Morgan and HSBC, for example) are already much more advanced than banks in the eurozone.
The blockchain and cryptopayment revolution has already given rise to other revolutions: Web3, DeFi, and the metaverse. The impact of this revolution on our societies in general and on our payments industry in particular is much more significant than the AI revolution with ChatGPT and its competitors. I remind you of a fundamental theorem of artificial intelligence: AI will never be divergent, its capabilities are always predictable and will always depend on the input data and the training model. Despite its progress, the maturity of AI remains low, with huge energy and natural resource needs for training models. In this regard, I recommend George Gilder's book published in 2018: "Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy." Bitcoin Lightning transactions are more energy-efficient and faster than credit card transactions.
At France Payments Forum, we don't want to relive the European delay in mobile payments, for example, where Apple Pay and Google Pay have won the race. We want to accompany the actors in the industry to understand, collaborate and build the vision that will make European payments the leader in cryptocurrency payments as well. It is possible to repeat the success of our automobile industry since Rivaz and Cugnot, and our aerospace industry with Airbus or space with the European Space Agency.
I invite you to join the Cryptopayments Working Group of France Payments Forum to train, work together to build the French and European cryptopayment unicorns of tomorrow. It is not too late to prove that we are also leaders in practice, not just in theory. It is urgent to marry Instant Payment with blockchain, Request to Pay with smart contracts, EPI with crypto wallets, central bank digital euro with commercial bank digital currencies, and DeFi with traditional finance. Let's together take on this vital challenge for our European industry. See you soon in our working group!
NOTE: this speech is translated from french