Blockchain: The Payment System of the 2020s
In the early 1920s, most Americans still paid for things in full at the time of purchase — even houses and cars. However, by the end of the decade, 60% of consumer purchases were made on an installment plan.
A combination of rapid growth, rising real incomes, low interest rates and aggressive marketing led to an explosion of consumer credit in a country that had historically prioritized savings. This fueled an economic boom, in which the U.S. gross domestic product (GDP) grew 40% in six years.
This would not have been the case, were it not for the explosive growth of consumer credit. It’s clear that way people pay for things has a profound impact on consumer behavior, and thus on the economy.
Today, about 30% of Americans pay for things using an app on a mobile device. And this is just the beginning. We are on the verge of a payment revolution … So who will be the winners and losers in the battle of the payment systems at the end of the 2020s?
The Death of Payment Cards
Things couldn’t be more different today than they were in the 1920s. Since the invention of the first modern credit card in 1958, payment cards have rendered the use of checks obsolete for most everyday transactions. And now they, themselves, are on the chopping block.
Here’s what’s going to kill them off during the 2020s: mobile payment apps. In fact, apps such as Apple Pay, Google Pay and Samsung Pay are already making payment cards unnecessary.
But mobile wallets simply act as a place to store information about bank-based payment methods like debit or credit cards … and banks are still getting a cut.
The payment revolution of the 2020s, however, will involve the removal of banks from the payment equation with the use of blockchain technology.
Blockchain in the 2020s
Blockchain — the common ingredient of all cryptocurrencies — will lead to a new payment system that will allow us to bypass banks altogether. American companies are developing blockchain-based payment systems that will use the U.S. dollar — without bank fees, commissions and interest payments.
By the end of the 2020s, you’ll pay for things using technology that will draw on a virtual “account” of dollars that you hold in a private digital wallet. Instead of transferring money from a bank account or credit card, you’ll simply transfer some of those digital dollars to the merchant’s own digital wallet.
Companies are going to emerge to provide blockchain-based payment systems … and choosing the right one could mean big gains for you.
Editor, The Bauman Letter
An economist by training, I grew up in the U.S. but emigrated to South Africa in the mid-1980s where I became deeply involved in the development and implementation of post-apartheid economic and urbanization policy. During the 90s and 2000s, I was a consultant to a variety of entities, including African and European governments and the United Nations.