FUTURE PAYMENTS FORUM

14th November 2023 Meeting Review

Witstock has chaired the Future Payments Forum since its inception in 2022. The Forum aims to brings together stakeholders in the payments industry to discuss the future direction of the sector and its products in a way that encourages better understanding between users, regulators, service providers and all those organisations that rely on mass-payment systems. This review describes the meeting and the discussion held by the group. To join the forum please contact Annabel Cartwright, Smartex Limited, +44 7785 254405 or via annabel@smartex.com.

David Parkinson, CEO of Musqet, began hisIn the last meeting of 2023, the Forum met to consider the future of payments and especially forms
of money. We considered the opportunities of micropayments supported by purpose-built
infrastructure, the role of Bitcoin and its potential interaction with Artificial Intelligence (AI), and the
geopolitical importance of Central Bank Digital Currencies.
The meeting began by revisiting the question of payment pricing for the dominant four-party card
industry model. At the previous session the Forum had heard different views on the fees paid by
merchants. Adrian Cannon, Witstock Limited, provided a review of the four-party model and the
ways in which the fee charge to the merchant (merchant service charge) is then distributed to
the acquirer, card scheme and card issuer. The cost elements that contribute to the pricing of
merchant agreements were considered and it was noted that many of these factors (card origin
and type) are not under the control of the merchant, leaving them uncertain of the charges they
will receive after the sale of goods has occurred. This tends to leave merchants building in a
presumed highest cost of payment and in turn limits the economic value of new, lower-cost
payment methods, because the merchant is forced to de-risk their position by sustaining the cost
input to their prices of the most expensive payment option. This impact on lower-cost payment
methods is compounded by the payment service directive that disallows discounting based on
the cost of a payment method. It was agreed that the cost of both cash and card payment
services ranged between 1% and 5% and that small merchants tended to pay higher percentage
prices compared to the larger players.

Jeremy Light, Chairman of pingNpay, showed the Forum how current payments methods are not
able to support a broad range of use cases where small-value, ad hoc payments are needed.
This is hardly surprising given the origin of today’s payment methods and their inability to adapt
sufficiently to address these use cases. The Forum discussed why the current methods are
seemingly so complex, and it was broadly agreed that this is a function of their history and the
incremental changes made over many years that have added layers of complexity without
removing any of the redundant functionality. In this regard the payments industry is no different
from any other, but perhaps the fact that it is so highly networked and requires interoperability,
exacerbates this tendency. Jeremy then presented the attributes of an infrastructure that
addresses the complexity of current solutions and delivers a solution that allows very low-cost, lowvalue
payments to occur within the current regulatory environment. The pingNpay solution offers
this capability today and in common with any new payment service, it is facing the challenge of
gaining adoption in key niches.

David Parkinson, CEO of Musqet, began his presentation by asserting the eventual dominance of
Bitcoin as the dominate form of exchange and reminded us of Voltaire’s position that “Eventually
all fiat money returns to its intrinsic value: zero”. From this starting point David showed how, in his
opinion, Bitcoin is the heir to all historic payment methods, and its foundations in the use of
electricity to mine coins and the internet as a basis of wide-spread usability will inevitably drive it
to become dominant.

The Forum discussed the reputation of Bitcoin and if this would hold it back from being a generally
accepted currency. It was agreed that although it had been used for nefarious purposes, so had
all other forms of exchange, especially gold, and that its past reputation would become
irrelevant. David went on to describe how the Lighting Network allows Bitcoin to become a highly
effective means of payment in all use-cases and reinforced the view that Jeremy had expressed
about the short-comings of today’s payment methods for micropayments.
David set out the role of AI in the development of payments and AI’s need for a micropayment
solution and why this was inevitably going to be based on Bitcoin and the Lightning Network. The
Forum discussed the potential for AI to step beyond the regulatory limits set by mankind and in
effect make Bitcoin dominant irrespective of humankind’s view. If that happened, would AI
become a threat or a means of accelerating mankind to the next stage of its development as a
civilisation.

The day’s last speaker, Professor Brunello Rosa, of Rosa & Roubini Associates, gave a fascinating
account of the potential role that CBDCs will play in geopolitics. Whilst some consider CBDCs a
threat to free will, that give governments too much power over how people spend their wealth,
Brunello showed that, if nations that believe in freedom fail to create a valued CBDC, we face a
world where those issued by other actors could come to dominate global trade. At present, the
US dollar dominates world trade and dwarfs, for example, the Chinese fiat currency. However, in
the countries of the Chinese Belt and Road Initiative, the Chinese CBDC, called e-CNY, is likely to
be adopted for trading activities. This is not an issue per se, but when the digital nature of CBDCs is
considered in combination with the dominance of Chinese technology in telecommunications
systems that many countries use, we should consider the risks of allowing any other country’s
CBDC to dominate world trade. America has begun to take legislative steps to reduce this risk, but
more will need to be done.

Next Future Payments Forum Meeting: 13th February 2024, London