How digital payments could revolutionise liquidity itself 

CASH is being dethroned.

Most nations still mint metal and print paper for currency. But in Asia, the pace of change is well ahead. Business consultant McKinsey already called out Asia’s cashless lead in 2020 when it cited connected commerce, contactless consumers, and cross-border activity – all supported by digital payments – as key drivers.

In a more recent report, the consultant highlighted that South-east Asia is poised for up to 25 per cent annual growth in e-commerce for the next five years. Digital payments also underpin that trend, and in Asia, they’re set to grow nearly sevenfold into 2027, according to a market analysis report.

When will the cycle end? Not until it gets to the very core of liquidity itself; digital payments are driving a shift in finance that goes much deeper than just how you pay.

Payments: tapping illiquid assets

Digital and mobile payments are popular because consumers prefer the frictionless and immediate convenience, while businesses value the cash-management benefits. Combined, those dynamics prompt a virtuous cycle of adoption.

Digital wallets and real-time settlement can extend to any form of value storage. This leads to a whole range of previously illiquid assets becoming spendable as cash equivalents.

Buy-now-pay-later (BNPL) is one example. As a short-term loan available at a point-of-sale (POS), BNPL credit is an alternative asset that has already become a natural extension of digital payments.

That may seem to make money more reliant on technology or, more fundamentally, electricity, but bank ATMs and physical branches already contend with those challenges.

And if you worry about outages while grocery shopping in a cashless world, POS and card networks have redundancies, like stand-in processing, to allow small purchases to process when systems go down. To fully embrace real-time liquidity for more kinds of assets, similar fail-safes will be needed to boost confidence and ensure security.

And even if you do keep cash for emergencies, the important point here is that paying digitally has opened the door to more kinds of assets becoming just as liquid as those physical notes in your pocket.

In the future, when you make purchases, you’ll scan your card, device or fingerprint at a POS, and activate a string of networks that connect and assess your entire portfolio. Based on your preferences and market values, the system will automatically sell or fractionalise the right amount of your gold, stocks or commodities, tap into a home equity line, transfer hotel reward points, or simply use a bank balance to instantly settle transactions for a gallon of milk or new car.

That’s not actually the future. The capabilities are all here now.

As more process automation connects the compliance dots, barriers between liquid and illiquid assets will fall.

From points to tokens

The digital payments landscape includes credit and debit cards, digital wallets, account-to-account payments, BNPL, peer-to-peer lending, blockchain, central bank digital currencies, application programming interfaces (APIs), near field communications and a range of cloud and gateway technologies.

What connects them all is simply software code. As more of that gets written, consumers can draw on more forms of value storage – in real-time – at the POS.

In the consumer world, airlines, credit card companies and retailers are all becoming adept at making it simple to apply their loyalty points to online transactions; now imagine keeping those points in a digital wallet and spending them at physical stores or withdrawing them as cash from an ATM. This is already happening.

And in the financial world, assets that have historically been slow to process in transactions – such as share purchases – or cumbersome to access – such as real estate – are also becoming more liquid through tokenisation, which is the process of creating digital representations of traditional assets. Andy Warhol’s Reigning Queens, for example, has fractional shares available for trade. And a 2022 report from BCG estimates tokenisation of traditionally illiquid assets could reach US$16 trillion globally by 2030.

Singapore has long been clear about the potential of tokenisation and digital asset infrastructure to enhance regulated financial services. This November, the Monetary Authority of Singapore (MAS) raised the bar again by announcing five new pilots involving global financial institutions to test promising asset tokenisation use cases.

Links between all these digital forms of value, allowing them to travel on existing payment rails, are only an API away.

Cashflow beyond borders can break down barriers between assets too

Moving money is becoming so fast and easy that very soon consumers won’t do it at all unless it’s in real time.

And businesses will want it that way; real-time cashflow enables corporate treasurers to shrink working-capital buffers, forecast liabilities better, and reduce borrowing requirements.

As consumers embrace digital wallets for domestic transactions, they will also want it across borders. Again, this is already happening.

Since 2021, the Bank for International Settlements has been working on ways to connect some 60 instant payment systems globally.

But Asia is already doing it. According to a Visa survey, cards already surpassed cash in 2023 to become Singapore’s most-used payment method. And you may have seen the new QR code that lets people from Indonesia, Malaysia, Thailand and Singapore transact across currencies.

MAS is also extending its Quick Response Code Scheme, also known as SGQR+, to platforms from neighbouring countries.

It all adds up to local businesses being better equipped to accept cross-border payments. The compounding effect has less friction and therefore less distinction between currencies. Value is value.

Tokenisation makes all assets digital. Over time, that will enable more assets to travel on digital payment rails in real time, fundamentally changing the concept of liquidity.

The technology already exists. All businesses, not just financial institutions, need to be ready for a cashless era that transforms our understanding of liquidity. Consumers, especially in Asia, already are.

The writer is CEO and co-founder of Episode Six (E6)