Nearly 60% of all US consumer transactions are facilitated by card networks, with merchants handing over more than $138 billion in fees each year, making it their second-biggest cost after wages. New payment systems like FedNow do not support the incentive systems consumers have become accustomed to when using credit cards and so, cards as a consumer transaction preference will likely not be usurped any time soon.
Consumers today regularly earn and collect rewards or incentives in the form of digital value which keeps them wedded to card programs, like air miles or points for spending at specific retailers. But, what if these digital value systems could actually be leveraged to facilitate a whole new payment rail that is more equitable for merchants and consumers?
Digital value is any currency, electronic store of value, or medium of exchange that is managed, stored, or transacted on digital computer systems. This rising category of “monetary equivalent” includes everything from accumulated stored value such as loyalty rewards to Bitcoin to prepaid cards and more.
Most current forms of digital value are largely siloed within their own particular ecosystems – e.g., consumers can’t easily spend airline miles at the grocery store. Thus, the money that digital value represents often goes to waste.
A new system is needed to help businesses and individuals exchange and spend the digital value currently locked in various walled-garden systems – one that makes digital value as ‘cash-like’ as possible. When value is more easily unlocked the conditions for a new merchant-consumer network emerge.
The rise of digital value
Stored value and virtual currencies such as loyalty points, mobile top-ups, and gift cards have been around for decades, and surged into the mainstream alongside widespread internet adoption in the late 90s and early 2000s. Today, this market represents a $2 trillion-plus market cap, and continues to grow by double-digit percentages year over year.
More recently, popular new digital value categories have emerged – cryptocurrencies, in particular. But despite this ongoing growth – which is likely to accelerate over the coming decade – existing payments infrastructures still lack the capability to efficiently handle most transactions involving overlapping digital value forms.
Why legacy payment systems fall short with digital value
Traditional payment systems tend to be purposefully slow and restricted to cut down on risk. Overcoming this friction can be costly and time-consuming, so digital value users are often required to pay high conversion fees to conduct transfers outside the native ecosystem.
However, the economy now contains entire subsets of consumers – gig economy workers, creators, and under-banked populations – who are not served by legacy methods such as checks, ACH payments, wire transfers, and Push-to-Card payments. Even with improvements in RTP (real-time payments) and FedNow – a new instant payment infrastructure initiative for financial institutions – moving funds cross-border in real-time is still expensive or not possible.
Consider the nature of high-velocity, low-volume business-to-consumer (B2C) payouts. For businesses making such payments, legacy methods are slow and expensive. Recipients have to endure wait times and their payout preferences cannot always be accommodated. Weighed down by complexity and friction, traditional payouts ultimately create unseen costs for the receiver, who might prefer to receive a digital payment that is not actually cash, but ‘cash-like.’
Businesses could better serve the needs of their recipients by sending payouts with digital value instead of just bank transfers. Imagine a gig worker or content creator instantly receiving closed-loop digital value to spend at a grocery merchant instead of a payment to their bank account. The grocery brand would likely offer a discount to the receiver knowing the value is guaranteed to be spent with them, while garnering a share of the consumer’s grocery spend at a lower cost than a credit card transaction. Further, the receiver gets free, instant funds and a way to make their wages go further.
Digital value needs a new digital value network
Widespread demand for an alternative to traditional payment systems has created a generational opportunity to introduce a new digital value network capable of unleashing the full potential of this subset of the economy.
A digital value network creates a new construct in which value can be exchanged with vastly different unit economics to traditional card and banking rails. With a flexible, versatile digital value API layer and infrastructure, individuals and companies will be able to store, send, and spend digital value from B2C, C2B, and C2C payments, including low-value transfers and micro-payments, anytime, anywhere. With such a model in place, gig workers could get paid with any digital value including cryptocurrency that can be immediately unlocked.
This new digital value network would be a single-entry point for developers and innovators to build new use cases and easily exchange multiple digital value form factors, wallets, and currency types that currently rely on multiple integrations. Technology has brought about a paradigm shift in this domain, now facilitating the existence of the stratified, high-connectivity API layer needed to handle different payment acceptance and payout types. As a result, an entirely new way of handling transactions may be within arm’s reach.
Runa is a digital value infrastructure that enables people to pay and get paid by anyone, anywhere, instantly. The Runa network reaches more than 1 billion people and connects merchants, organizations, and individuals for fast, affordable, and data-rich payouts in more than 30 countries and 20 currencies. For more information, visit runa.io.
