In this edition of Author Talks, McKinsey’s Matt Cooke chats with former SWIFT CEO Gottfried Leibbrandt about his book, The Pay Off: How Changing the Way We Pay Changes Everything (Elliott & Thompson, July 2021). Examining the functionality of payment systems across the globe, Leibbrandt and coauthor Natasha de Terán explore the ways in which advances in technology, the COVID-19 pandemic, cryptocurrency, and more have shaped the movement of money and have redefined roles for banks and cash systems. An edited version of the conversation follows.
Why should we read this book?
You should read the book because payments are everywhere. The payment system touches upon your daily life. It’s critical plumbing. If it stops working, you’ll notice it very fast, like when electricity stops or water systems stop.
It touches upon things like geopolitics and data. So yes, you should be aware of payments—those “pipes” that run everywhere and transport the “magic” money and make your life easier but may have consequences that you’re not aware of. Plus, it’s just a fascinating topic.
And why did you write this book?
There wasn’t really a good book about payments for the general audience—at least, not a recent one. I’m so enthusiastic about payments that I couldn’t conceive why anybody else wouldn’t be as interested. So I just started writing. This was in the months before the COVID-19 pandemic, and then the restrictions during the pandemic gave me the perfect excuse to keep going.
When I had finished the script, I showed it to a long-term coworker of mine, Natasha de Terán, who was my head of PR and public affairs at SWIFT and a former journalist. And she said, “Yeah, nice try, but why don’t we write an actually interesting book about payments?”
I think we now have something that really gets around payments, how they affect people all over the world, and what’s changing: what some of the day-to-day issues are in terms of behavior, how they influence how we shop, how they influence how we borrow, how they influence where our data are, what the geopolitics are, et cetera—all of which are now covered in the book.
Moving toward a cashless society
What surprised you most when writing this book?
Perhaps what surprised me most is the outsize role of China and how big payments have become in China. Just to give you an idea, in China alone, people make over half a trillion electronic payments per year. That is more than the rest of the world put together.
That’s largely driven by two “super apps”: WeChat and Alipay. And it is hard to comprehend, for us in the West, how big these two have become and how people interact with them. The average Chinese consumer doesn’t carry cash anymore. They will use those apps five or ten times a day for everything.
The apps were there before, but the real growth took place in the past five years, feeding off the mass penetration of smartphones. And it’s just exploded. I had not realized how big it had become until I started analyzing the numbers and talking to people who live in China and hearing how it worked.
And the other country that I found fascinating was India. It’s another giant country, 1.5 billion inhabitants. That’s also interesting. In China, the new players are sort of displacing the bank system. In India, they launched the Unified Payments Interface [UPI], which allows any app to plug into the banking system and launch a payment or consult a balance, which is a little bit comparable to what we have in Europe with PSD 2.
It’s a completely different road, but it’s growing even faster than in China. UPI is growing at over 100 percent a year. It’s more than doubling every year. I think there was a period when it doubled every month—from a lower base than in China, but it’s growing very fast.
Are we witnessing the end of cash?
The COVID-19 pandemic has accelerated the move away from cash. And we find that in countries—including in my own country, Holland, and in Sweden—lots of youngsters don’t carry cash anymore. There will come a moment, and it’s approaching fast, when merchants and shopkeepers will say, “Why keep accepting cash, with the cost of dropping it off at the end of the day and keeping change, for those few people who still need it? We’re going to stop accepting cash.”
We’re going to move into a world where cash exists . . . but it will disappear from everyday life. What does that mean? How’s that going to change our relationship with money?
That will be quite a change because then, all of a sudden, we’re going to move into a world where cash exists—we’re not going to do away with the euro—but it will disappear from everyday life. What does that mean? How’s that going to change our relationship with money? How’s that going to change how we spend it and how we teach children how it works? I think all these things are fascinating.
The role of banks remains an open question
What role will banks play in the future of this landscape?
Banks play a big role in payments, right? Banks are everywhere. But one of the key questions we struggled with when writing the book was, what’s the future of banks in payments?
I’m of two minds, and I’d like to make predictions. But I really have learned, to my disgrace, that making predictions in payments is a fool’s errand, especially with the pace of change that we have right now. So I’ll stay away from that.
So whither will the changes drive banks? I still think that, for a consumer, perhaps the best analogy is with telcos. They were everywhere, and you would pay per click; you would pay for every call. And now the value is captured by apps that sit on your mobile phone—by WhatsApp, by FaceTime of Apple. The tech giants have the customer interface, and the telcos run their utilities. They run the pipes.
Well, banks may be relegated to utilities as well. They may become regulated utilities. What that means for banks is, I think, quite a challenge. They will face an enormous challenge to keep up. Now, it can be done.
Banks have innovated themselves. We all have good banking apps. And the bank right now is very different from the bank we had 20 years ago. You don’t have to go into a branch if you don’t want to. Everything can be done online. They are also going to have to reinvent their business model like the telcos did. They went from pay-per-minute to monthly charges, data plans, and all these things. I think banks are going to have to rethink what their role is and what their pricing is.
At the same time, I can’t help but think that banks play a role in our society that is hard to capture by others, and that is to extend credit and provide liquidity in the system. That’s especially relevant at the wholesale end. I’m not quite sure how that role is going to be replicated by nonbanks without introducing big risks that are beyond the scope of regulators, which is always scary. To give one example, we all talk about cryptocurrency and how it could do away with banks. Well, even in a “crypto” world and in a token world, you will need liquidity. You will need people to help you smooth the payment flows, especially if they’re large.
I think there’s a real role for banks at the end of the day. They provide liquidity. And I would like to think that even in a world of crypto, somebody has to do that, and there’s a natural role for banks.
You mentioned cryptocurrency. What’s your prediction for the future there?
From a payment perspective, we’ve come a long way from a world where cross-border payments were almost impossible to make. The banking system is becoming real time as we speak.
We dedicate three chapters to crypto in the book. I have been fascinated with Bitcoin from the start. I found it genius, pure genius: the way it’s engineered; the protocol; that you can have a payment without any individual backing it, without a state behind it; and that it purely relies on the math of the crypto algorithms that drive it. I think the whole concept of mining is very cleverly engineered. So I’ve been fascinated by it from the start.
On the other hand, I’ve seen that it hasn’t really broken through as a payment mechanism. I mean, Bitcoin is not accepted in a lot of places. So it’s proven a great store of value, if you will. It’s a great replacement of gold. Whether that will last, we’ll see. But it’s not a great transaction mechanism. Now, that could change if new technologies, other forms of crypto, are introduced.
I think it’s going to be very interesting to see what happens if central banks throw their weight behind it. Will that make it a better transaction mechanism with perhaps different technologies behind it? I don’t know. I’d like to think that it will challenge the banks. That’s always good. On the other hand, I don’t think the current payment system will sit still. From a payment perspective, we’ve come a long way from a world where cross-border payments were almost impossible to make. The banking system is becoming real time as we speak. So a lot of the problems that crypto tries to solve are being solved anyway.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.