July 10, 2019,   2:17 PM

How Fintech Is At The Heart Of All Future Smart Cities

Gabrielle Inzirillo



Image source: Wikimedia Commons

Today, 55% of the world’s population go about their lives in urban environments. By 2050 that number is set to reach 68% according to the UN. In MENA alone, urban populations are set to double within the next 20 years, with the majority of these city dwellers under the age of 29.

Young digital natives crowded in megapolises might be the plot of the next sci-fi Hollywood blockbuster, but it’s a reality that’s rapidly approaching, and local governments are having to reimagine the economic flow of their cities to embrace and serve a larger and younger population.

The pressing need to overcome current challenges in traditional urban environments such as ageing infrastructure, congestion and over-burdened public services, is driving municipalities to become smart cities.

However, turning a city smart and digitally transforming core services across all aspects of both the public and private lives of citizens isn’t an overnight task. IoT sensors must be embedded throughout public spaces and personal technology components, and information must be transmitted and received on a continuous basis to make predictions and decisions.

We may be years away from the first truly smart city, but laying the foundation of an interoperable digital payments system is at the core of the movement. If we peel back the layers of IoT networks and the ever-flowing data that circulates around people, vehicles, appliances and homes, there lies a payment infrastructure that underpins it all.

Cities such as London or Singapore have consciously taken the initiative to drive regulatory changes in payment infrastructure. The Monetary Authority of Singapore’s payments roadmap marked a deciding factor in Singapore’s ongoing efforts to become a smart nation. Innovation in e-payments and the will to go cashless has been enshrined as one of the major pillars of a smart nation, along with a single national digital identity and comprehensive smart urban mobility initiatives.

Transport for London’s shift to contactless payments with cards and mobile has marked a new standard in seamless public transport payments. London is also set to be the home of the first Amazon Go outside the US. The grocery store, equipped with cameras and sensors, lets customers simply take items and leave, automatically charging the total to their Amazon account. However, this is just the tip of the iceberg and doesn’t yet tackle the vast variety of transactions expected in the near future.

The prevalence of IoT sensors will considerably increase the number of devices connected to the payment-acceptance network, and in doing so will significantly expand the network. With the ease of use of these new payment gateways, transaction costs will have to decrease to accommodate a growing number of micropayments—very small payment amounts—as more devices begin authorizing transactions between them. Transaction costs remain one of the last barriers to a cashless society, and the limitations of cash are at odds with the frictionless specifications of a smart city.

Machine-to-machine payments, which occur without human interference, will become the mesh that allows the continuous flow of circulating data to be acted upon. From home automation that authorizes the re-ordering of groceries, to wearables that track public transportation usage in order to calculate the most advantageous fare, these are just the tip of the iceberg. Looking ahead, and devices may be negotiating the optimal price point at which to sell private energy reserves back to the grid or to neighbors, and executing on these contracts.

We may have a natural tendency to overestimate the effect of technology in the short run and underestimate the effect in the long run, but a glimpse of the future might be closer than we think.

Bahrain has been looking to emulate the European Union’s PSD2 regulation and introduce open banking protocols across its financial institutions. The directive aimed to allow third parties to build upon the banks’ rails and create new financial services. Among these, new ways of digital payments that bypass the need for physical cards are often evoked, and hopefully the long and rocky road to implementation taken by EU countries, will allow the GCC to leapfrog directly to successful adoption. 

A recent report by McKinsey looking into the state of technology infrastructure necessary to developing a smart city, graded the high-speed networks vital to channeling the flow of information from connected sensors, city by city. Leading the Middle East and Africa, Abu Dhabi has distinguished itself by its holistic vision for the deployment of IoT sensors, with the Department of Finance launching working groups to study the automation of payments via NFC and tracking devices in order to optimize costs and reconcile transactions for audit purposes.

In the UAE, Expo 2020’s hands-on partnership with Mastercard promises a personalized and cashless experience for 25 million expected visitors, as well as wow effect technologies such as augmented reality blended with biometric authentication and wearable solutions are on the menu. The informed visitor should keep in mind, however, that in tomorrow’s truly smart city, not only will we not be the ones authorizing the vast majority of our daily payments, we won’t even be aware of the transaction.

Gabrielle Inzirillo is the Director of Fintech, Plug and Play Europe.

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