Nearly every day, it seems, some new scheme arises that’s aiming to replace or disrupt the existing global financial services system.
Online payment platforms like PayPal begat cryptocurrencies which begat stablecoins which begat central bank digital currencies (CBDCs), and now, per a recent PYMNTS report, CBDCs are begetting a Universal Digital Payments Network (UDPN) designed to translate real-time payment speed and minimal processing fees to international financial transactions that may one day use central bank-issued digital fiat.
But does it represent a feasible slice of the future? Of the financial technologies and innovations listed above, PayPal and cryptocurrencies are the most widely adopted. Certain CBDCs, despite their relatively recent launch, have already been described as “highly inactive.”
“You want to take this with a pretty healthy grain of salt,” Shaunt Sarkissian, group chief markets officer at The Bank of London, told PYMNTS’ CEO Karen Webster about the UDPN in a recent conversation. “It’s very nascent and it’s conceptual. And I think something like this will stay conceptual.”
The Bank of London is a leading-edge technology company and the world’s first purpose-built global clearing, agency and transaction bank.
Government Gets in the Way of Itself
“If it does take off, it will be interesting,” Sarkissian added, “but it’s not just an issue of technology — it’s an issue of regulation. Much like a lot of issues in international money movement and central banks with different visions of their currency, different price points — things that need to be determined by the free market — when you’re working on an exchange of these CBDCs, it’s going to run into a lot of regulatory issues.”
If institutions try to launch their CBDCs without taking into account national, even local rules and regulations, Sarkissian says that this might theoretically create two different ecosystems with two totally different rules that are “incompatible, not compatible.”
Still, he lauds the governments around the world undertaking these next generation experiments as being early to the digital innovation party rather than late, as sovereign bodies tend to be. “But you know, maybe the party will be canceled by the time everyone else arrives,” he said.
As PYMNTS has previously reported, the U.S. Federal Reserve system is undertaking its own studies to ascertain the feasibility of a digital dollar for the U.S. — developing the technical framework for a domestic banking system with a real-time equivalent settlement speed reportedly much faster than both the bitcoin and ethereum blockchains, as well as most options available today.
“Inevitably it all comes back to policy and regulatory frameworks,” Sarkissian says about technology-driven financial innovation. “You can never avoid that — it’s probably a big lesson for a lot of us. With money, everybody has to check the sanction screen list, everyone has to check OFAC [U.S. Treasury’s Office of Foreign Assets Control].”
At the End of the Day, It’s Up to the End User — the Consumer
One of the reasons consumers who reside in nations where a CBDC has been launched aren’t clamoring to use them is the tracking oversight and centralized control CBDCs give their issuing nations over their use in the marketplace. There are fears that governments could collect personal information from citizens using CBDCs and leverage the digital currency as a surveillance tool to track them through their transactions.
“I think like many things, the consumer will see if there’s value, if they like it — they will be the ones who decide,” Sarkissian said.
After all, if a bank’s product doesn’t serve its consumers’ interests, and other choices exist, they just won’t use it.
There are already options that exist, that offer interoperability and real-time transaction speeds, Sarkissian said. If those continue to work and people realize that they’re giving up other functionality, for example messaging, to try this new thing — they won’t adopt it.
He tells PYMNTs that where The Bank of London, and hopefully everyone else, is heading is the merging of the different real-time networks so that even if the networks are independent, there is some layer of interoperability. “There will be other things happening in the consumer world, with wallets and all that, and if those start gaining traction it will make the need to move money in real time more pronounced. That’s what I’m very excited about.”
As for what The Bank of London is looking forward to in the next year?
“I think there will be this flight back to stability, where people will want to work with banks and institutions that are really structurally — on a technical level and on a business model level — very stable. People want to work with a vendor that knows their pain points. This year, we are open for business. We are all about execution. Execution and growth, growth, growth.”
PYMNTS Data: Why Consumers Are Trying Digital Wallets
A PYMNTS study, “New Payments Options: Why Consumers Are Trying Digital Wallets” finds that 52% of US consumers tried out a new payment method in 2022, with many choosing to give digital wallets a try for the first time.