The payments landscape continues to evolve and this blog shares some of the topics that caught my attention during the last month. If you think I’ve missed anything important, do please send an email to technical@treasurers.com.
Central Bank Digital Currencies (CBDCs) and other digital currencies
It is becoming increasingly difficult to keep up with all of the announcements from a raft of central banks and think tanks but here are some that caught my attention:
- As part of a public broadcast on 16 November interview marking his departure after eight years on the ECB’s board, Yves Mensch stated the ECB’s readiness to “launch a central bank retail digital currency as a primarily defensive measure in case of ‘an acceleration of demand or supply, or developments which would harm Europe’s sovereignty”
- In its November Literature Review, the Board of Governors of the US Federal Reserve looked at research focusing on the effect of introducing a CBDC (i) on commercial banks, and (ii) on monetary policy and financial stability, and the resulting welfare implications
- The Reserve Bank of Australia announced that it is partnering with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software, a blockchain technology company, on a collaborative project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT). This is part of ongoing research at the Reserve Bank on wholesale CBDC
- In a speech by Fabio Panetta, Member of the Executive Board of the ECB, he noted that he process of digitalisation cannot be reversed – on the contrary, it is picking up speed and that global stablecoins are an expression of the need for change. However, he felt they can pose serious risks, both to monetary sovereignty and financial stability and to the EU’s market structure, competitiveness and technological independence. The EU should continue to be open to global competition in order to foster innovation but should first ensure that it works to the benefit, not the detriment, of EU citizens.
- Clifford Chance participated in research on inventions, investments and projects that relate to blockchain technology, at 234 major financial institutions around the world carried out by MINDSMITH. It found that:
- The leading financial institutions working with blockchain technology include Mastercard, Visa, JPMorgan Chase, China Merchants Bank and PayPal
- Banks are leading the way in interaction with blockchain technology and are the most active in terms of implementing blockchain solutions.
- Payment systems and fintech services providers prefer to patent blockchain inventions, whilst the potential of the largest payment systems to become vendors of blockchain infrastructure platforms raises the question of the future position of providers of blockchain platform solutions like Microsoft, IBM and SAP.
- Insurance companies are not patenting blockchain inventions as intensively and prefer to invest in blockchain companies and use the blockchain in practice. If insurance companies become the drivers for mass adoption of out-of-the-box blockchain solutions, the 'blockchain revolution' will swiftly spread to related industries, such as medicine and logistics.
- Traditional financial centres like Switzerland and the UK were found to be lagging behind in their work with the blockchain
- The Bank for International Settlements' Innovation Hub (BISIH) Swiss Centre, the Swiss National Bank (SNB) and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept experiment that integrates tokenised digital assets and central bank money. Project Helvetia explored the technological and legal feasibility of transferring digital assets through:
- issuing a wholesale CBDC onto a distributed digital asset platform; and
- linking the digital asset platform to the existing wholesale payment system.
The initiative demonstrated the feasibility and legal robustness of both alternatives in a near-live setup.
Interesting reports
The European Payments Council published its annual “Payment Threat and Fraud Trends Report” to contribute to creating awareness on payment threats and fraud trends, and to help payment stakeholders decide on proper actions to prevent fraud. The document provides an overview of the most important threats and other “fraud enablers” in the payments landscape, including social engineering and phishing, malware, Advanced Persistent Threats (APTs), (Distributed) Denial of Service ((D)DoS), botnets and monetisation channels. For each threat, an analysis is made on the impact and context and suggested controls and mitigations are described.
The European Commission welcomed agreement by 16 major Eurozone banks from Belgium, France, Germany, Spain and the Netherlands to create a unified payment solution for consumers and merchants across Europe. The European Payments Initiative seeks to replace national schemes for card, online and mobile payments with a unified card and digital wallet that can be used across Europe, thereby doing away with the existing fragmentation. The EPI is launching its implementation phase and is expected to become fully operational in 2022.
UK payments landscape
pay.uk published the conclusions and next steps to its consultation “Next Generation Standard for UK Retail Payments”.
The consultation, which was held earlier this year, sought to gain feedback from different stakeholder groups on three specific areas:
- Recommended direction that pay.uk is proposing on the adoption of ISO 20022 for the clearing and settlement capability to be enabled by the New Payments Architecture (NPA)[1]
- Foundational technical details for the ISO 20022 message standard, including the technical design and ISO 20022 readiness approach
- Future direction on concepts that require a degree of standardisation across the payments ecosystem (i.e. from the central clearing and settlement hub to end users).
The consultation conclusions are relevant for developers of ISO 20022 messages, service and solution providers, and end users (businesses, charities, and individuals). They provide a statement of intentions regarding the implementation of the UK retail standard. Any organisation or individual interested in exploring what opportunities the retail standard could do for them should contact standards@wearepay.uk.
As mentioned last month, as of its migration to ISO20022 for payment messaging, the Bank of England is looking at the use of Purpose Codes and Categories. There are over 700 in use at the moment and the Bank is consulting on efforts to standardise these codes globally. The codes are seen as useful in reducing fraud, improving risk management, providing richer data and improving operational efficiencies and resilience. More information on this can be found here and if you’d like to contribute to the debate, please drop an email to technical@treasurers.org.
Following the Request to Pay (RtP) webinar last month, the RtP team at pay.uk recently answered questions they didn’t have time to answer on the day. The responses can be found here.
Naresh Aggarwal