As central banks consider advancing their own digital currency projects in response to pressure from China, Visa and Mastercard see an opening for banks to provide a key element that governments are unlikely to: customer service.
"When CBDCs first came about, the assumption was central banks would provide direct access for consumers to open accounts," said Catherine Gu, Visa's head of CBDC in San Francisco. "It's become obvious that it's not part of the mandate of any central bank to maintain customer relationships. This is the role of commercial banks."
To cement its own position as CBDCs develop, Visa is partnering with Consensys, a New York-based blockchain technology company, to develop infrastructure designed for to build services on top of CBDC systems.
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"Many governments around the world are launching and experimenting with CBDCs. Their motivation[s] vary widely but one common goal for them is to get utility and reach scale and simple consumer experience," a Mastercard spokesperson said in an email.
Visa will integrate its CBDC payments module with Consensys' Codefi CBDC technology development sandbox. Visa's module is an onramp for existing payment networks to connect to banks, card issuers and processors. That allows these parties to issue CBDC-linked payment cards or digital wallet credentials.
Visa is in discussions with about three dozen central banks on how the card network, and potentially its issuing banks, can fit into different versions of CBDCs — and process cross-border payments that may involve a conversion between two CBDCs, or a mix of CBDCs and other assets such as stablecions or traditional currency.
"Different central banks are at different stages of development," Gu said, envisioning a CBDC structure that would include a role for financial institutions as opposed to a "public Venmo," or a direct connection between consumers and central banks. "There's no one size fits all."
Consensys' sandbox allows connections to enterprise blockchain technology, an open source version of the Ethereum protocol that can enable central banks and commercial banks to support CBDC transactions such as government disbursements or retail sales.
"These payments can be tailored based on need," Gu said, adding that governments can distribute funds to consumers to address a crisis in a specific town by enabling purchases at local businesses, for example.
If CBDC distribution is integrated into a mobile banking app, the bank's CBDC-linked Visa card can work at checkout at Visa's merchant network. "Consumers and merchants will conduct CBDC transactions in the same manner as they make other payments," Gu said.
Visa and Consensys plan to run tests this spring, working with central banks to evaluate how to bring new products to market. The pilots will be followed by consultations among Visa's crypto advisory practice and digital currency innovation hub and central banks, financial institutions and fintechs. "The key is to encourage public/private partnerships," Gu said.
Mastercard also recently partnered with Consensys to co-develop building blocks for blockchains, including CBDCs as a potential use case.
Mastercard additionally said it's working with governments globally to connect card issuers to CBDCs, with early products including a CBDC-linked prepaid card for the Sand Dollar in the Bahamas. Another recent move was the launch of a CBDC testing platform, and a set of
"We are starting to see central banks wrestle with some of the complex questions they will need to address to set up a modern retail payment ecosystem," Jesse McWaters, senior vice president of regulatory affairs at Mastercard, said in an email, adding that Mastercard has more than 50 years of experience navigating "network orchestration" challenges. "We are working with central banks in every region we operate around the world."
Progress on CBDCs has been relatively slow, though there are signals that the pace may pick up, pushing banks to develop a CBDC strategy.
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Potential roles for retail banks would be to manage individual customer relationships, including data risk, compliance and account services, Gu said, adding that includes enabling CBDC credentials.
Creating a payment system that can accommodate different CBDCs, and different digital currencies such as stablecoins, will pose a challenge as central banks and private industry move forward.
"Interoperability has many forms," said Gareth Lodge, a senior banking analyst for Celent in London. "The card networks along with many others have already demonstrated technical interoperability."
But there will still be commercial and legal challenges, according to Lodge. For example, there must be a business case to justify the cost of setting up and managing the processes for CBDCs compared to existing payment processes. Legal challenges could stem from different payment regulations in different countries, as well as responsibility for oversight.
"With no governing body, who decides which rules apply and when?" Lodge said. International payment rails such as Swift and card payments have membership rules to address these challenges for payments in traditional currency, he said.
"It’s not an insurmountable issue, but equally it's not a quick five-minute fix either," Lodge said. "And let's not forget that currency is a lynchpin of monetary policy as well. Not every country will have the same objectives in mind."
It is still early days for CBDCs, so it's difficult to predict how cross-border payments could evolve, Gu said, adding Visa is following guidance from international organizations such as the G-7 and Bank of International Settlements.
"We're focused on applied research from a technology angle, looking at how to facilitate cross-border CBDC exchanges," Gu said.
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"The most important point is to avoid unnecessary complexity as much as possible, as well as focus on removing friction and support full-time availability," said Martha Bennett, vice president and principal analyst for Forrester Research in London. "The last two points are of particular importance, since the shortcomings of existing cross-border systems are a key driver for people to make use of alternatives that are currently unregulated."
Consensys has worked with governments on CBDC projects since 2017, and also provides technology for the Ethereum blockchain, which operates most private stablecoins.
"We see this project as an easy bridge for CBDCs to a public Ethereum blockchain," said Shailee Adinolfi, director of strategic sales at Consensys. That "bridge" could support both stablecoin and CBDC transactions, Adinolfi said.
"A CBDC will be able to coexist alongside stablecoins in the future," Gu said.
