Envisioning a future of central bank digital currencies

As central banks around the world dig deeper into central bank digital currency (CBDC), questions on adoption and usability are top of mind. Once you’ve built the technology to power CBDC, how do you help make sure people can manage and spend their funds through a familiar, trusted, and seamless experience, on day one?

That’s where Visa can help — harnessing our network-of-network capabilities designed to bridge new CBDC networks with the existing financial ecosystem. Visa is partnering with ConsenSys, a blockchain technology company, to develop new infrastructure that can help central banks and traditional financial institutions come together and build simple, user-friendly services on top of CBDC networks.

We sat down with Catherine Gu, Visa’s Head of CBDC, and Shailee Adinolfi, Director of Strategic Sales at ConsenSys, to learn more about the Visa CBDC Payments Module and how the two companies are supporting the roll out of new forms of digital money.

The majority of Central Banks are reportedly exploring CBDC. What makes this technology so intriguing?

Catherine Gu:  If successful, CBDC could expand access to financial services and make government disbursements more efficient, targeted, and secure – that’s an attractive proposition for policy makers.

Take stimulus payments, a task requiring immense resources and coordination. With CBDC, a central authority could send fast payments to a targeted set of users and program specific spending parameters. Residents of a particular community facing economic hardship could receive immediate government assistance directly in their digital wallets, usable for buying groceries or other necessities at merchants accepting digital payments — no waiting for a check in the mail and for those funds to be cleared in your account. That’s just one potential use case — there are many more that have yet to be imagined.

Shailee Adinolfi:  We’re just scratching the surface of what CBDC will mean in the long term. The prospects for financial accessibility are exciting. Approximately two-thirds of the world’s unbanked individuals own a mobile phone. Because digital currencies can be distributed via mobile devices and physical cards, they can reach people in remote areas with limited access to banks and physical cash.

What are the primary challenges central banks will face in launching CBDC?

CG: At a foundational level, central banks need to think about building stability, resilience, and security into their CBDC ecosystem. The G7 principles, for example, provide a starting point for addressing those core policy issues.

Central banks also need to be thinking about the end user and how to integrate CBDC with existing systems and infrastructure. These are challenges that would be very costly and technically challenging for central banks to address on their own. To best tackle, we believe that public-private partnerships and a strong focus on the end user experience will be vital.

SA: Yes, it’s likely that a “two-tier system,” involving both central banks and traditional financial players, is what will emerge. In our work with central banks, we’ve seen strong interest in receiving expertise and support from the private sector. They are interested in piloting concrete use cases that will significantly benefit the efficiency and resources required to transfer assets and reconcile accounts.

So how can Central Banks tackle the adoption challenge and motivate people and businesses to use CBDC?

CG: We think it’s important for central banks to think about CBDC as a product. Consumers want to manage and spend their money with a seamless, intuitive and familiar experience — whether that’s tapping to pay, splitting the bill with a click, or having account management tools at your fingertips via a mobile banking app. How do you meet those user-centric, digital-first expectations with CBDC?  In our view, it’s important that CBDC can be easily accepted everywhere, by businesses and retailers from day one, through connecting to the existing payment infrastructure. This will also help pave the future for developers, fintechs and financial institutions with deep product-development expertise, to build on top of CBDC networks.  

What does Visa’s CBDC Payments module do? How does it address this challenge?  

CG: Visa’s CBDC Payments Module is designed to provide an on-ramp for CBDC to existing payment networks, so that CBDC networks can easily connect to traditional financial service providers.  For banks and issuers processors, they’ll be able to plug into the module and integrate their existing infrastructure and be enabled to do things like issue CBDC-linked payment cards or wallet credentials for consumers to use. We’re in the process of integrating our module with the ConsenSys Codefi CBDC sandbox powered by ConsenSys Quorum, so that our platform can be ready to tap into enterprise blockchain technology.  

SA: That’s right. ConsenSys Quorum is an open-source version of the Ethereum protocol that’s optimized for enterprise applications. It can enable a two-tier CBDC system for central banks to issue and distribute CBDC. Quorum’s robust open-source protocol layer ensures compatibility with private permissioned and Ethereum Mainnet networks as well as familiar products and tooling in the Ethereum ecosystem. Central banks and banks are keen to explore Quorum through our CBDC sandbox, due to the increasing adoption of Ethereum Mainnet and Layer 2s, shared common standards, and interoperability between private and public networks.

So for a consumer, what might a CBDC experience, built on top of Visa’s module, look like?

CG: We envision a user experience that looks very familiar to how you pay today. If CBDC networks are seamlessly integrated into your existing banking app, you’d be able to use your CBDC-linked Visa card at the checkout. Or tap your digital wallet – loaded with your CBDC funds and payment credential—to pay securely at any of the 80 million merchant locations worldwide that accept Visa and any of its connected networks, all through existing retailers’ existing payment terminal. It’s a familiar experience for people around the world.

Visa and ConsenSys were selected as one of three winning entries at the Global CBDC Challenge hosted at this year’s Singapore Fintech Fest. What did you learn from the challenge and what do you think set your entry apart?

CG: It was a great honor to participate in the challenge alongside ConsenSys and to be selected by the panel of judges, which included many of the leading thinkers and central bankers in this space. It was an important milestone for us to share our vision on how we can support central banks and the private sector to drive early adoption of CBDC and democratize the usage and utility of CBDC for everyone, everywhere, by making it expedient, ubiquitous, and familiar.

SA: Blockchain enables the development of new asset classes, from NFTs to stablecoins and CBDC. Until recently, end users had to use new technologies such as MetaMask to receive, store and use those assets. Enabling end users to access those new assets through the tools and user experience they are already comfortable with, such as cards, might really help accelerate adoption.

What’s next for Visa’s CBDC Payments Module?

CG: We’re excited to enter the next phase — piloting and prototyping actual use cases — which we expect to start doing later this spring. At that point, our consultants and product experts in our Global Crypto Advisory Practice and Digital Currency Innovation Hub will be ready to work with central banks, financial institutions and fintechs to integrate and configure the CBDC Payments Module for their technology stacks. It’s a natural extension of our commitment to support new forms of money movement and we’re eager to get this important work underway.

Interested in learning more or getting updates on Visa’s CBDC Payments Module? Click here to connect with the Visa Crypto team.