Volume 17 (2023)

Each volume of Journal of Payments Strategy & Systems consists of four 100-page issues, published both in print and online.

The Articles published in Volume 17 include:

Volume 17 Number 4

Editorial:
Gerard Hartsink, Editor
Practice papers
Digital payments: Navigating the landscape, addressing fraud, and charting the future with Confirmation of Payee solutions
Damien Dugauquier, Geertjan van Bochove, Alain Raes, and Jean-Julien Ilunga, iPiD

This paper explores the evolving landscape of digital payments, with a specific focus on the confirmation of payee (CoP) mechanism, which has been designed to enhance the accuracy and security of payee identification. Traditional payee identification methods, reliant solely on account numbers, face increasing limitations amid the growing sophistication of both domestic and cross-border payments. The rise of instant payments and their associated fraud risks underscore the urgent need for more reliable payee identification systems. Drawing insights from domestic markets where CoP has been implemented, this paper presents the challenges, regulatory responses and the potential of a CoP scheme for Europe and globally. We argue that while a singular European solution is unlikely, interoperability will be the key to success. The paper concludes by envisioning the future of payee identification, exploring the global potential of CoP, and urging the industry to perceive CoP solutions as public goods of benefit to all stakeholders in the payments sector.
Keywords: confirmation of payee (CoP); cross-border payments; digital payments; fraud risks; instant payments; interoperability; payee identification
Harvesting payment data for fiscal purposes: The EU’s Central Electronic System of Payment Information
Sabine Weber and Albrecht Wallraf, Association of German Banks

Tax authorities in the European Union are to be given a new tool in the fight against VAT fraud: starting in 2024, payment service providers will be obliged to report substantial amounts of data on cross-border payments, to be pooled in and made accessible through the upcoming Central Electronic System of Payment information (CESOP). This paper discusses the underlying economic and fiscal motivation and outlines the legal and procedural setup of CESOP. This is then reflected by implementation requirements and challenges from the perspective of banks and other payment service providers. The paper concludes with a critical discussion of the legal framework, with particular reference to the interlinking of European payment and tax law that underpins CESOP, and an outlook on possible policy developments.
Keywords: CESOP; VAT; payment data; regulatory reporting; tax fraud; value-added tax
Measurement and use of cash for payments by half the world’s population
Tanai Khiaonarong, International Monetary Fund and David Humphrey, Florida State University

The use of cash for payments is not well measured. This paper argues that the value of cash withdrawn from automated teller machines (ATMs), or as a share of all payments, provides a more accurate and timely measure of the cash used for payments compared with the standard measure of the value of currency in circulation (CIC), or as a ratio to gross domestic product (GDP). CIC is a stock of cash used for legal payments, hoarding and illegal activities, but lacks a corresponding measure of the velocity or turnover of that cash used for payments. Cash from ATMs is a flow. It reflects both a stock of cash and its velocity and is primarily used for legal transactions. This paper compares these two measures for 14 advanced and emerging market economies, which together account for one-half of the world’s population and two-thirds of world GDP. The time pattern of both measures over 2005–2020 is illustrated graphically. Often, one measure rises while the other falls, or one is stable while the other is not, or both are rising or falling but at different rates. After reaching a peak in cash use between 2005 and 2018, the per capita share of cash withdrawn from ATMs in almost all of our countries begins to fall, consistent with what some merchants report, while CIC keeps rising. A measure of cash from ATMs may better inform monetary policy (demand for money) and regulatory decisions concerning access to and use of cash in a country.
Keywords: cash measurement; cash payments; cross-country use of cash; demand for money
The digital euro in the digital age: Can we really digitise cash?
Maja Schwarz, NTT Data DACH

Central banks around the world are considering the introduction of retail central bank digital currency. The European Central Bank, for example, has made considerable progress in this respect, and its research into the viability of a digital euro is at an advanced stage. Given, however, that people living in the euro area have been using various forms of digital payments for a number of years, a key question is what the benefits of such an innovation would be, aside from a reduced dependence on payment processors from outside the EU. A digital euro that retained the properties of physical cash, such as anonymity, offline payments and high inclusion, could provide added value compared with existing digital payment solutions. This paper explores whether and how fast-developing technology might be used to implement a cash-like digital euro. This type of resemblance to cash could eventually be more important for wide adoption than the difference in liability between central and commercial bank money.
Keywords: cash-like; central bank digital currency (CBDC); digital euro; offline payments; privacy; retail CBDC
Beyond technology: Considerations for retail central bank digital currency adoption in Asia–Pacific
Sally Chen, Tirupam Goel, and Han Qiu, Bank for International Settlements

While central banks’ objectives for issuing central bank digital currencies (CBDCs) are increasingly clear, many observers continue to raise questions regarding the usefulness of CBDCs for the broader population. This question is particularly relevant for Asia-Pacific economies where the payment infrastructure is generally both efficient and resilient, and digital payments have been widely adopted. As this paper will argue, ensuring the adoption of CBDCs in Asia-Pacific requires a ‘future-proof’ solution that is sufficiently flexible to adapt to advances in payments technology. In addition, any solution will have to replicate the underlying benefits of physical cash, such as offline availability, while addressing concerns around transaction privacy.
Keywords: Asia-Pacific; CBDCs; retail payment systems
Interoperability aspects of central bank digital currency across ecosystems and borders
Lars Hupel, Giesecke+Devrient

There is a growing consensus that there is no ‘one size fits all’ central bank digital currency (CBDC). Both retail CBDC and wholesale CBDC have their own unique value propositions and may even be deployed using different technologies. Additionally, some countries are developing multilateral cross-border CBDC solutions, as well as integrations into other digital asset ecosystems, including but not limited to stablecoins, tokenised government bonds and real estate. Although interoperability between different ecosystems is highly desirable, the precise design of such bridges is highly context-dependent and requires careful analysis of use cases, stakeholders and operational concerns. This paper describes the state of the art that has been established in the digital asset community, puts forward some suggestions about the design options relating to CBDC — matching those to potential use cases — and discusses some case studies.
Keywords: central bank digital currency (CBDC); cross-border payments; deposit money; instant payment systems (IPS); interoperability; real-time gross settlement (RTGS); stablecoins
Can central bank digital currencies help advance financial inclusion?
Nana Yaa Boakye-Adjei, Digital Financial Services and Financial Inclusion Professional, Raphael Auer, Bank for International Settlements, Holti Banka, World Bank, Ahmed Faragallah, World Bank, Jon Frost, Bank for International Settlements, Harish Natarajan, World Bank, and Jermy Prenio, Bank for International Settlements

Central banks around the world are considering how retail central bank digital currencies (CBDCs) may help to advance financial inclusion. While CBDCs are not a magic bullet, they could be a further tool to promote universal access to payments and other financial services if this goal features prominently in the design from the get-go. In particular, central banks can consider design options to: (1) promote innovation in the two-tiered financial system (eg allowing for non-bank payment service providers); (2) offer a robust and low-cost public sector technological basis (with novel interfaces and offline payments); (3) facilitate enrolment (via simplified due diligence and electronic know-your-customer processes) and data portability; and (4) foster interoperability (both domestically and across borders). Together, these features can address a range of specific barriers to financial inclusion: geographic remoteness, institutional and regulatory factors, economic and market structure issues, characteristics of vulnerability, lack of financial literacy and low trust in existing financial institutions. This paper draws on interviews with nine central banks with advanced work on CBDCs and financial inclusion — the Central Bank of the Bahamas, Bank of Canada, People’s Bank of China, Eastern Caribbean Central Bank, Bank of Ghana, Central Bank of Malaysia, Bangko Sentral ng Pilipinas, National Bank of Ukraine and Central Bank of Uruguay. It gives concrete examples from the central banks’ work and discusses challenges, risks and regulatory and legal implications. It argues that while CBDCs hold promise for furthering financial inclusion, CBDC issuance may also require new laws and regulations to be enacted, or existing laws to be revised.
Keywords: central banks; digital currencies; financial inclusion; payments; universal access

Volume 17 Number 3

Editorial:
Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
Practice papers
Changes in US payment behaviour during COVID-19: Differences by income and demographics
Claire Greene, Payments Risk Expert, Federal Reserve Bank of Atlanta, Ellen A. Merry, Principal Economist, Federal Reserve Board, and Joanna Stavins, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

The COVID-19 pandemic caused large changes in consumer spending, including how people make their payments. For employed consumers, the pandemic also changed workplace behaviour, with about one-third of workers continuing to work from home every day as of September 2020. Using data from a nationally representative survey of US consumers collected before and during the pandemic, this paper analyses changes in workplace and payment behaviour during the pandemic. The study finds that, compared with their payment behaviour in 2019, consumers had shifted some of their purchases from in person to online by the autumn of 2020, significantly reduced their use of cash for purchases, and shifted their person-toperson (P2P) payments away from paper-based instruments (ie cash and cheques). These changes are consistent with what we might expect, as many people were less able or willing to shop in person. The adoption of electronic P2P payments increased, especially the use of payment apps such as PayPal, Venmo and Zelle. In comparison with consumers who worked at least partly in person, consumers who worked exclusively from home during the pandemic made a significantly higher proportion of their payments online or through mobile devices, and were less likely to use cash at all, even after controlling for income and education levels. In contrast, payment behaviour changes that took place from 2018 to 2019 were smaller in magnitude and largely insignificant, suggesting that COVID-19 likely accelerated any longerterm trends.
Keywords: COVID-19; working from home; consumer payments; consumer behaviour; online payments; cash; credit cards
The acceptance of cash by Canadian merchants: Evidence from the 2021–22 Merchant Acceptance Survey
Angelika Welte, Principal Researcher, and Joy Wu, Research Assistant, Bank of Canada

In recent years, the rise in digital payments has spurred discussion about the future of cash at the point of sale. The COVID-19 pandemic has also contributed to this discussion. To better understand cash acceptance and the impact of payment innovations such as mobile payments in Canada, the Bank of Canada conducted the 2021–22 Merchant Acceptance Survey Pilot Study — a survey of around 500 small and medium-sized businesses. We find that 97 per cent of small and medium-sized businesses in Canada accepted cash in 2021–22 and only 3 per cent have plans to stop accepting cash. For cards and digital payments, merchant acceptance has increased over the last few years. Therefore, cash and digital payments continue to co-exist at the point of sale, and Canada is far from being a cashless society.
Keywords: demand for cash; digital payments; payment innovations; central banks; retailers; banknotes; surveys
The Unified Payment Interface and the growth of digital payments in India: An analysis
Mahadevan Balakrishnan, Consultant, World Bank

This paper analyses the massive growth in digital payments in India since 2010. In addition to discussing the various factors that have contributed to this, most notably the introduction of the Unified Payment Interface (UPI), the paper also highlights some of the challenges facing the UPI, and how these might be addressed. By way of comparison, the paper also analyses a similarly successful system, namely Brazil’s PIX. As many developing nations are now investigating UPI-like solutions and hoping for similar results, this paper sets out to improve understanding about digital payment infrastructure and the factors that have driven the successful growth of digital payments and the UPI in India in order to support such nations to determine the appropriate strategy going forward.
Keywords: digital payments in India; Aadhaar; UPI; PMJDY; direct benefit transfer; merchant payments; QR code; faster payments; payment pricing policies; Reserve Bank of India; PIX
Payment service provision in times of accelerated market and regulatory change: The case of India
Niklas Bartelt, Senior Adviser, DZ Bank, Ulrich Hommel, Professor of Finance, Rushabh Patel, Student, Master of Business Administration, and Shagufta Ali, Student, Master of Business Administration, EBS University of Business & Law

This paper presents an analysis of the Indian payment system with a focus on payment service providers (PSPs). At the core, it assesses the state of competition by analysing market concentration, barriers to entry and the counterbalancing influence of buy-side market power. This is preceded by a detailed presentation of the institutional characteristics of the Indian payment landscape, in particular the role of the Unified Payments Interface (UPI) and regulatory intervention. Throughout the course of this investigation, we contrast India with the European payment markets (Eurozone plus affiliated countries), which helps to gauge the role of governmental bodies in the light of the very different state of e-commerce market development. The analysis arrives at the conjecture that, despite significant institutional, regulatory and market structure differences, the state of competition is remarkably similar to the European benchmark. The diversity of viable business models furthermore indicates a well-developed and differentiated PSP service offering in India (as in Europe).
Keywords: India; payments; payment service provider; PSP; payment gateway; payment aggregator; UPI; e-commerce; m-commerce
From LVTS to Lynx: Quantitative assessment of payment system transition in Canada
Ajit Desai, Principal Data Scientist, Zhentong Lu, Principal Researcher, Hiru Rodrigo, Research Assistant, Jacob Sharples, Research Assistant, Phoebe Tian, Senior Economist, and Nellie Zhang, Senior Economist, Bank of Canada

Modernising Canada’s wholesale payments system from the legacy large-value transfer system (LVTS) to Lynx brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and deferred net settlement to an RTGS system; and (2) the policy regarding queue usage changes from discouraging it to encouraging the adoption of the new liquidity-saving mechanism. This paper quantitatively assesses the effects of these changes on the behaviour of participants in the payments system. The analysis reveals that most system-level payments in Lynx are settled in a single stream via the liquidity-saving mechanism, thus facilitating liquidity pooling and leading to higher efficiency than with LVTS, where payments were distributed in two streams. Moreover, due to Lynx’s liquidity-saving mechanism, many payments arrive earlier than those settled in LVTS, providing more opportunities for liquidity saving at the cost of slightly increased payment delay. At the participant level, meanwhile, the analysis suggests that liquidity efficiency is improved for various participants, with most experiencing slightly longer payment delays in Lynx than in LVTS.
Keywords: high-value payments systems; LVTS; Lynx; payment modernisation
US money transmission regulations and decentralised payment platforms
Ximeng Tang, Associate Attorney, Goodwin Procter LLP

US money transmitter law applies to money transfer businesses and payment processing companies. By imposing rigorous regulatory obligations on money transmitters, the law aims to protect customer assets and prevent the payment systems from being used for illegal activities. A central premise of the law is that the money transmitter intermediates between customers and the payment systems, and controls the flow of funds in the transaction. Decentralised finance has challenged this premise by connecting users to the payment infrastructure directly. Decentralised payment applications allow users who do not know each other to transact in cryptocurrency on the blockchain without requiring a trusted party to take custody of the assets while transaction is pending. This paper explores the incompatibility between money transmitter law and its policy objectives, and the increasing use of blockchain innovation to decentralise payment processing. It also discusses potential approaches available to regulators and their limitations. For payment industry practitioners and innovators, it is important to understand the scope and limitation of the existing law and how legal development may evolve in the future.
Keywords: DeFi; blockchain; money transmitter; payment processing
Country Report: The payments industry in Germany: Status and further developments or a triangle of scale, complexity and low fees
Niklas Bartelt, Senior Adviser, DZ BANK, and Ronny Wittig, Partner, Bain & Company

The German payments market is sizeable, handling almost one-quarter of the non-cash transactions conducted in the euro area, and benefiting from structurally lower cost levels. At the same time, it is characterised by a highly complex and intense competitive set. These two factors seem to result in low fee levels. The COVID-19 pandemic has accelerated structural change (and digital payments adoption) in a market with distinctive institutions and consumer preferences. This paper reviews both the key players shaping the overall payments market, as well as the characteristics of key payment solutions and situations. In doing so, the paper identifies and explains the idiosyncrasies of the German market, linking back to the aforementioned factors shaping the German payments market.
Keywords: payments; Germany; banks; point of sale; cash; card payments; online payments; banking sector
Book review
Redecentralisation: Building the Digital Financial Ecosystem
Reviewed by Piet Mallekoote, Independent consultant

Volume 17 Number 2

Editorial:
Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
Opinion piece
What are (payment) intermediaries good for?
Udo Milkau, Digital Counsellor, Baden-Württemberg Cooperative State University

This paper examines the question of whether computer code could actually substitute for intermediaries, as proponents of distributed ledger technology (DLT) and decentralised finance would argue. Drawing on transaction-cost economics, the paper reviews the role of intermediaries as efficient platforms for the exchange of information, goods and payments. The generic advantage of centralised coordination is compared with the narrative that DLT and decentralised finance could substitute for intermediaries due to their efficiency advantages and the promise of lower costs. The positivist question ‘cui bono?’ can be applied as a litmus test of these normative narratives in comparison with existing systems. As proposed concepts ‘without’ intermediaries introduce other intermediaries by the backdoor and no system runs without transaction costs of some sort, the paper concludes that intermediaries cannot be simply replaced.
Keywords: blockchain technology; blockchains; decentralised finance; intermediaries; transaction cost economics
Practice papers
Metamoney: Payments in the metaverse
David G.W. Birch, Principal, 15Mb Ltd and Victoria J. Richardson, Chief Operating Officer, Meeco Pty

This paper builds a structured model of the metaverse, the building blocks that are needed to make it useful for business — in other words, transactions — and the new services (and therefore new service opportunities) that it presents. The model brings together the virtual worlds where transactions can take place, the digital assets that will be exchanged in those transactions, and the digital identities of the owners of those assets. This underpins a comprehensive and practical model of the metaverse that helps to identify the key technologies that are required to turn it into a place for business as well as the service opportunities for organisations who are exploring metaverse business models. We use this model to explore the nature of payments in that environment and conclude by identifying digital wallets as the central organising principle in these new environments and set out our view that smart wallets operated by agents will be the crucial enabler.
Keywords: metaverse; tokenisation; digital identity; web; virtual worlds
Balancing privacy and data use: The potential impact of large online platforms and central bank digital currencies
Yuji Maruo, Deputy Head of Policy Planning Division and Sei Sugino, Economist, Bank of Japan

This paper reviews the international discussion among academics and policy makers regarding the trade-off between privacy protection and data use. In particular, it is intended to shed light on the mechanism behind the data monopoly enjoyed by the large online platform companies. The paper also discusses how central bank digital currencies can reduce the potential side effects of this data monopoly.
Keywords: privacy protection; data monopoly; central bank digital currency (CBDC); negative externality
Distributed ledger technology experiments in retail payments: Evidence from Turkey
Gökhan Çağlayan, Director of Information Technology Architecture, Bilgehan Kürşad Öz, Director of Strategic Technologies, Aleaddin Özer, Senior System Engineer and Emrah Şener, Deputy Governor, Central Bank of the Republic of Turkey

A growing number of central banks are exploring the potential introduction of a central bank digital currency (CBDC), and authorities are conducting distributed ledger technology (DLT) proof-of-concept experiments and pilot programmes. While these pilot projects have confirmed the feasibility of using DLT platforms for large-value wholesale payments, it is not yet clear whether these platforms will provide major advantages in terms of speed and scalability for small-value/large-volume retail payments. In Turkey, the existing instant payment system has already demonstrated that it can settle as many as 1,980 transactions per second (TPS) and 11.5 million transactions per day, across its 25 participant institutions. Moreover, simulations in test conditions suggest that it has the potential to deliver thousands of transactions per second, and that it is scalable to hundreds of participant institutions. Any retail payment system built on a DLT platform must therefore, at the very least, perform at a comparable level. Using actual retail payment data from the day on which the peak TPS was observed, this paper describes a novel experimental investigation into the TPS and scalability performance of two open source DLT platforms (Hyperledger Fabric and Quorum) and Turkey’s instant payment system for retail payments, with the aim of providing valuable insights for the design of alternatives for future CBDC launches. The study presents several empirical findings. First, it demonstrates that the speed and scalability of selected DLT platforms are not yet mature enough to establish an enterprise retail payment solution. Secondly, the experimental design enables us to determine precisely which DLT platform is facing a performance and capacity bottleneck and under what circumstances. One of the most critical findings is that platforms with a modular architecture and more efficient transaction life cycle perform relatively better, although still lack the requirements for achieving reliable and efficient retail payments. Lastly, we suggest that it could be worth developing an integrated approach in which the central instant payment system and DLT-based digital currency solution communicate via a bridge platform.
Keywords: central bank digital currency; distributed ledger technology; instant payment system
UK/EU regulatory developments in payments, crypto-assets and buy-now-pay-later agreements
Max Savoie, Partner, Martin Dowdall, Senior Managing Associate and Paida Manhambara, Associate, Sidley Austin

This article examines key recent developments in payment services regulation in the UK and EU. In addition to proposals to reform traditional payment services legislation, it also considers proposals to regulate crypto-assets when used as a means of payment and proposals to regulate buy-now-paylater agreements, as these are increasingly offered by merchants as a means of payment. Both the UK and EU have proposed broader regulation of crypto-assets, but this article considers only those aspects of the proposals with the greatest relevance to payment services.
Keywords: CBDC, DCEP, RMB internationalisation, cross-border payment
Research papers
The impact of cognitive, affective and social antecedents on system characteristics and their influence on proxy payments adoption
Neha Vivek Dharurkar, Research Scholar and Kanchan Patil, Deputy Director, Symbiosis Centre for Information Technology, Symbiosis International (Deemed University) and Balakrishnan Mahadevan, Consultant, Payment System Development Group, The World Bank

This study explores the cognitive, social and affective factors influencing the adoption of proxy payments, and seeks to identify the reasons for and resistance to their adoption. The study extends the technology acceptance model (TAM) with other cognitive, social and affective factors and proposes a research model for proxy payments adoption intentions. The model was empirically tested using 336 survey responses, and the data analysed using structured equation modelling. We found that the constructs of TAM significantly influenced the adoption intention of proxy payments. Cognitive factors such as mobility, responsiveness, security and transaction stress were observed to significantly influence perceived usefulness and ease of use, and factors such as mobility and responsiveness were observed to influence perceived ease of use. In addition, all the affective factors were seen to influence the perceived ease of use significantly, without influencing usefulness. Perceived usefulness was also significantly influenced by constructs such as perceived ease of use and social influence. The study of these constructs is of great significance for stakeholders such as payment system operators, banks, merchants, issuers, acquirers, device manufacturers and governments. This model can be leveraged in different countries planning proxy payments so that digital payments using proxy payments get a wider acceptance. In addition, FinTech entities across the globe may evaluate the factors identified in this paper to develop innovative and useful offerings to increase proxy payments adoption.
Keywords: proxy payments; digital payments; technology acceptance model; TAM; cognitive; affective
Intention to use mobile payment systems among unorganised retailers in India
M. Karthik Ram, Research Scholar and S. Selvabaskar, Professor of Marketing, SASTRA Deemed University

The recent transformation of retail payments in India has been bolstered by strong consumer demand, affordable payment devices, retailers’ readiness, an efficient grievance redressal mechanism, a new generation of payment service providers, the enhanced participation of private players, the emergence of FinTech platforms, and favourable government regulations and policy initiatives. The transformation of retail payments has benefitted industries of all sizes, including the many small ‘unorganised’ retailers. This study examines the behavioural intentions of such merchants with respect to the use of mobile payment technologies. The study adopts variables from technology acceptance theories and introduces new variables that are relevant to the context. The results indicate that behavioural intention is significantly influenced by awareness, cost, customer acceptance, entrepreneurial motivation, perceived usefulness and personal innovativeness. The study also examines the relationship between behavioural intention and the extent to which unorganised retailers are likely to adopt mobile payment solutions. This is found to be mediated by awareness, cost, customer acceptance, entrepreneurial motivation, perceived usefulness and personal innovativeness. The paper concludes with a number of recommendations pertaining to the development of suitable technologies for adoption.
Keywords: unorganised retailers; mobile payments; merchants; behavioural intention; extent of mobile payments usage

Volume 17 Number 1

Special Issue: Next steps for digital currencies

Editorial:
Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
Practice papers
Do we really need another dollar, euro, pound or yuan? How to create the right ecosystem for a successful central bank digital currency
Michael Salmony, Chief Executive Officer, Payments Innovation Consulting

This paper discusses how to translate regulators’ policy needs to align with the needs of other stakeholders in the payments ecosystem. While most of the recent activity (papers, pilots, etc) in the field of central bank digital currency (CBDC) has focused on the potential advantages for central banks and on the technology (ledgers, platforms, etc), a more appropriate starting point is to identify what problems CBDC is intended to solve, especially for the affected stakeholders. At the end of the evaluation, focus on technological solutions should commence only once business and policy goals have been identified. After a quick summary of the motivations for central banks, regulators, governments and policymakers, the paper examines the motivations for the other key stakeholders in the ecosystem — an aspect that has to date been insufficiently examined. The paper then comments on the challenges associated with driving consumer adoption of CBDC, Michael Salmony before discussing the microeconomic disincentives for CBDC adoption among commercial banks, alongside the macroeconomic necessity. The paper concludes with some thoughts on how to balance the conflicting interest of the many stakeholders and the lessons one can learn from other large-scale payment initiatives.
Keywords: CBDC, future of cash, payment ecosystem, incentives for adoption, balancing interests, stakeholder considerations
Central bank digital currencies: An active role for commercial banks
Olivier Denecker, Expert Partner — Global Payments, Arnaud d’Estienne, Consultant, Pierre-Matthieu Gompertz, Former Associate Partner and Elia Sasia, Partner, McKinsey & Company

With most central banks now exploring central bank digital currencies (CBDCs), commercial banks should be looking to establish their role in this fast-changing landscape. Among the roughly 90 per cent of the world’s central banks pursuing CBDC projects, many, including those in the USA and South Africa, are at the exploratory phase. Others are already managing development projects (the European Union) and pilots (China). The various imperatives behind these initiatives are easy for private actors in these markets to overlook, which sometimes complicates private–public cooperation. However, digitally issued public money stands at the forefront of central bank innovation in the monetary space. This paper reviews why central banks need to explore digital currencies and what questions they should address. It also sheds light on what commercial banks need to consider as they anticipate their stance in the CBDC development process. For both parties, the final section outlines the hurdles to successful CBDC design and rollout.
Keywords: CBDC, digital currency, central banks, commercial bank cooperation, cash 2.0
Central bank digital currency challenges: The case of Greece
Veni Arakelian, Senior Economist, Piraeus Bank

As a result of demand for faster, less expensive payments and profound transformation within the payments system, central banks and nonbank entities are vying for a greater role in facilitating payments. In this respect, there is clear evidence that central bank digital currency will play a crucial role. This paper examines select characteristics of central bank digital currency through the lens of the Greek experience.
Keywords: central banking, cross-border payments, digital payments, financial inclusion, FinTech, offline payments, security
Using central bank digital currencies across borders: Lessons from practical experiments
Morten Bech, Head, Innovation Hub Swiss Centre, Codruta Boar, Adviser, Innovation Hub and Daniel Eidan, Adviser, Innovation Hub, Bank for International Settlements, Philipp Haene Adviser, Swiss National Bank, Henry Holden, Adviser, Innovation Hub, Bank for International Settlements and Wee Kee Toh, Executive Director, J.P. Morgan

Central bank digital currencies (CBDCs) could help to deliver better cross-border payments. With projects InthanonLionRock2, Jura, Dunbar and mBridge, the BIS Innovation Hub has been leading practical experiments to show how CBDCs could make cross-border payments faster, cheaper and more transparent. This paper looks at similarities and differences across these four cross-border CBDC experiments with a view to setting out the insights and lessons learned. These experiments demonstrate that platforms with two or more CBDCs are technically feasible and could lower costs, make settlement faster and increase operational transparency. Nevertheless, policy, legal, governance and advanced feasibility questions remain. Work will continue with future phases of the experimentation.
Keywords: cross-border payments, CBDC, DLT, central banks, innovation, experiments
China’s Digital Currency Electronic Payment: A ‘negotiated currency’ perspective
Lisha Wang, PhD Candidate, The Chinese University of Hong Kong

Around the world, interest in central bank digital currency (CBDC) is on the rise, and China’s digital currency electronic payment (DCEP) network is currently leading the way. This paper argues that despite its primarily domestic focus, DCEP has potential implications for the setting of standards for cross-border transactions in CBDC. Furthermore, the interoperability of Chinese private payment systems combined with the appeal of DCEP among countries looking to circumvent US sanctions could induce more countries to adopt it, thus improving the renminbi’s ‘negotiated’ status in the long run.
Keywords: CBDC, DCEP, RMB internationalisation, cross-border payment
Wholesale central bank digital currency vs traditional real-time gross settlement: Benefits beyond a new acronym?
Harry Leinonen, PSS-Consultancy, ESPOO

Central banks need to modernise their wholesale payment services. This is not to say they must choose between modernising their real-time gross settlement systems or building a new wholesale central bank digital currency system. Rather, as this paper will argue, they must develop a common, standardised hybrid platform for the global financial (wholesale) markets. Indeed, central banks need to provide interoperable cross-border payment services by accepting foreign participants and coordinating their short-term liquidity instruments. This paper argues that if central banks want to serve future wholesale markets, they will need to provide 24/7/365 services with cross-border finality for simple fund transfers, but also for delivery-versus-payment and payment-versus-payment settlements at the transaction level. The paper will discuss how interoperability is a key issue, and requires completely common message and communication standards, but especially common identification and security standards in which distributed ledger technology and transaction-chaining are important elements. Wholesale systems must be highly resilient. As this paper shows, cooperation between central banks is essential if they are to deliver cross-border wholesale payment services for the global financial markets of the future.
Keywords: wholesale payments, cross-border large-value payments, wCBDC, RTGS developments
Identifying and authenticating the users of virtual currency via electronic attestation and the European Digital Identity Wallet
Ignacio Alamillo-Domingo, Legal Counsel, Logalty Prueba por Interposición

EU regulations mandate the use of customer identity verification and authentication measures to ensure virtual currencies are not used for money laundering activities or the financing of terrorism. This paper explores these obligations in the context of electronic attestation, the European Digital Identity Wallet and the proposed amendment to the eIDAS Regulation.
Keywords: stablecoins, asset-referenced tokens, electronic money tokens, identification, strong customer authentication, European Digital Identity Wallet, electronic attestation of attributes, eIDAS
Designing digital currency wallets for broad adoption
Becca Scollan, Principal Human Factors Engineer and Erika Darling, Principal Human Factors Engineer, The MITRE Corporation

For most citizens, the primary touch point for central bank digital currency (CBDC) transactions would be a digital currency wallet. A CBDC wallet may have attributes in common with a cryptocurrency wallet and others in common with a mobile payment wallet. If a CBDC is built on distributed ledger technology with token-based access, it would have even more in common with a cryptocurrency wallet than a mobile payment wallet. The unbanked population is increasingly using cryptocurrency wallets and mobile payment wallets. To promote broad adoption of a CBDC among populations currently underserved by the financial industry, governments will first need a greater understanding of the barriers to adoption. This paper examines the user-facing issues pertaining to access and financial inclusion, usability, security, privacy and interoperability, and identifies 11 key user-centred issues relating to the use of CBDC wallets, along with recommendations to address these issues. By adopting these recommendations, a CBDC wallet would better meet the needs of populations underserved by the traditional financial system.
Keywords: central bank digital currency, digital currency wallet, user experience
Country report The payments industry in Germany: Status and further developments or a triangle of scale, complexity and low fees
Niklas Bartelt, External Lecturer, EBS University of Business & Law and Senior Adviser, DZ Bank AG and Ronny Wittig, Partner, Bain & Company

The German payments market is sizeable, handling almost one-quarter of the non-cash transactions conducted in the euro area, and benefiting from structurally lower cost levels. At the same time, it is characterised by a highly complex and intense competitive set. These two factors seem to result in low fee levels. The COVID-19 pandemic has accelerated structural change (and digital payments adoption) in a market with distinctive institutions and consumer preferences. This paper reviews both the key players shaping the overall payments market, as well as the characteristics of key payment solutions and situations. In doing so, the paper identifies and explains the idiosyncrasies of the German market, linking back to the aforementioned factors shaping the German payments market.
Keywords: payments, Germany, banks, point of sale, cash, card payments, online payments, banking sector