Fintech Daily Digest

First Abu Dhabi Bank (FAB) is the first financial institution to pilot JPM Coin programmable payment functionality. FAB's trials included initiating payments based on time triggers and balance thresholds, for example, the transfer of funds out of an account if the balance is too high, or into the account if it's too low. Or, a planned payment is only sent out depending on its impact on the account balance. https://www.bankfab.com/en-ae/about-fab/group/in-the-media/fab-successfully-pilots-programmable-payments-through-onyx-by-jp-morgan

The European Central Bank (ECB) published an article analyzes payment survey data to arrive at a framework for understanding the role of adoption frictions and design strategies in shaping central bank digital currency (CBDC) demand. The survey spanned 17 euro area countries with over 40,000 respondents. It included a payment diary, together with a questionnaire asking respondents to rank different payment instruments according to their most important attributes. The analytic results show that, while consumers may initially prefer to use more traditional payment methods, a design tailored to their specific needs could significantly increase CBDC uptake. Raising awareness and capitalising on network effects could also boost demand for CBDC.

International money transfer firm MoneyGram has been down for at least five days due to a "cybersecurity issue," and it is working to restore its services with some success. Users have reported that its services went down on September 20, 2024. The U.S.-based firm said it was working with law enforcement and "leading external cybersecurity experts" to mitigate the issue, and once its systems are back online, pending user transactions would be available. https://x.com/moneygram/status/1838203169765052552

[February 27, 2017] The Depository Trust & Clearing Corporation (DTCC) completed the first leg of a post-trade distributed ledger trial conducted in partnership with Digital Asset Holdings. The trial focused on the netting process for US Treasury and agency repurchase agreement transactions.

"An important motivating factor in the development of retail CBDC is the decline of the popularity of central bank money for retail purchases and the increasing use of digital money created by the private sector for such purposes. The debate about how retail CBDC would be designed and implemented has led to many proposals, which have sparked considerable debate about business models, regulatory frameworks, and the socio-technical role of money in general. Here, we present a critical analysis of the existing proposals. We examine their motivations and themes, as well as their underlying assumptions. We also offer a reflection of the opportunity that retail CBDC represents and suggest a way forward in furtherance of the public interest."

Digital Asset published the results of its U.S. Treasury (UST) Collateral Network Pilot that focused on leveraging DLT applications to support market connectivity across the collateral management lifecycle to enhance mobility, liquidity and transactional efficiency of tokenized assets. The tests involved four investors, four banks, two central counterparties, three custodians/collateral agents, and a central securities depository operating fourteen Canton Network nodes, that connected four types of cross-application transactions through ten distributed applications, leveraging DTCC's LedgerScan solution to support dynamic tracking and governance of the assets involved in the pilot transactions. Participants successfully executed 100 transactions. https://www.canton.network/unlocking-collateral-mobility-through-tokenization

The Eurosystem's work to explore how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money is progressing well. A total value of €532 million has been successfully settled in more than 50 transactions involving 15 different financial firms and central banks since May 2024. In total, 60 financial firms from nine euro area countries and the European Central Bank (ECB) and three national central banks are participating. The trials - transactions including actual settlement in central bank money - have covered nine use cases, with a particular focus on the primary distribution of bonds to investors on a delivery-versus-payment (DVP) basis. Trials and experiments will continue until the end of November 2024.

The Hong Kong Monetary Authority (HKMA) has commenced Phase 2 of the e-HKD pilot programme to delve deeper into innovative use cases and commercial feasibility for new forms of digital money, including e-HKD and tokenized deposits, that can potentially be used by individuals and corporates, within a real-world setting. 11 groups of firms from various sectors will test the settlement of tokenized assets, programmability and offline payments.

Malaysian scaled down its retail CBDC project In a June 11, 2024 speech, Bank Negara Malaysia (BNM) Deputy Governor Jessica Chew announced the scaling down of its retail CBDC project. "Given the highly efficient domestic retail payment systems operating today," the central bank is prioritizing enhancing the cross-border interoperability of fast payment systems, plus wholesale CBDC work.

The IMF published a paper that argues that successful CBDC adoption hinges not only on technical readiness and operational robustness, but also on strategic policy and design choices that target end-user and intermediary involvement from the outset. Central banks cannot take it for granted that CBDC, once launched, will be adopted and scaled up easily. The paper proposes a "REDI" framework that central banks can use to prepare for CBDC adoption comprised of (i) regulatory strategies, (ii) education and communication initiatives, (iii) design and deployment choices, and (iv) incentive mechanisms. The paper also makes several concrete recommendations including: -Early engagement with end-users focusing on identifying their needs and pain points, as well as social and cultural factors that influence their financial behavior. -Monetary and non-monetary incentives to encourage intermediary participation, including exclusivity agreements, subsidies for setup costs, and allowing for CBDC data monetization or charging for value-added services. -End-user incentives including sign-up bonuses, airdrops or lotteries upon onboarding, and once onboarded, usage incentives, such as cash-back offers and discounts on CBDC transactions. Incentives targeted specifically to merchants could include subsidies for setup costs, reduced transaction fees, tax exemptions, or volume-based rewards. -Implementing selected use cases (such as P2P, G2P or B2P payments) may help generate initial momentum (see also SODA's "test and deploy" implementation framework).

The Bank of Canada has now confirmed on its website that it is downshifting its retail central bank digital currency (CBDC) project. "The Bank is scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development... The body of knowledge built over recent years will be invaluable if, at some point in the future, Canadians, through their elected representatives, decide they want or need a digital Canadian dollar... The Bank will continue to monitor global retail CBDC developments and publish some related research, but the focus will be on preparing for the evolution of payments both in Canada and around the world, through policy research and analysis."

Starting in December, selected participants will reportedly be able to use tokenized deposits to make payments at domestic supermarkets and convenience stores. This initiative is part of a comprehensive usability test for a wholesale central bank digital currency (CBDC), conducted by the Bank of Korea (BOK) in collaboration with six major commercial banks. Basically, the BOK will issue CBDC to banks, which will then convert it into deposit tokens for use by consumers at designated retail locations. 100,000 individuals have been selected for the pilot, and participating banks are forming partnerships with retail outlets and developing dedicated digital platforms.

The Canadian Broadcasting Corporation (CBC) reported that the Bank of Canada has shelved its exploration of retail central bank digital currency (CBDC) issuance. This was based on an email sent by the Bank to the public broadcaster, which outlined its "significant research towards understanding the implications of a retail central bank digital currency" and that going forward its focus will be on preparing for the ongoing evolution of payments both in Canada and around the world, through policy research and analysis. Other than a steady stream of research papers on the topic, the last time the Bank released anything official on its digital loonie project was in November 2023. That was a report on public consultations that said that the "likelihood of a digital loonie being needed is still uncertain, and the ultimate decision whether to go ahead with one depends on the Parliament".

The Reserve Bank of Australia (RBA) and the Australian Treasury published a report summarizing their research to date on central bank digital currency (CBDC) and their current assessment of CBDC issues in Australia. It concludes that a clear public interest case to issue a retail CBDC has yet to emerge, as Australians are generally well served by the capabilities and resilience of the current retail payments system. However, the report highlights the role that wholesale CBDC, alongside other forms of digital money and infrastructure upgrades, could play in enhancing the functioning of wholesale markets. Hence, the report also sets out a three-year roadmap for future work on digital money in Australia, including Project Acacia, which will explore opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenization and new settlement infrastructure.

The Official Monetary and Financial Institutions Forum (OMFIF) published its annual survey-based digital assets report. 26 survey respondents comprised of bond issuers, banks and investors, the majority of which were public sector bond issuers, indicated a slow but steady gathering of momentum behind the adoption of blockchain and distributed ledger technology (DLT). About 38% said they are looking at adopting them in debt issuance. Central bank digital currency (CBDC) was chosen by 59% of respondents as the preferred cash settlement for tokenized assets, with only 23% favoring bank-issued stablecoins (e.g., tokenized deposits).

UK Finance released the results of the experimentation phase of the Regulated Liability Network (RLN) which explored the potential for tokenized deposits and programmability among eleven financial institutions. The overall conclusion was the RLN provides a viable innovation platform, and the next step is to engage with regulators. Five use cases were trialed, ranging from buying a home to the settlement of a tokenized bond, finding significant benefits and exploring various revenue models. It found 40 specific business benefits grouped into five higher level ones; (i) greater settlement efficiency, (ii) the ability to address authorized push payment fraud, (iii) simplifying customer journeys, (iv) reducing the cost of failed payments and (v) greater payment efficiencies. https://www.ukfinance.org.uk/policy-and-guidance/reports-and-publications/rln-reports-2024

The Institute of International Finance (IIF) released the names of 41 firms selected to participate in the Bank for International Settlements (BIS) Project Agorá, aimed at modernizing correspondent banking using a unified ledger, tokenized deposits and wholesale central bank digital currency (CBDC) from seven central banks. The seven central banks are the Banque de France, Banxico, New York Fed, Swiss National Bank, Bank of England, Bank of Japan, and Bank of Korea. Thirty five of the selected institutions are banks representing the seven jurisdictions. The others are Visa, Mastercard and SWIFT, Eurex Clearing, Euroclear and the SIX Digital Exchange. https://www.iif.com/About-Us/Press/View/ID/5880/Private-sector-partners-join-Project-Agor-

Sveriges Riksbank has called for regulations to ensure that Swedish companies and public authorities, who are legally obliged to accept cash, have access to functioning services for daily takings and petty cash. With banks having largely stopped providing cash services to businesses, only cash-in-transit company Loomis AB is offering these services and almost exclusively by the and entirely on a commercial basis. Banks have chosen to fulfil their obligations by providing deposit machines with limits that are too low for many businesses, and have limited access to petty cash by closing down manual services. The Riksbank also underscored that access to cash is necessary to strengthen civil preparedness regarding payments.

Design options for interoperability and funds locking across digital pounds and central bank money (arXiv) arXiv published a paper by Barclays staff that analyzes the design options for supporting "functional consistency" across digital pounds and commercial bank money. It focuses on three key capabilities: communication between digital pound ecosystem participants, funds locking, and interoperability across digital pounds and commercial bank money. It explores them via three payments use cases: person-to-person push payment, merchant-initiated request to pay, and lock funds and pay on physical delivery. It then presents and evaluates the suitability of design options to provide the specific capabilities for each use case and draw initial insights. The paper concludes that a financial market infrastructure (FMI) providing specific capabilities could simplify the experience of ecosystem participants, simplify the operating platforms for both the Bank of England and digital pound payment interface providers (PIPs), and facilitate the creation of innovative services.

Hedera has become a founding premier member of the Linux Foundation's newly launched decentralized trust initiative, and contributed its entire source code, including its hashgraph consensus algorithm and all core services, tools and libraries, to the Foundation. The contribution, which forms the new project "Hiero," aims to allow developers to collaborate on decentralized trust technologies globally under an open-source framework.