How Blockchain Can Change Payments and Why Is It So Hard? | European Blockchain Convention

Transcript

[Music] okay great um I'm delighted to be here the previous team was uh is running late so we are looking for very very short block time so that was not a good example um to kick off but I'm I'm delighted to be here um I'm the moderator of the panel my name is Usman um mandang I'm CEO of wire coin um we are focusing on using tokenized money market fund shares to settle large value payments as payment instruments on blockchain um I'm also working with Accenture a senior adviser having worked on many of the leading cbdc um uh projects um why are we here the idea is

to talk to talk about why has adoption been so underwhelmingly um you know abundant when it comes to blockchain and payments um why is that blockchain offers an entirely new architecture uh to conduct payments it has many features of the cash infrastructure you are all the cash infrastructure you all can initiate and execute a payment and you can settle a payment with tendering a bank note for example to your neighbor these are key features that we are now trying to replicate in the digital space and that's why we believe uh blockchain um is extremely um important um to to do that um I we have a fantastic panel here a a great mix we have goia from the bank

of England the Central Bank of the of the UK um we have Martin hares from Quant fintech um in in the UK and then we have uh VD HRA from R Eisen Bank a Commercial Bank in in Austria so I give you just a minute each just to introduce yourself and then we we kick off starting with go thanks thanks so much us man I'm Gosha Williamson I'm a policy adviser and Senior manager at the bank of England um I lead a team that focuses on payments Innovation broadly but for the last few years the team's Focus was on digital assets some of you know probably the discussion paper we published on the proposed regulatory framework for systemic stable coins um I

haven't always been a regulator so I prior to joining Bank of England I spent quite few years in the payment industry both uh at card schemes but also interbank payment systems so I do like to think about myself that I have quite a balanced view when it comes to regulation and Industry and thanks so much for having me here great Martin please thank you um Martin har I'm Chief product officer at Quan um we are a UK based ftech are we closed oh even okay um we make infrastructure that connects blockchains together and we're primarily looking at uh payments and asset management so next Generation payments um I've been there for four years and

like Goa before that I was in the payments industry so uh vocalink um with the UK clearing systems head of architecture for there and at one of their card schemes as well for some time so my background is firmly payments for a long time and then next gen payments is what we're working on at the moment based out of London super and vid please yeah hi everybody my name is v kber um I'm from the group strategy and Innovation ofis and Bank International we're a midsized bank uh head in Vienna and we've been dealing with blockchain since 2017 I think um lately I've been focusing a lot on blockchain payments um I think this is a very exciting uhu area now with stable coins being regulated

tokenized deposits also the wholesale Central Bank digital currency developments um and to stay on top of the developments we also participate in a Consortium of European Banks where we're exploring the issuance of a Euro stable coin um together with the other Banks um so I'll be talking today a bit more from the banking perspective um can give you some insights on the Euro stable coin market and also some insights on the use cases fantastic and and some of you may wonder why do we need to improve payments payments work very well and they do indeed in Europe but there are still use cases which do not work very well to send a package from Barcelona to New York is still faster than making a payment and and

that's why we need to think very seriously about how can we improve payments so despite all these fantastic features that blockchain offers why has adoption been so low Goa will you start enlightening and ask pleas oh my gosh this is like uh the million dollar question or probably we should have like half a day to discuss it because I think there's lots of different puzzles uh that jigo puzzles and I think if we put them all together this would form the full picture as to why the adoption hasn't been um yet so far um I guess one could argue actually that uh you know the changes in the payments landscape has been actually very fast you know from the regulator perspective

we you know like we always think oh my God we are trying to regulate something that keeps on changing all the time um so so I guess you know like in terms of adoption there is a different you know different components that uh that we should be looking at uh you know first I think obviously there was a lack of uh regulatory Clarity um uh hence you know there was there was a question as to you know what the product should look like there was lack of confidence amongst the consumers and so on there's obviously issues around technology as many have already uh said today you know it is still a relatively new technology some someone has compared it to early days on the internet there

is still there is also a question about use cases uh and whether there is a case for uh you know for digital money to be used uh you know like widely in the economy so I don't want to take all of the all of the points uh but I think it's very complex so it's a million dooll questions but I think there's a lot of jigo puzzles and we can explore them further EXC Martin can you build on that yeah can do um so first thing is in payments it does take a long time so if you look at UK faster payments was took 15 years before it was doing the same volume as backs contactless took 12 years to actually start working so on the consumer space having a really good ux and getting into kind of people's

everyday consumer Journeys takes a very long time the other thing with payments is that there there's really strong Network effects so you have both sides need to have be on the same system need to be familiar with the system know about that so consumer widespread is very it takes a really long time it's very hard most people fail at it what we do see is some really interesting use cases so the reason why we're not haven't gone anywhere as a very frag maned there's lots of people trying to build the best solution for everybody um and I think where we're seeing more traction is smaller use cases and it's nice wether regulation kind of I was going to say congeals it's not the right word crystallizes around specific use cases um and and those ones

I think some of those we've spoken to some today have the potential to scale quite a long way um but in terms of displacing traditional payments that's a very very long journey indeed and maybe you can develop on that because Banks already have been investing heavily of course in the existing payments infrastructure and it may lead to some reluctance to invest yet in another is that maybe also a factor yeah definitely um I mean I can share two insights here from from kind of my journey how I present the um this use cases or the infrastructure to my um let's say superiors or Executives so the first thing where I struggle a lot is to make a point that we're currently building

the infrastructure and not exactly the use cases of course these go hand inand but if we just let's say issue a stable coin or tokenize deposits this does not directly solve a client need you also have to pair it with a certain use case and here the discussions often revolve around that the first use case does not justify or that does not cover the costs of the infrastructure so we we often get into this lengthy discussions how to actually even start um there are of course also often the arguments yes the traditional payment infrastructure can also do that um we can also work on that on improving the traditional payment infrastructure um but coming also to the

use cases here we also have to pick the right use cases because we often hear um crossb payments are very expensive slow untransparent but on the other side I was also talking to my internal colleagues we did an analysis and what we found out that at least for certain corridors of these crossb payments um costs that the banks bear are very low but the price of these transactions is high which means that Banks also have big margins here and this is something that is also not that easy um to give up on yeah maybe to offer just a little bit of perspective we have seen a lot of

innovation and payments in particular for consumers you now have these fancy apps and so on but very little has changed how payments are being processed and I think that's key we have seen very inov little Innovation there so we are still using the old raids we have been using for decades and nothing really has changed and that is also why blockchain is so exciting because blockchain is not about how you make a payment but how the payment is being processed and I think that is you know why it is exciting to think about it and not necessarily to replace what we have but very much about extending um what we have I think I I think I would add to it because it was something actually I've attended quite few of the panels today and I think one thing that was missing that I haven't heard before yet

is you know we as we are not the central banks are not only Regulators we are also the infrastructure providers so I think one of the jigo puzzle that you know is also part of the picture is also the existing infrastructure and the rtgs systems and a lot of jurisdictions obviously have embarked on the renewal projects and you know as Bank of England we are are in the middle of the of the journey we are looking at replacing the core system core Ledger the settlement system we have open uh access to non-bank payment service providers we have created new Omnibus account we are engaging the industry to see what is the appetite to extend the operating hours

because we know that digital money doesn't operate 6 to6 right but we want the industry to tell us what are the use cases would it be helpful to be 24/7 rtgs operation so I think you know there is a role for Regulators also as the infrastructure provider and I think one of the panels here was talking about Bridging the Gap between traditional finance and the digital finance and I think you know there is a role for us also to play with making sure that the infrastructure we provide supports Innovation goes and provides the solutions whereby the private sector can innovate so there's definitely a role to play there as well very much in fact the role that I I think often lacks and

needs to be told more um more clearly there is a public interest to you know Advance greater diversification in payments and the public sector I think has a key role to play because payments is very much about an oligopoly but could we go about um regulation uh regulation was mentioned earlier here the adoption of Mika is Mika really a game changer um could be how important is regulation for adoption V you want to start from a European perspective and then we go to the exotic island of the UK yeah um so from the banking perspective regulation is of course very important we don't play in The Gray Zone let's say we don't we're not the ones that move fast and break things but rather wait

for regulatory Clarity a bit push the regulator and get this regulatory Clarity and then hope we're not too late um to to to enter the market um and here the now with MAA and the stable coin uh regulation here we believe that this is a very good regulatory framework um at least for us also to enter the market or have the opportunity to enter the market um of course we have some concerns um maybe the regulation is not perfect there are some things that we don't like such as maybe um how the reserves should be managed or some Capital requirements but all in all I think that MAA is a very good regulatory piece that sets kind of the path where we want to go on

the stable coin side um just one more thing to add um we're not looking just at stable coins of course there are also tokenized deposits but there is even less regulatory Clarity um one could argue that um you can use or you can apply the existing regulation also to tokenize deposits but there are still many un um unclear questions open questions um that have to be cleared out before we even have the possibility to do that so stable coins currently are let's say the the the only way to go okay M do you want to comment on that yeah just briefly um I I agree on tokenized deposits we've just been running a project in the UK with some of

the banks looking at tokenized deposits and the legal stream is as big as the technical stream um there's there's lots to do there I think lots of clarity that's still going to be needed but um the possibilities are are pretty high with that cuz a lot of stable coin FS tend to be new entrance and we've got existing Banks also able to to tokenize deposits along with the potential of cbdc so creates a very broad regulatory landscape um but also quite a lot of diversity in terms of payments very good I I I would like us uh to briefly touch on on on possible use cases because we we are looking for the the the killer use case but but one thing on regulation I I have to admit I have been struggling

with um from the beginning which is what is a stable coin You could argue it's just a commitment to convert at par right which is like a bank deposit or it's like e-money or it's like a money market fund share so I I wonder why actually do we need MAA I don't think it adds anything um if an entity would like to issue a stable coin it should become either a bank or an e-money institution or an asset manager but all right um let's focus about uh the use case so what is the killer use case I mentioned crossborder payments there's a lot of activity there but it's not only about cross border um it is about greater Automation in payments where do you see it from your the bank of England is working on the digital pound

so okay I I must admit I'm not in the team not in cbdc team I'm I'm the stable coins team but that's fine but but I actually I'm going to refer to something that one of the panelists before said uh that I think they uh the person en visit then in 5 years time we will be paying with stable coins without realizing that we are paying with stable coins and maybe this is the use case because you know we are looking for new use cases for digital money but maybe what we are actually you know maybe what will actually happen is that the use cases will be exactly the same as we have currently with you know publicly issued money maybe cash will be replaced by cbdc because everything is moving to

digital maybe you know like stable coins as a privately issued money is going to you know coexist alongside Comm bank money and e-y and so on and the use cases will be exactly the same but I think you know to to to to make sure that it happens uh like a lot have S said before the user experience must be also you know appropriate if there is no use case that is different from existing money then then you know the customer experience has to be better indeed I think that's a key problem I mean I I have been working on the digital Euro and and the eona and you're not changing ing the use case if at the point of sale you touch your phone you don't care

whether you know it's a Well Martin what what is your use case your your uh so I think in terms of use cases they need to be above and beyond so what we are really interested and this is where we've been taking quite of our leaders around programmable payments and what does that mean how is it defined how can we take risk out of things so looking at kind of Lock and release type things so um one of the use cases is a payment on Del everything right so if you're buying from somebody else you're buying on gum tree or something like that um you never you pay them and then you hope they send it to you or you send it to you and then you hope that their payment doesn't bounce so what if you could create effectively lock that money for that

person and then when it's shipped and they sign for it then the money is released so if the goods don't arrive the money never leaves your account and uh it otherwise it does right and so you you will pay them because you're guaranteed to pay them if they take receipt you'll get it so that takes a lot of risk out and that's a that's a it's a um it's a corol use case but also it that model transfers to a lot of other corporate type cases right so you could see that I've spent a few million pounds on a software project and actually the auditor will determine whether or not my locked funds go to the people that built it for me you can apply it to lots and lots of different use cases um so we looked at that um also so split and multi- payments so can

we combine payments from lots of people into a single payment and payments from one person to lots of people all in the API all in a single thing so where you've got multi-step I mean house buying was one of the things that was looked at multi-step complicated Journeys actually you can set that up and there's a button that says okay everyone's ready now just go so and all of these need this user experience to be simplified and better and drisk and those sorts of things I think this is still very much a search there's lots of stuff going on there's no killer use case yet but this is the kind of direction that we're searching in yeah and for you BD from from a banking perspective I mean maybe just to add to this um one big use case area that we see is definitely the settlement of

tokenized assets um so here we see that the tokenized asset markets will grow different asset classes will get tokenized and put on blockchain but if we put assets on blockchain we should also provide uh form of money on blockchain to to be able to swap this asset seamlessly um so I think that this is the definitely one of the biggest uh areas that's of Interest also to the industry also the industry needs a cash LA on blockchain to be able to develop further um and maybe a bit more futuristic one um the iot economy machine to machine payments uh this is something that were we were expecting the adoption much faster to be much faster uh this hasn't happened yet but I

think this is also just a question of time when this will come and here I think also the the blockchain payments including programmability including micro payments can uh can contribute to the develop the development of this of this area excellent my my preferred use case is foreign exchange because it's where blockchain is fantastic bidirectional trade you you know you settle instantly an atomically you basically take out most of the risks that we have today in FX which is the biggest Financial Market we have now we wanted to discuss briefly public versus private chains we've heard a presentation earlier about poka do um you know I think public chain is fantastic but it has many many

limitations where where do you see this going in terms of is it one versus the other will one dominate any any takers for this very technical question you looking at me no not necessarily um it it's one of those really tricky ones and actually if if you look at the bank of England's discussion paper on the proposed regulation regime for systemic stable coins one of the areas that we left relatively open is the use of the public permissionless ledgers because you know like we we acknowledge how great the technology is you know we acknowledge you know all the you know like potential benefits it can deliver but it has some

challenges it has some challenges and I think uh from the regulatory perspective um and I think a lot of people spoke here about proportionality so I'm what I'm talking about here is uh I'm talking about systemic Payment Systems so I'm talking about systemic stable coins that are widely used for payments right so when we think of those Payment Systems they will be subject to stricter regulations than smaller stable coin issuers or smaller Payment Systems so here comes proportionality so when it comes to public permissionless ledgers one of the two key areas that remaining remain challenging from a regulatory

perspective is governance and oversight how do you ensure endtoend riskk management and oversight uh who can fix the problem when something goes wrong when you have multiple legal entities undertaking different functions and then settlement finality so I'm not saying anything new because obviously it's it's something that um you know International standard talk about but these are definitely you know two topics where we've you know we've engaged with the industry uh much more because we are very open give us the solutions because it doesn't have to be regulated the same way you know as we regulate traditional exist existing

payment systems but how are we going to get comfort that there is you know that there is that those regulatory requirements are met so from the systemic perspective it's definitely governance and settlement finality excellent Martin what do you think um so when my product go hat on um it public versus private is a little bit about what's your community okay and how did you get them so if you had to kyc them even if you're on public you were on a wh listed smart contract no one else on that chain can do anything with it so it doesn't really matter too much whether you're on there or on a private chain because you have the same people that can connect to it the only difference really is around how you do the interconnection so whether that's going

to be through an API or whether you add more people to your private chain or you can whiteless people on your public network um so I think given the control and certainty advantages most of the these things are likely to be on private networks certainly most of the projects that we see that are in kind of like kind of scale payments type things they're all on private all right all right but for for you what we what do you think I mean PRI uh privately so me privately I'm proponent of public chains um due to composability privately uh due to composability open access and also the speed of innovation that's happening there um but of course Banks also need to protect their

interests and there are still many concerns that we have to overcome um I think this is also something that is being worked on in terms of privacy scalability um but I think what's even more important that often times we don't even get to this question which chain to use so often times we get stuck at the what what is the value that we're bringing what is the business case here and only then you start to even think which chain to use so often times this is um kind of pushed um back to the end of the discussions fair enough now we have only a very few minutes left maybe just some concluding remarks what what do you think maybe we haven't addressed should be addressed more where do you see the bigger

gaps go you start and what I I mean generally I think it's super exciting I mean like I think we live in super exciting times and you know we've seen so much change and honestly I don't know where we going to be in 5 years time but I feel like we will be somewhere else where we you know compared where we are today and and I and I genuinely you know like all my career has been in payments and I think like this is probably the most exciting times uh of all and um yeah I'm looking forward to seeing uh where it takes us excellent Martin yeah I I would Echo that I think whe at this point it's really hard to say what will be there in

2030 um it would be great to see one or two or more really breakout use cases that kind of start to drive this and which players are going to be kind of first who's going to be dominant what it's going to look like it's also been in payments for a long time very exciting couldn't call it Martin the a point I'd like to make um repeat what you said earlier it takes very long Cycles now we we've taken you mentioned it yourself 15 years for ISO 20 or 22 you know the public often doesn't appreciate but that these in payments everything takes a long time so maybe we shouldn't be surprised we've seen so little traction uh yet exactly right so these these things take 10 or 15 years to grow and then they're in place for 50 years so max is still running the same

as it was in 1968 just on newer Hardware all right fair enough yeah I definitely Shar the excitement um I think we're in a very um exciting times a lot of developments um I think on the stable coin side now we have regulatory Clarity we have an existing Market we have also positive interest rate environment which makes uh the business case of the isure um easier or profitable um but on the other side we of course also observing the tokenized um deposit site and wholesale cbdcs on the tokenized deposits we see that the global banks are quite active in this space but here in Europe um we don't see a lot of movement there uh there is the German

initiative of of Commercial Bank money token um but apart from there we don't see a lot going on and also I mentioned the regulatory unclarity for tokenized deposits before um so we still think that this will take a couple more years to develop um and I think similar also for the wholesale cbdc I mean the ECB is now running the trials and experiment um but they also mentioned that this uh means no commitment to proceed uh with the process after the results are published so again I do believe that also this will take uh couple more years yeah no could be the digital Euro could be transformative for the Euros system undoubtedly cbdc we have a live Wholesale cbdc in Switzerland I think that's also an important signal and

tokenized deposit I think is the big one which is I would argue you can just do it because it's the same bank deposits the same bank liabilities just running on a different rail but you know and and that could have fantastic many applications in particular I'd like to say when you combine it with properties of a check where you can assign it to a third person and thereby design an open loop application good all right so we are time is up um fantastic many thanks for your um for for being with us many thanks for your comment and uh yeah let's hope the future is bright cheers thanks so much