New change

Imagine a digital £10 note or $20 bill that comes with an API attached. What problems would it solve? What would the use cases be?

In the hub of London’s Business and Design centre earlier this month, the world of payments felt like an interesting place to be as new types of conversations about programable money played out at the Payment Association’s annual conference, Pay360, and its new digital money spin out, Digital Currencies 360.

It was a cross fertilisation that saw financial service bods rub shoulders with blockchain outfits, while telco-based start-ups shared case studies with fin techs.

Merchant payment services meanwhile listened to how new players on the market were providing blockchain-based money transfers to financially underserved businesses in developing countries.

For Tony Craddock, the Payments Association’s director general, encouraging partnerships and collaborations between old and new financial players can only serve to advance payment innovation. But Craddock also wants to hear ideas and learn from the tech sector and other verticals too.

How can software programmers and hardware developers, for instance, support implementation and innovation in digital currencies such as Bitcoin or a stablecoin? How can they help with the roll out and the complex design of the digital pound, the UK’s mooted Central Bank Digital Currency (CBDC) – which, the Bank of England predicts, could start circulating for retail use towards the latter half of this decade.

In a quite-ish corner of a busy show floor, TechInformed sat with Craddock to talk about his vision for a new era of money.

How long have digital currencies been on your agenda?

I first went to a conference in Amsterdam eight years ago where the one thing they advised us to buy was Bitcoin. The market has moved on since then. We launched Digital Currencies 360 about nine months ago and have also published the green paper, ‘A New Era for Money’. The paper explores how we can create a programme of activities which allow us to create, use and deploy digital currency technologies in the UK without the needing to get the central bank 100% on board; We want to operate like a skunkworks and set up and explore different ideas among small pockets of agile people who often work outside of big companies. That’s really what we’re doing with digital currencies.

Every country has its own reason for launching a CBDC – what’s in it for the UK?

The digital pound will operate on several levels. On a reputational level the UK finance industry is known for being innovative – it’s what attracts talent, money and companies into our ecosystem.

Because these new technologies are there, we need to show leadership. The community and the country needs to be seen to be adopting new technologies and we need to be seen to be leading on digital currencies.

Digital currencies also have the potential to make things much easier for the average consumer. Take cross border payments. If I sent money from my local corner shop in Tooting to Cambodia it will go through around 12 different entities. That’s hugely inefficient, old fashioned, expensive and slow. This new type of technology builds afresh from the ground up which can solve these sorts of problems.

There are also geopolitical reasons too. There is currently a systemic threat to the dominance of the USD from China and its digital yuan [which launched its first pilot earlier this year]. We need to be prepared and protective of our interests at a very strategic and national infrastructure level. We can only do that if we ensure that we are as every bit as good as the Chinese.

The UK government has launched a consultation into the merits of the digital pound. What are the main barriers to adoption?

Fear, uncertainty and doubt. People say the technology is there, the brain power is there, the money is there – but people are also scared, they don’t understand it and they fear risk. And there is some risk attached to it. If we get this wrong and deploy the wrong set of policies and systems, then there’s a risk that it could have a negative impact on the systems that we’re trying to promote and encourage.

Earlier this year the House of Lords Economic Affairs Committee said that the concept of a digital pound presented ‘a lot of risk for very little reward’…

Their conclusions were what you would expect from the House of Lords. They went to talk to people who they regarded as experts. But the problem with that is that there’s no such thing as an expert in digital currencies – there are a few commentators but no experts because it hasn’t happened yet. It’s so new. They spoke to authors, people in the industry, some technology people who caveated their comments with ‘we don’t know yet because we haven’t done it’ and, as a result, their conclusions were cautiously positive – saying that it’s something that needs to be kept an eye on.

But they also said that it was ‘a solution looking for a problem’ which it’s not. Particularly with cross border payments and de-risking – there are some very big problems that our industry has which digital currencies could help solve.

Where did this sudden interest in digital currency come from in the House of Lords?

It’s seen the writing on the wall. It might have heard the news (announced earlier this month) that the Biden administration is putting its support behind the Fed researching and developing a US CBDC.

Given that the dollar is the world’s most dominant currency, the Fed has been reticent until now to support any development of CBDCs…

Yes – also because of fear, uncertainty and doubt. It’s a risky and unsecure territory riddled with fraud and crime – in the way that when any new tech is adopted there are grey areas.

But there are also companies – operating successfully on the fringes – that are finding new use cases for digital currencies and consumers. We’ve seen some speak today – companies such as Paywith.glass – which comes from the telco world – and the blockchain fintech FinClusive – and we need to bring these companies into the midst of the community and making them standard.

There are also more established companies such as e-commerce solutions provider Trust Payments – which view digital currencies as an opportunity to innovate and stay ahead of their competition.

How can the wider tech community get involved in conversations around digital currency?

We need hardware manufactures to create more efficient processes. Software developers to ensure that the software works and is interoperable.

We also need innovators in technology – around digital identity and verification: if I am going to bring a new technology into the system and use digital money – it is going to depend on me not having to require you to post your utility bill to make a transaction. I also want to make sure that I’m not constantly being consulted by regulators over privacy concerns.

Where does blockchain and digital ledger technology fit into all this?

It will help us produce new payment systems – have you spent much time thinking about programable money? What’s clever about digital cash is that when you move it somewhere you can programme it to do certain things under certain conditions. You put caveats on cash: you could programme it to only be received by an authenticated individual.

One condition might be that it will cost me more to use digital money across multiple territories rather than money I can only use in one territory. Or maybe its tied to other digital currencies such as stable coins or the digital pound and tied to the central bank. If I can do this, then I can have a coin that is interoperable with multiple currencies so that it can always be changed into the digital euro or the digital peso at the mid-market rate.

I could be a small construction business dealing with a supplier of house building materials. I have a £30K budget which I need to use very carefully and so I use programmable money to ensure that I know exactly how much that I’ve bought and what I have returned to the supplier and in exactly 15 days the purchase will be made. So instead of having to rack it up at the end of the month, reconcile what was and wasn’t returned, I can do that instantly in a programmable way that is contracted into the money itself. Building supplies, transport, pharma, we can go out to all these industries, find out what their challenges are and work out how digital currencies can help solve them.

Developing these strategies seems like a good opportunity for smaller tech companies, start-ups, and universities…

Universities should be all over this – we currently have partnerships with the Loughborough Business School the Alliance MBS Business School at The University of Manchester and a US college too.

The thought that you can program money is a bit mind blowing but once you start playing with the idea there are multiple possibilities and it’s generally easier to see these if you are coming at it from another industry.