Some have argued the traditional payments system is on its last legs as a result of increased digitisation and blockchain technology. Debating this new era of finance, The Payments Association (formerly The Emerging Payments Association (EPA)) has formed an Innovation Hothouse Bridge (‘the Hothouse’ or ‘the group’) to bridge this gap in the financial industry. This will initially be done by the publication of a green paper exploring multiple use cases across the digital currency landscape that could arise from the creation of a new digital currencies infrastructure for financial markets.
The consortium is led by top-level fintech experts from The Payments Association, Boston Consulting Group, a management consultant company, and paywith.glass, a Dutch-based FinTech company working extensively with artificial intelligence and distributed ledger technology. The consortium will publish its recommendations and use cases in a green paper, on the 4th of February 2022.
Currently, financial processes ranging from retail payments to international trade and capital markets infrastructure have inefficiencies that can be solved through digital technologies, such as artificial intelligence, distributed ledger and smart contracts. Although the proposed Central Bank Digital Currencies (CBDCs) could solve these problems and many more, their full implementations may be a decade or more away for most countries, so the question becomes how to make the most of the UK’s financial infrastructure during the interim period between now and the implementation of fully digital currencies. The new Bank of England Omnibus Account is seen as something that could potentially form the basis of a modernised financial markets infrastructure as it is the first BoE account to provide 24/7 access.
The aim of the use cases would be to reduce the ‘friction’ in the financial world, giving financial institutions, merchants and ultimately consumers much greater flexibility and control over their money. Following on from the publication of the green paper, a plot will commence which is led by paywith.glass who will use its interoperable iDC/EP platform to enable a bridge between the old payment rails and the new CBDC world.
The Payment Association’s Director General, Tony Craddock, says, “The UK will soon be entering a world where some countries are using digital currencies, much of the current financial infrastructure will soon be in place and consumers are using a mixture of traditional currency, cryptocurrency and stablecoins. Our aim with this project is to bring together a consortium of the best minds in payments to find the best way to link the old world and the new, and we believe that modernised settlement accounts at central banks are needed to enable this. They would form the lynchpin of a new financial infrastructure that could offer services that would impact everyone, from the largest financial institutions to individual consumers.”
Kunal Jhanji, Managing Director and Partner at Boston Consulting Group, comments, “This project has the potential to form part of a new era for the GBP. After the global financial crisis of 2007-2008, the creation and growth of blockchain solutions for payments, new data standards like ISO 20022, the increasing focus on the billions of unbanked people across the world and the focus on reducing cash use since the pandemic the financial world is in clear need of modernisation, and the UK can be leading this effort. This consortium has the potential to be a stepping stone to a new world of financial technology that can enable change throughout the established world of finance.”
Paul Sisnett, Chief Executive Officer at paywith.glass, adds: “Our unique collaboration brings together heterogeneous but ultimately invaluable expertise to seed true innovation. We support the initiative to make the UK an innovation-led economy but we are convinced that innovation must go hand in hand with public-private collaboration and regulatory considerations. Embedding this perspective from the very beginning has enabled us to develop pragmatic solutions that can actually be implemented in the real world, whilst pushing the envelope on what is possible with the next generation of financial markets infrastructure.”