Digital currencies and payment systems
An increasing number of digital means of payment such as private stablecoins are offering customers added benefits, but their direct links with payment services pose important questions for banks and authorities. With this in mind, the Swiss Bankers Association is looking into the potential implications of digital currencies and keeping a close eye on the rapid paradigm shift in payments.
Digital currencies and other electronic means of payment are set to become key components of the digital economy. Given the social and economic benefits they bring, the question is not whether they will catch on but when and in what form. As the way people make payments changes, the requirements for payment services will evolve. Instant payment methods will need to be offered that are not tied to a specific channel and can be used across national borders.
Fast growth in demand for digital means of payment
Cryptocurrencies like Bitcoin have been attracting a lot of public attention for some years now. When Facebook published its plans for Libra (since renamed Diem) in 2019, it caused work on digital currencies and private electronic means of payment to ramp up massively. Since then, central banks and economic players around the world have shown a great deal of interest in central bank digital currencies (CBDCs) and private stablecoins.
These can be used in many different ways to generate significant economic benefits. They enable money flows to be programmed using smart contracts, allow payments to be processed automatically with zero human intervention, and simplify cross-border multi-currency payments.
Paradigm shift in payments already under way
The sharp increase in cashless payments and the growing importance of digital currencies are also influencing our payment system as a whole. Payment services used to be seen purely as a cost factor, but they are now in the midst of a major technological, economic and regulatory upheaval. The system is robust, but it is also slow, inflexible and expensive. The demands of today’s customers, market infrastructure, competition and new technologies mean that secure, instant payment methods that work across all channels are needed.
Banks face various challenges
An explosion of innovation is about to happen, creating a range of business, economic, technological and legal challenges for the financial sector in general and the banks in particular.
Banks have so far been cautious in the public debate, but the authorities have taken a far more proactive approach. The Swiss National Bank has already conducted several test runs of a CBDC together with the BIS Innovation Hub, and the Federal Council published a detailed report on the subject in 2019. Meanwhile, SIX has announced that it will roll out instant payments in Switzerland in 2023 or 2024.
The SBA is studying this topic intensively so that it can identify disruptive developments at an early stage and play an active part in shaping ideal frameworks.