CBDCs – Growth Opportunities for US Banks

My view is that CBDCs offer banks a transformational opportunity to reinvent payments and retail banking. The attributes that make CBDCs great are different, and in conflict, with today’s retail banking. But these differences are not necessarily a threat. What do banks see in CBDCs that causes them to go into defense mode? Why should you look at them in a different light?

The future for a US CBDC is uncertain. While President Biden signed an executive order in March 2022 directing the government to “Explore a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential United States CBD”, US banks seem dead against it.

This is my third blog on CBDCs, today the focus will be on the societal benefits of CBDCs, current bank resistance, and the opportunities for banks if they embrace it. The previous 2 blogs are blow and I’ll try not to repeat myself:

  • Digital Dollar (March ‘21) – Inventory of Central bank efforts and drivers with key detail on China’s digital yuan. 
  • Case for CBDC – Market Efficiency (June ‘21) – Is focused on the benefits to the unbanked and in reducing friction in low-value payments. 

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Consumer Data Bureau?

The US, Middle East and a few other corners of the world remain the data wild west. Europe’s GDPR brought a global model for privacy that is being replicated in most other geographies. But where is the clearinghouse of permissions? The “one time” access to consumer information based upon online banking credentials has mophed into an “always on” inquiry for unspecified uses. 

Short blog today as opposed to the 9 page monster in identity and attribution Friday.  Today I’m providing my thoughts on what a consumer data bureau would look like.  Summary: Banks have a unique opportunity to create a consumer data bureau and be the key “switch” for regulated and permissioned data. Will they seize it?

Per blog yesterday, everyone has a partial view of you based upon their observations and what you trust them to hold (see Payments and Observer Effect). The more often you interact with a single entity, the more they learn about you. Today Google and Amazon know you much better than your bank. Any unique insights that a bank may have is limited by their ability to take part in that transaction. Thus entities, with the ability to initiate transactions, have the most control (summary of Identity will Define Future of Trust Blog).

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Trust Assertions – Identity Will Define the Future of Payment Networks

How others accept and validate our identity is core of payments (see Trust Networks and Authentication in Value Nets). The structure, exchange and assertions associated with identity are also defining: web3, DeFi, Crypto, CBDCs and the Metaverse. These are not separate silos, but rather overlapping ecosystems that must interact, thus the importance of bridging identity across networks/domains (see Blog – Trust is domain specific). 

©Thomas Noyes, May 2022

My blogs last week have me thinking about the changes going around in Identity. This will be a long blog. Typo warning.. I’m still revising. 

The number one thing I look for in payments is change: volume, technology, behavior, data, …etc. Effective networks are notoriously hard to change, but they are also very resilient (see blog). Small changes in data flows, can lead to significant changes in margin and “control”.  Margin and control guide both public and private investment (see Evolution of Visa and Mastercard Beyond Payments). 

Identity is our most important asset — it’s literally who we are

Our complete “identity” is known to no one, as each entity we interact with has a partial view of us based upon what we chose to give them and what they observe. How others accept and validate our identity, and how others share insight about us, is the core of payments (see Trust Networks and Authentication in Value Nets). The structure, exchange, and assertions associated with identity are defining: web3, DeFi, Crypto, CBDCs and the Metaverse. These are not separate silos, but rather overlapping ecosystems that must interact, thus the importance of bridging identity across networks/domains (see Blog – Trust is domain specific). 

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