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

Okay, great. Uh, I'm glad to be here. The previous team is delayed, so we expect a very short time. So, this wasn't the best example to start with, but I'm glad to be here. I am the moderator of this panel discussion.

My name is Usman Mandang. I am the CEO of Wirecoin. We focus on using tokenized money market fund shares to make large payments as payment instruments on the blockchain. I also work as a senior advisor at Axentia, where I have been involved in many leading CBDC projects. Why are we here?

The idea is to discuss why the implementation of blockchain in payments has been so unsatisfactory, despite all expectations. Why blockchain offers a completely new architecture for making payments. It has many of the features of a cash infrastructure. You all know the cash infrastructure. You can initiate and complete a payment, for example, by paying your neighbor with a banknote.

These are key features that we are currently trying to replicate in the digital space, and that is why we see blockchain as extremely important for this. We have a fantastic group of experts here, a great combination. With us is Gosha from the Bank of England, the central bank of the United Kingdom. Also Martin Hardre from Quant, a fintech company from the UK, and Wit Khair from Raiffeisenbank, a commercial bank in Austria. So I'll give you each a minute to introduce yourself, and we'll start by starting with start by starting with ...

Thank you. Thank you very much. I am Gosha Williamson. I am a policy advisor and senior manager at the Bank of England. I lead a team focused on payments innovation, but for the last few years we have been focused on digital assets.

Some of you are probably aware of the discussion paper we published on a proposed regulatory framework for systemic stablecoins. I wasn't always a regulator. Before joining the Bank of England, I spent several years in the payments industry, working with both card systems and interbank payment systems payment systems . So I think I have a pretty balanced view of regulation and industry, and thank you very much for inviting me. Great, Martin, please.

Thank you. Martin Harris, Director of Product at Quant. We are a British fintech company. Are we done yet? Oh, of course.

We create infrastructure that connects blockchains, and we mainly deal with payments and asset management asset management . So, next generation payments next generation payments . I've been working there for 4 years, and before that I was in the payments industry. He worked at Vocal Link, leading the architecture of the UK clearing systems, as well as some time in their card schemes. My experience schemes.

My experience is many years of work in the payments sector, and now we are working on next-generation payment technologies in London . Perfectly. Hello, please. Yes. Hello everyone.

My name is Whit Carr. I am from the Strategy and Innovation Department at Bank International. We are a mid-sized bank headquartered in Vienna, and we have been working on blockchain since around 2017. Lately, I've been focusing on blockchain payments. I think this is a very interesting area: regulation of stablecoins, tokenized deposits, and the development of wholesale central bank digital currencies.

To stay on top of things, we are participating in a consortium of European banks, where we are jointly studying the issuance of a Euro- issuance of a Euro- stablecoin. Today I will speak mainly from the perspective of the banking sector banking sector . I will talk about the Euro stablecoin market and some options for their use. Fantastically. Some of you may ask: why do we need to improve payments?

They work well, and in Europe they really do, but there are still cases where it doesn't work very effectively. Sending a package from Barcelona to New York is still faster than making a payment. Therefore, we should seriously think about how to improve the payment system. Despite all the fantastic possibilities of blockchain possibilities of blockchain , why is its adoption rate so low? Goa, will you start educating us?

Oh my god, this is a million dollar question that would take half a day to discuss take half a day to discuss , because it's a complex mosaic of many parts. It can be argued that changes in the payment landscape are actually happening very quickly. From a regulatory perspective, we always think, "Oh my God always think, "Oh my God , we're trying to regulate something that's constantly changing constantly changing ." So I think when it comes to implementation, there are different components that are worth considering. Well, you know, first of all, I think there was obviously a lack of regulatory clarity regulatory clarity , so there was a question of what exactly this product should be.

There was a lack of trust among consumers and so on consumers and so on . Obviously, there are questions about the technology, as many have said today, it's still a relatively new technology, some have compared it to the early days of the internet. There are still questions about usage scenarios and whether there is a case for digital money to be widely used in the economy. So I don't want to take all the points on myself, but I think it's very difficult. This is a million dollar question, but I think there are a lot of pieces to the puzzle here, and we can explore them in more detail.

Exactly, buddy, can you add to that? Yes. Of course. First, it takes a lot of time to make payments. If you look at the UK's fast payments system , it took 15 years to reach the same volumes as BACS.

Contactless payments took 12 years to really start working. So in the consumer sphere, creating good UX and implementing it into people's daily lives takes a lot of time. Another thing with payments is that there are very strong network effects. Both parties must be in the same system, know it, and be familiar with it . Therefore, mass consumer implementation takes a very long time.

This is very difficult. Most people fail. We see some really interesting use cases. The reason we have n't gotten anywhere is because of the great fragmentation. Many are trying to create the best solution for everyone.

I think we're seeing more progress in narrower use cases. And it's good when regulation...I wanted to say "condenses," say "condenses," that's not quite the right word, crystallizes around specific cases. And the ones we talked about today have the potential to scale significantly. But as far as displacing traditional payments traditional payments , it's a very long way off .

Indeed, and you might be able to develop this idea, because banks are already investing a lot in the existing payment infrastructure, and this may lead to some reluctance to invest in another one to invest in another one , or is that also a factor? Yes, definitely. I can share two ideas for how I present these use cases or infrastructure to my managers. So, the first problem I often face I often face is explaining that we are currently building infrastructure, not specific options for its use. Of course, they go hand in hand.

But if we just, say, issue a stablecoin or tokenized deposits, that won't directly address the customer's needs. You also need to choose the appropriate usage option. And here, discussions often revolve around the fact that the first use case does not justify or cover the costs of infrastructure. So we often get into long discussions about how to even start. Of course, arguments are often made that traditional payment infrastructure can do this too.

We can also work on improving traditional payment infrastructure. But when it comes to usage options, we need to choose the right ones, because we often hear that cross-border payments are very expensive, slow, and opaque. However, on the other hand, I communicated with my internal colleagues. We conducted an analysis and found that, at least for certain cross-border payment corridors, bank costs are very low, but the price of transactions is high, which means large bank margins that are not so easy to give up. Yes, maybe it's worth adding a little perspective.

We have seen a lot of innovation in payments, especially for consumers. We now have these fancy apps, but little has changed in how payments are processed payments are processed , and I think that's the main thing , and I think that's the main thing . We saw great innovation there. So we're still using the old rails that are decades old and nothing has really changed. That's why blockchain is so interesting, because it's not about how you make a payment, but about how that payment is processed.

And I think that's why it's interesting to think of it not as a replacement for what we have, but rather as a complement to what we have . I would add that I've been to quite a few panel discussions today, and one thing I haven't heard yet is that central banks are not just regulators, but also infrastructure providers. So I think part of the puzzle is the existing RTGS infrastructure and systems, and many jurisdictions have obviously started projects to upgrade them. And you know, as the Bank of England, we are in the middle of that journey. We are considering replacing the main system, general ledger, and billing system.

We have opened access to non-bank payment service providers. We created a new omnibus account. We are engaging the industry to see if there is interest in extending working hours, because we know that digital money doesn't work from 6am to 6pm, right? But we want the industry to determine for itself what use cases exist. Would it be beneficial to switch to 24/7 RTGS?

So I think regulators also have a role to play as infrastructure providers. And it seems that one of the panel discussions here discussed bridging the gap between traditional and digital finance. I believe we also have a role to play in ensuring that our infrastructure supports innovation and provides solutions that enable the private sector to thrive. So there is certainly a role to play here as well. In fact, this is a role that I think is often lacking and needs to be talked about more clearly: there is a public interest in promoting greater diversification of payments, and the public sector, in my opinion, should play a key role, as the payments space is almost an oligopoly.

But how do we proceed with regulation? Regulation has been mentioned here before. MiCA approval. Is MiCA really a game changer? It could be so.

How important is regulation for implementation? See, do you want to start with a European perspective and then we'll move on to an exotic island called Great Britain? Yes. So, from a banking perspective, regulation is, of course, very important. We don't play in the "gray zone" play in the "gray zone" , so to speak.

We are not the kind of people who act quickly and break everything in our path; rather, we wait a bit for regulatory clarity, push the regulator to get it, and then hope we're not too late to enter the market. And now, with the advent of MiCA and the regulation of stablecoins, we believe that this is a very good regulatory mechanism, at least for us to enter the market or get that opportunity. Of course, we have some concerns, perhaps the regulation is not ideal. There are some points that we don't like, such as reserve management or certain capital requirements. But overall, I think MiCA is a very good document that defines the path we want to take in the stablecoin space.

One more point worth adding. We are not only looking at stablecoins. Of course, there are also tokenized deposits, but there is even less regulatory clarity. It could be argued that the current rules could be applied to tokenized deposits, but there are still many unclear points and open questions that need to be resolved before we can do so. So for now, stablecoins are, let's say, the only way.

Good. Do you want to comment on this? Yes, just briefly. I agree about tokenized deposits. We just did a project in the UK with some new banks looking at tokenized deposits, and the legal aspect is as big as the technical aspect.

There's still a lot of work to do. I think there is still a lot of clarity needed, but the prospects are quite high, as many stablecoin developers are newbies, and we have existing banks that can also tokenize deposits along with the potential for CBDC. This creates a very broad regulatory landscape, but also quite a lot of diversity in the payments space. Very good. I would like us to briefly touch on possible use cases, because we are looking for the very “ are looking for the very “ ideal” option, but regarding regulation but regarding regulation — I must admit that from the very beginning I could not understand: what is a stablecoin?

You could say it's simply an obligation to convert at face value, like a bank deposit, or electronic money, or a share in a money market fund. So I wonder why we actually need MiCA? I don't think he adds anything. If an entity wants to issue a stablecoin issue a stablecoin , it must become a bank, electronic money institution, or asset manager. But okay.

Let's focus on the use cases. So which use case is " use case is " ideal"? I mentioned cross-border payments. There is a lot of activity there now. But it's not just about cross-border operations.

It's about greater automation of payments. How do you see this, given that the Bank of England is working on a digital pound? So, I have to admit, I'm not on the team, not on the CBDC team, I'm on the stablecoin team, but that's okay. But I want to refer to the words of one of the previous participants in the discussion, who said that, in his opinion, in five years we will be paying with stablecoins without even noticing it. And maybe that's the use case, because we're looking for new uses for digital money, but maybe it'll actually be the same as it is now with public money.

Perhaps cash will be replaced by CBDC as everything goes digital. Perhaps stablecoins, as privately issued money, will exist in parallel with commercial bank money and electronic money, and their usage scenarios will be identical. But I believe that for this to happen, as many have already said, the user experience also has to be proper. If there is no other use case besides existing money, then the customer experience should be better. In fact, I think this is the key problem.

I worked on the digital euro and the e- digital euro and the e- krona, and you don't change the use case, if you tap your phone at the checkout , you don't care what it is— care what it is— Martin, what is your use case? So I think the use cases need to go beyond what we have now. So, we're really interested, and we're taking the lead here, on the topic of programmable payments—what does that mean? How to determine this? How can we eliminate risks?

Considering mechanisms like " mechanisms like " lock and release". One such scenario is cash on delivery , right? You buy something from someone on Gumtree or a similar resource: either you pay upfront and hope they ship the item to you, or you ship the item and hope the payment doesn't get refunded. So what if you could block funds for that person, and when the item is shipped and a signature is received, the funds are automatically released? If the goods do not arrive, the money is not debited from your account, but otherwise everything happens automatically.

And you will pay the seller because you are guaranteed to receive the goods. If they confirm receipt, you will receive your item. This significantly reduces risk, and it's, well, it's an interesting use case, but this model also applies to many other enterprise use cases, right? You can see that I spent several million pounds on a software project, and the auditor will determine whether my blocked funds will go to the people who created it for me. This can be applied to many different use cases.

So, we looked into it. Also split and multiple payments. Can we combine payments from many people into one payment, as well as payments from one person to many people, all through the API, in one system. Where you have multi-step, I mean, buying a house was one of those things that was considered, multi-step complex processes, you can set all of that up, and there's a button, "Okay, everyone's ready, now let's launch." So, all of this requires simplifying the user experience, improving it, and reducing risks.

I think it's still a search; there's a lot going on, there's no single killer use case yet, but that's the direction we're looking in. Yes, and for you, from a banking perspective, I mean maybe it's worth adding maybe it's worth adding that one of the big use cases that we see is definitely tokenized asset settlements. We see that tokenized asset markets will grow. Various asset classes will be tokenized and transferred to the blockchain. But if we place assets on the blockchain, we also need to provide a form of money on the blockchain to be able to exchange those assets seamlessly.

So I think that's definitely one of the biggest areas that the industry is interested in as well. Additionally, the industry needs cash on the blockchain to be able to grow further. And perhaps a slightly more futuristic option: the IoT economy, machine-to-machine payments machine-to-machine payments —this is where we expected much faster adoption, but it hasn't happened yet. But I think it's just a matter of time. And here, I think, blockchain here, I think, blockchain payments, including programmability and micropayments, can contribute to the development of this area.

Perfectly. My favorite use case use case is an exchange, because this is where blockchain demonstrates fantastic two-way trading two-way trading . You know, when you make calculations instantaneously and atomically, you actually eliminate most of the risks that exist today in the FX market, which is the largest financial market. Now we would like to briefly discuss public and private blockchains. We have already heard a presentation about Polkadot before.

Um, you know, I think public blockchains are fantastic, but they have a lot of limitations. What do you think this is all about : one against the other? Will one thing dominate? Does anyone care to answer this very technical question? You are looking at me.

No. Hmm, this is one of those really difficult questions. And in fact, if you look at the Bank of England discussion paper on the proposed regulatory regime for systemic stablecoins, one of the areas that we left open is the use of permissionless public networks , because we recognise how wonderful this technology is. We recognize all the potential benefits it can bring, but it does have some challenges. It has some challenges, and I think from a regulatory perspective—many people here have talked about proportionality—I'm talking about systemic payment systems.

I'm talking about systemic stablecoins that are widely used for payments, right? So when we think about such payment systems, they will be subject to stricter regulation than small stablecoin issuers or small payment systems. This is where proportionality comes in. Regarding permissionless public networks, one of the two key areas that remains challenging from a regulatory perspective is governance and oversight. How to ensure end-to-end risk management and oversight?

Who can fix the situation when something goes wrong if you have several legal entities performing different functions, and then the finality of the calculations? I'm not saying anything new, because this is obviously what international standards say . But these are certainly two topics that we have engaged with the industry much more on because we are open to, "Give us a solution, because it doesn't have to be regulated the same way we regulate traditional existing payment systems." But how do we get confidence that these regulatory requirements are being met? So, from a systemic point of view, it is definitely management and finality of calculations.

Perfectly. Martin, what do you think? So, from a product manager's perspective, public or private networks—it's a question of your community, yes, and how did you shape it? So if you had to verify users, even on a public network, you use a smart use a smart contract with a "whitelist ". No one else on this network will be able to do anything about it.

So it doesn't really matter whether you work there or on a private network, as long as the same people have access to it. The only real difference is how you set up the interconnection. Whether it's through an API, whether you add more people to your private network, or whether you can whitelist people on your public network. So I think that given the advantages in control and stability, most of these projects will probably be on private networks. Certainly, most of the projects we see in the field of scaling payments are all on private networks.

Of course. Of course. What about you, what do you think? I mean personally. Personally, I am a fan of public networks because of their layout, open access, and the speed of innovation that occurs there.

But, of course, banks also have to protect their interests, and there are still many problems that we need to solve. I think they're also working on this in the context of privacy and scalability. But I think what's even more important is that we often don't even get to the question of which network to use. So often we get stuck on the question: what value are we creating? What is the business case here?

And only after that do you start thinking about which network to choose. Therefore, this issue is often postponed to the end of discussions. Rightly. We have very little time left. Maybe some final remarks.

What do you think we may not have covered but would be worth discussing? Where do you see the biggest gaps? You start. And what I mean is that overall it's extremely exciting. I think we live in incredibly interesting times.

And you know, we've seen so many changes, and honestly, I don't know where we'll be in five years, but I feel like we'll be in a very different place compared to where we are now. And, and I, and I honestly, you know, my whole career has been about payments payments , and I think this is probably the most exciting time of all. And, um, yeah, I'm looking forward to seeing I'm looking forward to seeing where this takes us. Excellent, Martin. Yes, I, I would add to that.

I think at this stage it is difficult to say what will happen in 2030. It would be great to see one or two to see one or two , or more, really breakthrough cases that start to drive this, and which player is the first to dominate, what that would look like. It has also been in payments for a long time. Very exciting. It's hard to predict.

Martin, I would like to emphasize a point, to reiterate what you said earlier. This requires very long cycles. We, you mentioned yourself, spent 15 years on ISO 20022. You know, the public often doesn't realize that everything in payments takes a lot of time. So perhaps we shouldn't be surprised that we have n't seen significant progress yet.

That's right. True. So these things take 10 or 15 years to develop and then work for 50 years. We're still using the same thing we did in 1968, just on newer equipment. OK.

Rightly. Yes, I definitely share this enthusiasm. Um, I think we live in very exciting times, lots of developments. Um, I think for stablecoins we now have regulatory clarity, there is an existing market, and also a positive interest rate environment, which makes the issuer's business case easier or more profitable. Um or more profitable.

Um , but on the other hand, we are , but on the other hand, we are of course also watching tokenized deposits and wholesale CBDCs. Regarding tokenized deposits, we see that global banks are quite active in this area, but here in Europe we don't see much movement. There is a German initiative on tokenizing commercial bank money, but beyond that, we don't see much activity. And also I mentioned earlier about the regulation of tokenized deposits, so we still think it will take a few more years to develop, and I think the same will be true for wholesale CBDCs. I mean, the ECB is currently conducting tests and experiments.

But they also noted that this does not imply any obligation to continue the process after the results are published . So again, I think that will also take a few more years. Yes. The digital euro could undoubtedly be transformative for the eurosystem. CBDC— we already have a wholesale central bank digital currency in operation in Switzerland.

I think this is also an important signal, and tokenized deposits are the main thing, because, I would say, they can be simply implemented, because these are the same bank deposits, the same bank liabilities, just on a different basis. But you know, this could have a lot of great uses, particularly, I would say, when you combine this with the properties of a check, where you can pass it on to a third party and thus create an open-source application. Okay, okay, our time is up. Uh, great is up. Uh, great , thank you very much for being with us.

Thank you very much for your comment and, yes, let's hope for a bright future. See you later. Thank you very much.