Visa: Getting Digital Currencies to Talk to Each Other

In September, Visa published a pair of CBDC reports about Universal Payment Channels (UPCs). The specifics of UPCs are laid out in the research paper Universal Payment Channels: An Interoperability Platform for Digital Currencies. The second paper, Cross-border Payments for Central Bank Digital Currencies via Universal Payment Channels (PDF), examines technical tradeoffs that policymakers must consider in their CBDC explorations. In this short interview, Chad Harper from the Visa Economic Empowerment Institute (VEEI) talks to Catherine Gu from Visa Crypto about these developments.

Chad: Catherine, what do you say to central bankers who ask about Visa’s views on central bank digital currencies (CBDCs)?

Catherine: Well, the decisions about a CBDC are very unique to each jurisdiction, but we’re engaging with central banks and policy makers as they explore whether and how to move forward with digital currencies. In some countries, the potential risks might outweigh the benefits. In others, there is a clear value proposition. We're eager to work with central banks at this important moment in time to identify the most compelling CBDC use cases and explore how to bring them to life with secure, convenient, and reliable technologies that can seamlessly integrate with the existing payments ecosystem.

Chad: I think you and I would agree that payment networks should be open, accessible, and interoperable, as this promotes both innovation and resilience. Let’s talk about how we talk about interoperability. We typically speak about three types of interoperability—technical, network, and regulatory. How do Universal Payment Channels contribute to this discussion?

Catherine: We believe digital currencies have the potential to extend the value of digital payments to a greater number of people and places, but to achieve this vision, several key design challenges must be addressed. One of those challenges is cross-chain interoperability—getting different digital currencies to “talk” to each other. This would be an example of network interoperability. Today, an American traveling to Barbados can use her Visa card to pay for purchases; the merchant would receive its payment in the local currency (Barbadian dollar), while the traveller would ultimately be able to pay for her charge in dollars. This sort of currency flexibility does not yet widely apply to the world of digital currencies—an individual cannot make a purchase in USDC and have the merchant receive funds in DCash, which is the CBDC for Barbados—because digital currencies may reside on different blockchains that are unable to interoperate. Put simply, solving the challenge of interoperability is central to wide adoption and utility of digital currency across borders. Given our history in building and scaling networks that move money reliably and securely, we believe we have expertise to share in this space. UPCs focus on addressing digital currencies’ limitations with regards to interoperability and scalability.

Chad: OK, here’s a challenge for you. Explain UPCs to the readers (and most of all to me!) in a simple way.

Catherine: I should mention up front that we are only doing active applied research at this stage in how UPCs could be developed. This effort began in 2018 as a concept sketched on a whiteboard by our Visa Researchers and has quickly evolved into an effort spanning product, research, and our government engagement team. Visa’s vision is that a future UPC hub could connect different blockchain networks by establishing dedicated payment channels between them—whether that means connecting CBDC networks between countries or connecting CBDC networks with vetted private stablecoin networks. New, trusted blockchains could be added to this network of networks by creating new payment channels within the UPC hub. The UPC would process transactions atomically off the blockchain in a completely trustless manner, following the instructions specified in the UPC smart contract. The UPC protocol is designed so that new forms of digital currency can easily be integrated into the network. In conjunction with FX conversion, UPC could serve as a digital currency payments hub and exchange. Scalability would also be improved—digital currency transactions are not settled on their native blockchains in the UPC protocol, in turn enabling a substantially higher throughput unencumbered by the slow and inefficient processing requirements of some major DLT networks.

Chad: Where do things go from here?

Catherine: Our vision is to serve as a thought partner and bridge between the digital currency ecosystem and our global network and we’re advancing that on several fronts—through products, partnerships, and applied research. We have expertise in building and scaling secure, reliable, and interoperable global networks and we’re excited to share our latest thinking on digital currency architecture with the researchers and policy makers thinking deeply about this space. Visa is leading cutting-edge research into digital currencies and CBDCs. We look forward to sharing more on our work in the future, and we’re always available to central bankers for a discussion.

About the Authors

Catherine Gu leads Visa’s Global CBDC initiative and research and development, driving global digital currency solutions with central banks, financial partners, and global infrastructure technology companies. Prior to Visa, Catherine worked at J.P. Morgan and Man Group in quantitative finance, and spent two years of research in stablecoins and market designs while studying at Stanford University with Professor Dan Boneh.

Chad Harper is Senior Fellow in the Visa Economic Empowerment Institute. He previously spent nearly 20 years at the Federal Reserve Banks of San Francisco, Chicago, and Richmond in cash, financial services, and payments outreach and analysis.