We and our colleagues at Visa and the Visa Economic Empowerment Institute have been thinking a lot about central bank digital currencies, or CBDCs. In September 2021, we examined the technical tradeoffs that policymakers must consider to make CBDCs function across ledger, and thus across borders, in Cross-border Payments for Central Bank Digital Currencies via Universal Payment Channels (PDF).
In June of this year, we published The Art of Public Money: Policy Considerations for Central Bank Digital Currencies (PDF), offering policymakers who are considering a CBDC a series of tough questions to address as they decide whether and how to move forward. And in October, we released Designing for Success: How to Build on the G7 Foundational Principles for Retail CBDC (PDF), where we offer our views on which of the G7 principles should be considered first; what matters in payment transactions; and, based on our experience operating VisaNet for several decades, what have we learned that can be applied to CBDC.
In this article, we will focus on the various aspects of CBDC that can help drive digitization and promote responsible innovation.
The Growing Digitization of Our World
We believe digitization will help drive new value created in the global economy in the coming decade. However, the rate of adoption and degree of digitization across society has not been uniform. From our observation, businesses and individuals with the opportunity and skills to participate in digital innovations are more resilient to technological disruption and economic swings, and have more opportunities.
As a result, digital divides exist in society today and can contribute to widening existing economic and social divides. For digitization to help close these gaps and foster inclusive economic growth and social well-being, it will require our current system to evolve and become more equitable. As we design the future, it will require answers to questions around how governments along with the private sector can consider and develop use cases that build toward long-term goals of inclusive growth while addressing existing short-term challenges. It will also require delivering a smooth and equitable transition to a more digital future and incentivizing its widespread adoption.
CBDCs represent a significant step in the evolution of money, representing a new form of currency with the long-term potential to: 1) create a more inclusive economy, allowing everyone to participate in digital financial markets and commerce and 2) be better prepared in critical situations where funds must be disbursed safely, transparently, and efficiently to individuals.
Supporting Adoption from the Start
CBDC has the potential to provide the general public access to central bank money, and create an entirely digital experience. This would be particularly valuable in countries where the infrastructure for distributing cash is unavailable or limited. A user-centric approach is therefore critical to help ensure that people and businesses can use CBDC easily and intuitively. If not, technology-driven newness may pose a barrier to adoption for some. In addition, over time, the role and utility of CBDC should evolve to include more and diverse use cases and broader acceptance, to help realize the longer-term potential of monetary evolution and to support national agendas.
As with any new solution, driving early adoption is going to be one of the most important and challenging tasks that central banks will face should they decide to adopt a CBDC. A preliminary study by Visa on digital currencies shows that people surveyed in Argentina, Germany, Spain, and the United States value security, universal access, speed of transaction, and anonymity. On the flip side, those same respondents worry about not being able to use CBDC for payments. In other words, the surveyed consumers worry that the places they shop won’t accept CBDC.
Experiences with CBDC to date show that people expect a similar best-in-class experience from CBDCs that they have today with fiat currencies—an experience that is ultimately convenient, familiar, and trustworthy. To help incentivize retail banks, payment providers, fintechs, and other institutions to accept CBDC from day one—and to ensure business continuity—the cost of transitioning must be low. Hence, when launching CBDC, central banks can leverage established financial standards and regulations to tap into existing infrastructure and services. From an engineering perspective, prioritization of CBDC adoption from the start requires any new CBDC system to be backward compatible with existing payment rails.
Building a Familiar User Experience
After considering the necessary design components for a successful CBDC roll-out, Visa developed an alpha prototype that can be deployed in a sandbox environment with the vision to help drive early CBDC adoption for everyone, everywhere from day one.
Visa’s CBDC Payments Module is a proof-of-concept (POC) that envisions bringing web3 assets into a web2 user experience by providing an on-ramp for individuals, business owners, governments, and users of all kinds.
The POC is designed to be a bridge connecting a CBDC system with existing forms of payment products and outlets. In linking CBDC with card payments—whether in the form of prepaid or debit cards—CBDC becomes a fast and nearly ubiquitous alternative payment choice users can easily adopt alongside existing forms of money, all while benefiting from economies of scale derived from today’s mature payment networks. The illustration below captures the flow of a payment transaction that integrates Visa’s scale and messaging protocols with a participating central bank’s ledger technology. Importantly, all this is designed to happen at the backend without major disruption for users, businesses, and financial intermediaries.
First, the CBDC Payments Module is designed to enable users to pay in the way they find most convenient by linking CBDC with existing and supported forms of digital payment—from contactless in-person payments with tap-to-pay, to e-commerce transactions with in-app payments, to click-to-pay or scan-to-pay on a website. This way, the CBDC Payments Module is intended to help make paying with CBDC a familiar experience for users to adopt easily, helping to ensure maximum continuity in user interface and experience.
Concurrent with the POC in the CBDC Payments Module, Visa is exploring how CBDC can be used as a bearer instrument that may also be used offline, increasing overall accessibility, including in areas without an internet connection. For example, a CBDC-linked debit chip-enabled card or secure hardware element in a smartphone or wearable can facilitate off-line transactions. The concept of using chips (or, in the future, smart chips) as a store of value is not entirely new. In India, for example, through the National Common Mobility Card program, the government has had an operational card solution for public transit since 2019.
We envision the next generation of secure e-cash cards may be a natural conduit for CBDC in small-size transactions, as CBDC may be carried and spent as easily as cash is today. In this way, providing offline CBDC alongside online CBDC accounts has the potential to address an important issue of accessibility for financial inclusion.
Visa’s research on an offline payment system (OPS) proposes a point-to-point secure channel to complete a transaction without needing online connectivity or communicating with any payment intermediary. The OPS protocol is also designed to ensure funds cannot be double-spent during offline payments given that no trusted intermediary is present in the payment loop to protect against replay of payment transactions. The technology is designed to rely on trusted execution environments, and we will be exploring the viability of different hardware devices to enable offline capability for CBDC.
Second, should a central bank decide to issue a CBDC, merchants should be able to accept CBDC from day one without having to incur significant expense or effort to upgrade their infrastructure. Through the CBDC Payments Module, people would be able to spend their CBDC at any of the 80 million merchant locations in over 200 countries and territories that Visa is accepted. The solution is designed so that it will not require significant upfront investments from smaller businesses and merchants to set up digital wallet infrastructure, and they will be enabled to participate in the CBDC economy. Over time, we expect businesses to invest in infrastructure upgrades for new acceptance points (e.g., merchant CBDC wallets) if there are meaningful economic benefits in the long run.
Third, financial intermediaries (FIs) would continue to play a crucial role in the CBDC Payments Module design, providing capabilities such as CBDC-linked card issuance, consumer CBDC wallets, digital currency settlements, and value-added services. When it comes to user-centric services including fraud-risk management, data protection, and dispute resolutions, FIs can tap into their long-proven solutions to help better ensure widespread CBDC usage and adoption.
Last, but not least, one of the most exciting possibilities for digital currencies is programmability. In our POC, the CBDC Payments Module envisions a future government disbursement program with customized attributes, such as time expiration and merchant categories, to help direct CBDC fund usage. While programmability may offer substantial possibilities for the future economy, governments and central banks will want to understand the operational complexity that may be required to run such a system in light of existing infrastructure in the long term, along with other considerations such as consumer privacy.
Recognizing the power of programmability, the CBDC Payments Module is designed to be open and interoperable with future use cases in mind, including government disbursements, streamlining employee payrolls, worker payouts, and loyalty programs. Greater coordination between the public and private sector is vital to help ensure that future smart contracts will be interoperable with existing payments infrastructure to prevent disintermediation. Part of the product roadmap for the CBDC Payments Module is therefore to innovate responsibly together. Visa’s aim is to innovate future retail programmable solutions with key stakeholders including central banks, policymakers, and technologists.
About the Authors
Catherine Gu heads Visa’s Global CBDC program and Crypto research, building digital payment solutions with central banks, financial partners, and global infrastructure technology companies. Prior to Visa, Catherine worked in quantitative finance at J.P. Morgan and Man Group. She also worked at two crypto startups: Anchorage and Gauntlet.
Ezechiel Copic is the Director of Digital Currency Policy and a member of Visa’s Global Policy, Government Engagement team. He previously spent 20 years working for financial services and technology companies, including cLabs (a crypto startup), World Gold Council, Federal Reserve Bank of New York, and the Economist Intelligence Unit.
 The authors would also like to acknowledge the important contributions of Vanessa Meyer, Stuart Smith, Amina Tirana, Adriana Bonifaz, and Laura Diaz Milam.
 Visa Cryptocurrency A&U Global Study: three focus groups with 47 individuals and 10 in-depth interviews in Argentina, Germany, and United States. July 14-26, 2021. Digital Currency Quantitative Research in UK, Germany and Spain. July 22, 2021
 Disclaimer: Visa CBDC Payments Module is an alpha ready product that can be deployed in a sandbox environment. The descriptions and depictions of this product should be understood as a representation of the potential features of the fully deployed product. The final version of this module may not contain all of the features described in this document.
 Mihai Christodorescu, et al. “Towards a Two-Tier Hierarchical Infrastructure: An Offline Payment System for Central Bank Digital Currencies,” December 2020.