Driving Retail CBDC Adoption Through Lean Product DevelopmentPosted on Sep 21, 2023 by ProgressSoft’s CBDC Advisor, Jeffrey Stewart
Retail CBDC is a policy instrument that depends upon user adoption. While CBDC design has largely focused on design and policy considerations, recent implementation experiences suggest they may be insufficient to drive use. The Lean Product Development (LPD) literature offers strategies to guide user-centered design and drive adoption. Prominent LPD concepts are discussed here in the context of retail CBDC development.
The Problem of CBDC Adoption
A retail Central Bank Digital Currency (CBDC) is primarily a policy tool with a varying combination of goals across jurisdictions, including financial inclusion, monetary sovereignty, innovation, and competition. However, its success as a policy instrument depends on user adoption. Understandably, the policy aspects of CBDCs have received the lion’s share of attention, but the factors that drive adoption are coming under increased scrutiny, particularly in light of early CBDC outcomes.
Indeed, the adoption and use of implemented and late-stage pilot CBDCs has been disappointing: In China, e-CNY transactions totaled only around $15 billion in 2022 — an estimated one dollar for every thousand spent on the big mobile apps; the Bahamas Sand Dollar has yet to attract widespread use and as of late 2022 had achieved an adoption rate of only 7.9%; Jamaica’s JamDex has similarly disappointing uptake; and Nigeria’s eNaira phased roll-out and technology-first strategy led to “a few weeks of initial surge before tapering off.”
This lackluster adoption is discouraging, particularly because novel payments methods rely on critical mass to set in motion network effects. As per the IMF: “an initial push to gain market adoption for the CBDC is likely to face backsliding if a breaking-through is not made on the tipping point ....”
To drive adoption, CBDC designers must bear in mind survey-derived features like dependability, convenience, and security. However, they should also strive to understand user demand more methodically so CBDCs meet real needs and offer clear value propositions.
A Lean Product Development (LPD) Approach to CBDC Design
The adoption of a retail CBDC will depend in large part on how users respond to a new technology product, whether it is an app, interface, card, or device. To better anticipate this response, lessons can be drawn from the technology industry and its hard-won insights. Lean product development (LPD) has emerged to mitigate the risk of failure of new products and is a useful lens to help design — and market — a CBDC that users will be more likely to adopt, accept, and use.
LPD took inspiration from the Toyota Production System (TPS), which sought to minimize waste, shorten time to market, and improve customer value. LPD translated these goals to the product innovation space. The overarching principle for LPD is that “efficient innovation is the one for which there is an actual demand by the users. Or put in other words: the biggest waste is creating a product or service that nobody needs.” Clearly this is a significant risk for retail CBDCs.
Several frameworks can be seen to fall under the LPD umbrella, including:
- the customer development approach, which tries to understand the customer's point of view and build prototypes that satisfy it through iteration and feedback with real potential customers.
- the Lean startup approach, which starts with a concept of the product based on perceived market needs and generates its underlying hypothesis, then rigorously tests the hypotheses with potential users through the development process.
The approaches are complementary, harnessing the iterative process of building, testing, learning — and starting again. They enshrine the importance of experimentation, generating new ideas and solutions, and then testing and discarding unpromising avenues.
Lean principles also figure in the business model for a new product, which encompasses all the moving parts that must be balanced in a CBDC. Tools like the Business Model Canvas, Lean Canvas, and Value Proposition Canvas can help conceptualize different configurations of customer segmentation and delivery, resources and production, and their impact on the bottom line.
Design thinking is an approach positing that success depends on balancing user “desirability,” provider “viability,” and solution “feasibility” — but this must be continually reevaluated through an iterative “continuous improvement” cycle.
Combining Lean Concepts
The “Lean” concepts falling under this umbrella are consistent with one another and can be combined to provide a holistic view of the components for product development.
- The design thinking concept of “desirability" corresponds to the market demand for a product; “feasibility” refers to the achievable components of a solution, including the partnerships necessary for a tiered delivery model. Where they overlap, unique user value propositions can be created.
- These unique value propositions can be generated by way of the value proposition canvas — fed by payments use cases, as well as iterative development through the build-test-learn cycle from both the customer development and the Lean startup perspective.
- Where desirability and feasibility overlap with supplier “viability,” the basis for a sustainable business model is established. For a retail CBDC, viability refers mainly to a central bank’s success in achieving policy objectives and not straying from its mandate.
- The demand and supply side factors here can be broken down into components from the perspective of a new startup (Lean Canvas) or a more established enterprise (Business Model Canvas).
Applying the LPD Approach to Retail CBDC Design
The lean approach can provide an important lens for CBDC development and is, in fact, starting to appear in analyses of industry efforts. But the concepts discussed here can be applied much more extensively. A customer development approach can allow designers to move beyond surveys to understand friction points and problems, and validate use cases and minimum viable products (MVPs) with early adopters. The business model and value proposition canvasses can aid meaningful user segmentation and establish the product-solution fit that will drive unique value in a retail CBDC. Importantly, these approaches and tools allow designers to form testable hypotheses and accumulate reusable knowledge in an iterative manner.
The success of a retail CBDC depends on end-user adoption. While valuable insights have been gleaned from surveys and policy exercises, there remains a significant risk that uptake of CBDC products will remain too low to achieve critical mass. Lean Product Development approaches reflect hard-won lessons about user adoption in the technology space and can serve as a source of insight for retail CBDC efforts.
ProgressSoft CBDC Advisory Services
ProgressSoft CBDC Advisory Services bring a wealth of knowledge and experience to economic, regulatory, and technical aspects of CBDC design, in conjunction with our deep expertise in central and commercial banking solutions, as well as end-user facing products across payments rails. To learn more about these solutions, as well as the ideas and approaches presented in this paper, we encourage you to reach out to our team for exploratory discussions at CBPN@progressoft.com.
e.g., BIS: Gaining Momentum – Results of the 2021 BIS Survey on Central Bank Digital Currencies. May 2022.
e.g., BIS et al.: Central Bank Digital Currencies: User Needs and Adoption. Sept 2021.
See e.g., BIS et al.: Central Bank Digital Currencies: Ongoing Policy Perspectives. May 2023.
See e.g., Bank of Israel: Principles for Creating “Acceptance” and “Network Effect” for a Digital Shekel. June 2023; Asia Global Online: Beyond Technology – Boosting Adoption is Key for Central Bank Digital Currency Viability in Asia Pacific. June 2023.
FinanceFeeds.com: e-CNY Volumes ‘A Drop in the Bucket,’ Says ex-PBOC Official. Dec. 2022.
See e.g, China Internet Watch: Alipay Profile, Trends and Insights. Accessed June 2023.
IMF: Nigeria’s eNaira, One Year After. 2023. p. 11.
Ibid. p. 36.
Federal Reserve Bank of Kansas: What Consumer Surveys Say about the Design of a U.S. CBDC for Retail Payments. Mar 2023. See also e.g,: MIT DCI/ Maidenlabs: Centering Users in the Design of Digital Currency. Dec 2021; OMFIF/ G+D: Digital Currencies: A Question of Trust. Feb 2020; ECB/ Kantar: Study on New Digital Payment Methods. Mar. 2022.
e.g., NPD Solutions: Lean Product Development Principles and Practices.
Mueller, Roland & Thoring, Katja: Design Thinking Vs. Lean Startup: A Comparison Of Two User-Driven Innovation Strategies. 2012.
See Blank, Steven. Four Steps To The Epiphany. John Wiley, 2020.; Blank, S. and Dorf, B. The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company. BookBaby, Pennsauken, 2012.
Ries, Eric. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. New York: Crown Business, 2011.
See Osterwalder, Alexander, and Yves Pigneur. Business Model Generation. John Wiley & Sons, 2010.
See Maurya Ash. Running Lean: Iterate from Plan a to a Plan That Works. 2nd ed. O'Reilly, 2012.
See Osterwalder, Alexander, et al. Value Proposition Design. John Wiley & Sons, 2014.
See e.g., IDEO Design Thinking. Accessed June 2023.
See e.g., Bank of England: Money: A Question of Purpose and Trust − Speech by Carolyn Wilkins. May 2023.
BIS Innovation Hub: Lessons Learnt on CBDCs. Report submitted to the G20 Finance Ministers and Central Bank Governors. July 2023.