Central Bank Digital Currencies, known short as CBDCs, are on the horizon. In fact, we’re seeing the technology advance faster than other recent payment innovations. The time for Chief Information Officers and Chief Technology Officers to take action to prepare their organizations is now. In this blog post, Isa Goksu, Globant’s Chief Technology Officer for the UK, details how executives can put their organization in a position to leverage CBDCs. It breaks down to awareness, internal systems, security, and consideration of regulations, controls, and compliance.
A major shift in technology and how business is done requires expert change management and training for those involved, including employees and vendors. Areas of focus for the c-suite should include:
- How to train your people
- Upskilling for techies
- Engineering considerations for settlement, risks, and regulations
Each of these three areas can be addressed with communication and buy-in. First, change agents must educate their key leaders and influencers in the organization (and, in some cases, the industry) on the ecosystem, technology, and interoperability challenges that come with CBDCs. From there, build a roadmap to determine what it will take to educate and bring understanding to the critical mass.
Some activities could include: Building dedicated labs to allow employees to practice, creating opportunities for experimentation, or organization of hackathons to demonstrate value and potential of what could be done with the technology. These steps will require lots of trial and error, patience will be necessary. Along with education, developing a knowledge base, including onboarding documentation and playbooks, maybe even dedicated micro-sites, can help staff stay updated.
Adopting a digital currency, especially a CBDC, has impacts well-beyond normal payments. Historically digital currencies have not been considered fiat currency, CBDCs change that since a central bank or government backs them. The current system of accepting FIAT currencies is in physical tender (cash), check, credit card, or bank transfer. CBDCs are an entirely new format of money and payments that companies must have the infrastructure in place to handle. Some questions a CIO or CTO may ask themselves could be:
- What do we need to have in place to store and handle CBDCs from a technology perspective (architecture, policies, procedures)?
- What are the tax implications of a government-backed digital currency, and how do we track it?
- What industry partners will we need to involve?
It is well known that whenever there is a new technology, there is the opportunity for bad actors to take advantage of vulnerabilities. Cyber threats are real and require teams within an organization to understand what new types of threats exist in the overall business landscape. Most of the security attacks in the digital currency landscape are not the traditional ones we hear daily. There are two streams of activities that require your attention. proactive planning and diligent execution.
When planning for the inevitable, build internal, reusable training materials that explain how bad actors leverage new threats. Users can understand threats by creating visual representations, scenario-based exercises, step-by-step explanations, and prioritising risks in order of importance and business impact.
Having a solid plan for responding to a cyber attack is only one part of the equation for protecting your organization. A catalog of solutions, approaches, and recommendations based on attack type, combined with runbooks on who, what, when, how, and why steps need to be executed, can reduce response time and impact business.
When adapting security protocols to accommodate CBDCs, you may consider covering general operating models to allow people to digest Secure by Design and Privacy by Design.
Regulations, controls, and compliance
Regulations, controls, and compliance will vary greatly depending on the maturity and governance of the CBDC. There is one key factor, though, that will be in play with CBDCs and adoption by organizations: Interoperability. Early CBDCs must live in a temporal ecosystem of half digital and half physical models. As we explore this context, CIOs and CTOs must consider the operational challenges that CBDCs will present. Some engineering challenges that may need to be solved may include:
- How would you do transactions when there is no Internet?
- Once a transaction has been completed, how would you sync back with the distributed ledgers?
- What will be some hardware challenges, including NFCs, RFIDs, etc.?
There are various models to suggest and tackle these problems, but there is not yet a single accepted solution to these issues. This is an area that the c-suite should watch closely and be proactive as developments are made.
In the near future, CBDCs will be a reality that organizations of all sizes and in all industries must be prepared to leverage or risk negative impacts on their business. Organizations that are prioritizing improvements now will be positioned well to navigate the technology. This is also a competitive edge. Front runners will have the advantage, and laggards will have to use services from the front runners.
How can your organization ensure that you’re ready to be a first adopter of CBDCs? Globant’s Smart Payments Studio can help. Knowing that consumers have more payment options than ever before, the Smart Payments Studio provides strategic business and technical consultancy to help organizations analyze their payment programs, develop technical integration, and deliver experiences that are seamless, personalized, and engaging.