In a previous blog, we tackled two critical trends that are currently disrupting the banking and financial services industry. Cryptocurrencies and Central Bank Digital Currency (CBDC) are making waves among financial institutions, with CBDCs tapped to become the “next step in the evolution of sovereign currency.”
CBDCs are regulated and issued by governments, and much of the impact of this digital currency on banks would depend on the management model chosen by each central bank. According to our e-book “Two Critical Trends Transforming Financial Institutions,” central banks can choose to retain and use the existing payment system – this would yield the least disruption. However, another option would be for central banks to go directly to current banking customers or to offer interest on the CBDC. This choice has the potential to change the entire banking model.
For financial institutions, the opportunity to embrace CBDCs is at its peak. The window is open for banks to act now while CBDCs are still under development, without knowing how much disruption lies ahead.
The Window of Opportunity: How Banks Can Act Now
In today’s environment where everything is moving at a fast pace, financial institutions have the opportunity to take the lead in embracing digital trends that ultimately show value and bring a myriad of benefits to both consumers and banks.
Understanding the value of CBDCs is critical – banks who don’t start preparing now are at risk of falling behind. But where does one even begin? The e-book discussed five important points that could point financial institutions in the right direction.
- Understand the implications of CBDC
Like many new technologies and trends in the exploratory phase, CBDCs requires keen understanding and a concise analysis of how this digital currency can impact banks. Financial institutions must understand the legal, operational, and technical implications of CBDCs. It is also important to engage with central banks and regulators to be updated on the latest developments, requirements, or policies.
- Update technology systems
Digital trends won’t amount to anything if it’s not run by the latest technology. Banks willing to embrace CBDCs must upgrade their systems, ensuring that they can support CBDC transactions and are CBDC-compatible when it comes to settling, receiving, or updating payments. The e-book advised that “the time to assess the bank’s needs and to explore possibilities is now.”
- Ensure compliance
Security is mandatory across all financial platforms, and banks must always protect their reputations to uphold their trustworthiness. Compliance to relevant regulations and standards set for CBDCs is therefore a must – meaning banks must understand the CBDC’s legal framework, ensure airtight security in all transactions, and adhere with anti-money laundering and Know Your Customer regulations.
- Develop new products and services
Innovation must not stop. Jumpstarting one’s journey towards CBDC adoption can inspire banks to further stay ahead of the competition by developing new products and services that can harness the capabilities of CBDCs. Tools and apps geared to become the backbone of the industry, such as digital wallets and payment apps, can play a key role in leveraging CBDCs.
- Partner with other institutions
Constant collaboration has become an effective way to navigate the challenges surrounding a new trend. In CBDC’s case, banks can partner with other institutions such as payment processors, software developers, technology providers, or even a central bank, to develop CBDC-compatible or CBDC-related services or products with a goal to increase consumer satisfaction and loyalty.
Download our e-book in full to learn more about CBDCs and gain valuable insights on today’s digital currencies that are redefining the future of the banking and financial services industry.
The race to embrace the rapid transition towards digital currency requires the right partner who can help financial institutions to prepare for the future. Contact Teleperformance today to learn more about our digital business services for the banking industry!