In the banking and financial services (BFS) industry, fintechs, banks, issuers, and processors are seeking more ways to innovate in order to accommodate the digital habits of today’s consumers. The rise of cashless payments is unprecedented, with its growing adoption triggering financial institutions to innovate and adapt in order to enrich customer financial interactions.

Now, we are well into the age of a “cashless society”: in our e-book “Two Critical Trends Transforming Financial Institutions,” it was stated that 55% of consumers preferred to make in-store purchases using cards or other cashless payments, according to the European Central Bank’s 2022 study.

The role of innovation and digital transformation deepens each and every day, especially in changing markets where consumers have the tools and the knowledge to use the latest technologies to buy products and services. Today, we are continuing to witness several trends that are moving and shaking the industry – cryptocurrency and Central Bank Digital Currency (CBDC).

Digital Currency Market: A Quick Look

As the popularity of the Digital Currency Market skyrocket, it continues to present attractive opportunities to financial institutions to drive new – and seamless – digital economies.   

But what exactly is cryptocurrency? What is a CBDC?

The e-book defines cryptocurrency as a digital asset that functions as a store of value and exchange medium in a decentralized network, run by blockchain technology. Transactions are stored on a blockchain that can be seen as a publicly distributed ledger containing details of transactions made on the network.

CBDCs, on the other hand, is a virtual form of a country’s fiat currency, a store of value that can be used to make digital payments for goods and services. It is controlled by the central bank of a nation. Its potential is massive – it is tapped to be the “next step in the evolution of sovereign currency that is digitally programable.

The Benefits

Can the Digital Currency Market positively impact governments, financial institutions, and citizens? According to the e-book, cryptocurrencies and CBDCs offer various benefits, including privacy, enhanced transferability, convenience, and financial security. Specifically, CBDCs have the potential to streamline complex financial systems, decrease cross-border transaction costs, and lower money transfer fees for citizens.

With more and more countries examining the capabilities of CBDCs, let’s take an in-depth look at a list of this digital currency’s benefits both to governments and citizens:

• CBDCs eliminate the third-party risk of events like bank failures or runs. Any residual risk in the system rests with the central bank.

• It implements lower cross-border transaction costs by reducing complex distribution systems and increases jurisdictional cooperation between governments.
• CBDCs could provide a faster, cheaper, and more secure way to transfer money.
• Cryptocurrency exchanges or remittance providers could benefit from increased efficiency and cost savings on the KYC compliance ecosystem that CBDCs provide.
• CBDCs could potentially provide new sources of funding for private businesses, as they could access liquidity directly from the central bank.

Financial inclusion can also be a direct result – government-backed digital currencies can make a difference in countries where banking is limited, or in countries with an under-banked population.

Don’t Get Left Behind: The Future of Money

CBDCs are still under development, but this doesn’t mean that banks should not pay close attention. While most of its impact would depend on a central bank’s issuance or management model, it’s important to remember that preparing for CBDC’s inevitable arrival is crucial. As countries make progress in advancing CBDC’s development, banks have the window to reassess and establish their roles in the system: as innovators and early adopters of a digital currency, playing a central role in establishing better and secure governance over today’s evolving payment systems.

As financial institutions prepare for the future of money, count on Teleperformance to help you navigate key transitions prescribed by changing times, address challenges, and seize opportunities in the BFS industry. As a global digital business services company, Teleperformance combines the most advanced solutions with data analytics and disciplined processes to help BFS companies transform and run better.

Download our e-book “Two Critical Trends Transforming Financial Institutions” to get vast insights and to learn more about digital currency.

With over four decades of experience, Teleperformance understands what it takes to get ready for a future that seems uncertain. Learn more about our capabilities in the Banking Customer Service today!