International organizations within the financial sector have been assessing and experimenting a lot with the new age technologies like blockchain to reform the legacy systems making way for easier payment structure and ultimately financial inclusion.
Over the years, the financial sector has initiated multiple pilot projects that integrated DLT with the existing architecture to streamline payment systems, cross border remittances and likewise. However, while the number of use cases is increasing at rapidly, we are still far from the financial inclusion of blockchain and its mass adoption.
The World Bank recently issued a report stressing the potential of blockchain technology in the modernization of the financial sector.
Blockchain Report by the World Bank
A few days back, the World Bank Group, Bank for International Settlements, issued a 70-page report on the payment aspects of financial inclusion in the present Fintech age. The report highlighted notable blockchain and cryptocurrency products and services such as the CBDCs (Central Bank Digital Currencies), stablecoins, etc.
It consisted of an elaborate analysis of specific advancement in the blockchain and crypto-based concepts, determining the ones that will be most relevant to reform the structure of the payments. Along with that, there was a separate review of the application and the risks associated with the same.
The recent report is a continuation and enhancement of the PAFI (payments aspect of financial inclusion) report issued in 2016. It was a collaboration between the World Bank and the CPMI (Committee on Payments and Market Infrastructures).
The 2020 report, puts the fintech aspects in the context of the PAFI guidance, which was formed without any inclusion or provision for new-age technologies, like blockchain. The new version includes DLT (decentralized ledger technology), CBDCs, stablecoins, and payment tokenization systems along with cloud computing and big data analytics.
DLT for Efficient Cross Border Payments
The 2020 World Bank report emphasizes that “DLT may further spur business model innovation in cross-border payments.” It has been cited that blockchain technology can potentially streamline the payments permissioned or private environment.
The role of stablecoins and CBDCs was also highlighted citing that the central bank digital currency projects were able to find some of the crucial problems within the structure of the cross-border payments. It was mentioned that “Stablecoins have prompted central banks in some countries to accelerate their investigations into CBDCs and generally resulted in greater attention being paid to the challenges of financial inclusion and more efficient cross-border payments”.
Earlier this year, the Bank for International Settlements raised concern over none of the CBDC projects having the provision of cross border payments, as they were not going beyond the jurisdiction of the central banks.
This is not the first time that the World Bank has shown interest in blockchain and other new-age technologies. In 2017, they published the “Distributed Ledger Technology and Blockchain” report which extensively reviewed and stressed DLT integration for financial inclusion. They mentioned that acquiring such goals will require enhanced interoperability within the payment systems.