10 Products Entrepreneurs Can Build On Top of CBDC 114 countries (over 95 per cent of global GDP) are exploring a CBDC. While the current CBDC industry is a small one, the scope for innovation and offerings is vast.
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India has been leading the fintech innovation race in the world and for all the right reasons. Our financial apex institutions are trying to balance between traditional workings and adopting new technologies.
The latest development in this is the rise of cryptocurrencies. While cryptocurrency may not be a fiat currency yet, its legal equivalent is found in central bank digital currency.
"The future of digital currency lies in hybrid solutions that combine the best of both worlds. By leveraging the stability of central currencies and the speed of blockchain transactions, CBDCs have the potential to become an incredibly powerful tool in the digital payments landscape," reads Future of Money, Blume Ventures' latest report on CDBC.
In fact, 114 countries (over 95 per cent of global GDP) are exploring a CBDC. India piloted its CBDC back in December across four cities, eight banks, and one million wallets. The users can carry out P2P and P2M transactions.
While the current CBDC industry is a small one, the scope for innovation and offerings is vast. The report sheds light on ten innovative ideas for the upcoming ecosystem which entrepreneurs can potentially leverage as a launchpad and to make an impact.
1. Consumer wallets for the CBDC ecosystem
A wallet to hold CBDC and allow for P2P and P2M transactions. The digital currency will be managed by central banks using their own ledgers and private players will be collaborating for building wallet infrastructure. As the number of CBDC users increases, the wallets will be required to have the capacity to carry out transactions and provide a seamless experience.
India's mobile wallet market is currently valued at USD 94 billion and is expected to touch USD 433 billion by 2027. But, the wallets for the CBDC ecosystem will be different and need to be built on a completely different tech stack. The new mobile or web app will need to be DLT-friendly.
2. Offline/Cold Wallet for CBDC
While the magic of UPI has helped the Indian economy and pushed for a more cashless economy, a good population remains unbanked and underbanked. CBDC can help this population become financially included. However, not all have the technology to use CBDC. This is where offline wallets, universal access devices ( UAD) or smart cards can serve as a solution.
"Our proposed model is an offline wallet or smart card that allows users to store and use CBDCs without the need for a smartphone or other digital device. The wallet or smart card will be equipped with a simple interface and biometric authentication for added security," shares the Subhendu Panigrahi and Ashish Fafadia report.
3. CBDC Wallets for NRI/Tourists
Currently, tourists and NRIs (non-resident Indians) face difficulties using their money while travelling. Currency exchange rates, high transaction fees, and security risks are some of the key challenges. CBDC wallets can be developed to support multiple CBDCs for NRIs and tourists.
"Token‐based retail CBDC may be preferred if the central bank seeks to design a CBDC that is widely accessible," reads the report.
4. Cross-border payments
Cross-border payments have their share of red tapism. This includes regulatory hurdles, high fees, and slow transaction processing times. The current market has active players such as traditional banks, payment service providers, and fintech startups, but no dominant one prevails. CBDC can offer a fast, secure, and low-cost solution to settle cross-border transactions.
5. Farm lending built on CBDC
The agrarian economy of India has its problems with the biggest one being government subsidy. "CBDC would play a bigger role in agriculture subsidies and loan disbursal and bring in efficiencies into the farm lending ecosystem. The offline nature of CBDC and programmability will solve the above-mentioned issues and result in a faster disbursal of credit and a targeted collection cycle," notes the report.
6. MSME Lending
The MSME sector of India is a growing one, demonstrating resilience. However, lending in this sector faces significant challenges such as lack of collateral, credit history, and high transaction costs. Models for MSME lending can be developed on CBDC which will connect MSMEs with lenders. This will make the lending process faster, cheaper, and more secure. The enterprises will benefit from lower interest rates and transaction costs.
7. Decentralized exchange for CBDC
Decentralized exchanges facilitate peer-to-peer transactions without involving central authorities. But there is no DeX for CBDC. DeX can facilitate the usage of CBDC for cross-border payments. The model will facilitate P2P transactions of CBDC and trading of it for other cryptocurrencies or fiat currencies.
8. Platform for central banks to launch CBDC
Banks are some of the frontrunners when it comes to the adoption of new technologies. The number of countries launching CBDC will increase. A start-up model can offer technical infrastructure, regulatory frameworks, and consumer adoption solutions to help central banks make a transition.
9. Purpose-bound money platforms
CBDC should enable tailored financial solutions to the users. "A platform that offers purpose-bound money solutions that can be customized based on the specific needs of the customers," suggests the report.
10. Money streaming Platform
Micropayments was envisioned to revolutionize online content sales. With micropayments, consumers would have the option to access individual services, articles, or downloads without subscribing to the full model. It would have been an unique payments option for content creators. However, the traditional business model of earning a cut was not suitable for this. CBDC can enable real-time payments unique to users and their usage.
