The US Faster Payments Task Force received 16 proposals for faster payment solutions. Guest blogger Ginna Rodriguez takes a look at two less-traditional entries by WingCash and nanoPay.
The Faster Payments Task Force received 16 proposals for faster payment solutions using different technology approaches to increase the speed of payment in the United States. Some of the proposed solutions work similarly to traditional payment systems, while others involve significant changes to the way we think about cash and the roles that banks play in the payments ecosystem.
Among the less traditional entries were proposals submitted by WingCash and nanoPay, which suggest creating digital currencies that would enable consumers to conduct digital transactions without the need for a bank account or payment card. While both involve the introduction of digital currency, one would replace the existing fiat currency for digital payments, while the other would be a digital exchange of value tied to the existing currency.
WingCash proposes creating a digital fiat currency. Under its proposal, the Federal Reserve would own the Faster Payments Network (FPN) and issue Digital Fed Notes, similarly to its issuance of cash notes today. Each Digital Fed Note would be a unique and unchangeable URL with a single monetary value, and it would include the issuer’s URL, the current holder’s URL, a currency code and unique identifier (like a serial number). Payments would be conducted by changing the owner of the URL.
The Faster Payments Network could be used for both in-person payments and remote payments (for example, using “digital cash” to pay for online purchases). The exchange of digital notes would occur without transfer fees, with funds immediately available, similarly to how physical notes are exchanged today.
As with cash notes, Digital Fed Notes would not require a bank account or credit card. One of the advantages WingCash highlights in its proposal is that a digital currency solution could increase access to the electronic payments system, opening the door for users who may have been excluded from the traditional banking system. However, potential barriers to implementation include regulatory changes that would allow the Federal Reserve to issue a digital fiat currency.
nanoPay also proposes a digital currency, but the system of value would operate outside of the Federal Reserve. nanoPay proposes a good-funds, collateralized bearer-asset transfer system in which users would exchange fiat currency (collateral) for nanoPay’s MintChip (asset). The fiat currency would be stored in a pooled account, while the equivalent MintChip amount would be stored in a Secured Asset Store (SAS). Transactions completed in the MintChip ecosystem would be a transfer of value between two SASs using Value Transfer Messages.
In the MintChip model, an Asset Manager would protect the pooled funds of fiat currency and invest the funds in instruments where the principle is guaranteed. Depository institutions would act as brokers that pre-purchase MintChip “coins” and use APIs to provide end users access to the MintChip platform. Regulated non-bank providers and larger retailers could also participate as Brokers.
nanoPay’s proposal does not depend on the Federal Reserve’s willingness to create new monetary policy or serve as the originator of digital currency. As a non-fiat currency, however, nanoPay could face challenges of perceived trust and security, particularly regarding the management of the pooled funds that serve as collateral for the digital currency.
As highlighted in the two proposals, digital currency solutions could increase the speed of payments while decreasing payments system costs and expanding financial inclusion. However, WingCash and nanoPay acknowledge that their proposals could pose a threat to traditional payment card revenue streams. Despite these challenges, central banks in other countries like China, Canada and the Netherlands are exploring digital currencies, and the US may follow suit.
Summary of faster payment solutions proposals submitted by WingCash and nanoPay
Source: Accenture compilation of proposals submitted to the Faster Payments Task Force.
Whether replacing fiat currencies, creating a digital exchange tied to existing currency or another idea yet unknown, payments solutions built on the faster, more efficient digital form will transform payments and banking. Industry players need to prepare for the pending change and their role in it. To discover more about how other digital currency forms will disrupt the industry, read our report on The (R)evolution of Money.
Ginna Rodriguez, Manager