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How are digital currencies impacting the payments game

December 2022

Trending topics such as Cryptocurrencies, Stablecoins, DLT, Blockchain or CBDCs are part of many conversations in our daily life. Exciting times in banking may be coming since new shapes of money mean new ways of payments.  

Undoubtedly, banking industry must realize all these technological disruptions which may impact our client business in the upcoming years.

The core of these discussions within the industry lies on whether the new types of Digital Money would be valid means of payments. Santander Global Cash Management is no stranger to this subject.
Therefore the starting point is to understand the different sorts of Digital Money, what their attributes and specificities are and whether they could be suitable for transactional purposes. In a previous blog on stablecoins and CBDCs, we presented some of the varieties of digital currencies but there is more to know about these. In general terms, the industry sees it as a five-player game:

  • Commercial Bank Money: Nowadays worldwide predominant payment method, is the money that everyone has on their bank accounts. Although challenged and questioned, the industry is moving forward to deliver a much more efficient and seamless payment user experience (ISO20022 migration, instant payment schemes, APIs). 
  • E-money: Electronic Money is a type of digital money stored in -Money Institutions (EMIs)/Payment Institions (PIs) electronic wallets. While the industry hype is on Crypto and Stablecoins, e-money is increasing its popularity and user base (Mercado Pago, Mpesa, WeChat, Paypal). If the Closed loop nature of the solution brings instant settlement among parts and outstanding user experience, the reachability is exclusively bounded to the e-money network.
  • Central Bank Digital Currency (CBDC): CBDCs are a digital form of central bank money, just as banknotes and coins issued by Central Banks but digital. Most central banks are exploring their potential benefits and risks as well as the value-added for the payment systems. CBDCs might have a major case in developing economies where financial inclusion is still fairly low (e.g. e-yuan, Sand Dollar, or e-Naira). Meanwhile, in developed economies there is no clear answer yet to the question “Are there proven benefits for a CBDC?”. At the same time concerns have been raised on how CBDCs could impact financial stability, new infrastructure costs for the whole industry, anti-money laundering plus privacy implications, and cross-border spillovers.
  • Cryptocurrency: Digital asset that uses cryptography to secure transactions exchanged on a P2P network. Programmability, proven DLT network security, and disintermediation are key advantages delivered by cryptos. However, due to the ongoing turbulences in the global economy, the lack of regulation, and the increased volatility, cryptos are currently being seen more as intangible investment asset than a mean of payment. (Bitcoin, Ethereum…)
  • Stablecoins: Digital asset that seeks to deliver the benefits of cryptocurrencies while trying to remove their volatility. Some stablecoin (e.g. USDC) look a lot like a programmable form of e-money, combining the benefits of that ecosystem with the open source nature of DLT, leading the relatively new phenomenon of "decentralized finance" aka defi.

However, stablecoins have been making a lot of buzz recently showcasing the inherited risks these assets have.

Both risk and volatility shown by cryptos and stablecoins could be mitigated by regulation. In this regard, MiCA regulation in the EU is being created to provide a uniform legal framework for crypto-assets and similar efforts are under way in the US or UK.

Santander participates in several initiatives towards trying to analyze potential use cases where these new elements might be beneficial:

  • Fnality: Santander is a founder of the banking consortium to create a payment solution based on distributed ledger technology (DLT) and blockchain technology. It was created to facilitate peer to peer tokenized transactions backed by money held in a central bank account.
  • CBDCs: Santander is actively participating in the ECB consultation process and other initiatives launched by the central banks in those geographies where we are present, exploring potential use cases, benefits or technologies in which the potential CBCD would rely on.
  • Agrotoken: is the first global experience, launched in Santander Argentina, collateralizing loans with tokens based on agro-commodities such as soya beans, corn and wheat. The solution allows farmers to access new financing solutions extending credit capacity with tokenized assets.

“The Santander Cash management team is closely monitoring these new trends and initiatives to understand where the transactional processes could be impacted. More and more clients are seeking for comfort advice and solutions that ensure trust, reachability and interoperability and this can only be achieve through “Global Industry initiatives” (Fnality, RLN). Stéphanie Rodriguez Aniorté | Global Head of Payments Santander CIB

Technology disruption is changing the payment´s landscape… but the “final products” are yet to be revealed.