The UK has made significant strides in digital payments, transitioning from cheques to real-time settlements via smartphones.
However, the journey of innovation is far from complete. Countries like India, Brazil, and Sweden have shown that more can be done to make payments faster, cheaper, and more accessible.
In these nations, consumers can pay directly from their bank accounts using mobile numbers or QR codes, bypassing the need for cards and enabling even small businesses to accept payments effortlessly – a fast growing sector in the UK, but nevertheless behind the leaders in the field.
Tokenization at the core
The UK can learn from these advancements by exploring the potential of tokenization technology.
While tokenization has primarily been associated with crypto assets, its application to traditional money could transform the payments landscape.
For instance, tokenization could enable payments to be made automatically upon delivery, bolstering consumer confidence in online shopping and fostering greater competition.
The Bank of England (BoE) recognises the need to innovate both the “rails” (payment systems) and the “trains” (money) to keep pace with technological advancements.
This involves not only maintaining the efficiency of existing systems but also exploring new avenues, such as tokenized securities and stablecoins, to enhance the security and efficiency of payments.
Moreover, the BoE is considering a retail central bank digital currency (CBDC) as a digital alternative to physical cash, which is seeing declining usage.
In the wholesale payment sector, tokenization could lead to faster and cheaper settlements between financial institutions, automating back-office processes and enabling greater tradability of assets.
The BoE is set to experiment with wholesale CBDC technologies to ensure that the benefits of settling in central bank money are not lost as the financial markets evolve.
The BoE, in collaboration with the Treasury, the Financial Conduct Authority, and the Payment Systems Regulator, aims to modernise the UK’s payments infrastructure.
This collective effort is crucial as the global payments landscape evolves, with the UK playing a pivotal role as an international financial centre.
Ultimately, the goal is to create a robust and dynamic UK economy by driving greater choice and functionality in payments.
Achieving this requires a collaborative effort between government, industry, and financial institutions.
The BoE says it is committed to leading the charge by modernising the fundamental infrastructure of commerce and the digital economy, ensuring that the UK remains at the forefront of global payment innovation.
It is our opinion that this should happen with a more robust view on the general handling of monetary policy which to date has been weak.
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