MASTERCARD INC has urged central banks to tap the expertise of private payment entities like itself, to help overcome the challenges faced with the implementation of central bank digital currencies (CBDCs). The urging comes as 86 per cent of central banks report that they are actively weighing the merits of a CBDC for their economies, according to a Bank for International Settlements report released last year.

But for Mastercard, CBDCs, which its Chief Product Officer Craig Vosburg called “an interesting area”, face acceptance challenges.

“A lot of our involvement right now is working with different central banks on what are effectively CBDC experiments,” Vosburg told journalists in a breakout session of the recent Mastercard Latin America and Caribbean 2022 Innovation Forum in Miami, Florida.

“There’s a number of questions around a central bank digital currency in terms of what problem they’re trying to solve, which varies. Some of it is financial inclusion, some of it is cost, some of it is operating efficiency or enabling economic activity to continue in an environment where physical transportation of cash might be compromised,” he continued.

“I would say that we are on an exploration phase, on a design phase, and we are collaborating with a number of different central bank digital currencies,” Vosburg continued.

“Think about it, having a digital currency, it’s pretty much pointless if that can’t be spent at a point-of-sale.”

Vosburg pointing out that Mastercard has 92 million merchants worldwide accepting its cards, asked rhetorically, “So how do we make central bank digital currencies interoperable with that acceptance network that exists today?”

The US-based global payments innovation and technology company said it has engaged central banks and regulators around the world to discuss the challenges and present solutions.

“So the acceptance challenge that you described, introducing an entirely new means for consumers to pay for things when there’s established ways to do it already, that’s not a small task,” Walter Pimienta, senior vice-president, product and innovation, Mastercard Latin America & Caribbean added.

“If the Government has to build a central bank digital currency and create acceptance, and look, we know how hard it is to create acceptance, I mean, we have been doing this for 50-plus years now [at Mastercard].”

Pimienta said a lot of the work now being done by Mastercard with central banks includes creating a sandbox environment, working with them to experiment with central bank digital currency to understand how it will interact in the real economy.

“So my point being, the key component here is how do we bridge that technology that if central bank digital currency is generating with traditional acceptance? A good example that I can share with you is The Bahamas. In The Bahamas, they created this central bank digital currency, which, by the way, is considered the most advanced retail central bank digital currency in the world. They launched it, and we partnered with a fintech over there called Island Bank, and what we did was to issue a card by which consumers could take that central bank digital currency, convert it back to the fiat currency of The Bahamas, and use it in each and every Mastercard service location.”

The Bank of Jamaica said it is not in discussions with Mastercard about its own digital currency, Jam-Dex, which was launched earlier this year, though Pimienta said Mastercard has “been collaborating with pretty much each and every government when it comes to CBDCs,” though the level of engagement varies.

“One of the biggest challenges with central bank digital currencies across the board is how do you bridge that new digital representation of a currency that exists in a country such as Jamaica with the existing acceptance network,” he said in a specific response to a question on how Mastercard could help with getting the CBDC accepted in the island.

“One of the main challenges is how to make sure that those become mainstream, adopted by consumers who use them, and that’s what I meant about the acceptance. How we bridge that gap between this digital currency and the existing acceptance network. That’s a big challenge that we are discussing today.”

He said Mastercard has “something called the paper card programme that aims precisely to bridge that gap and could help consumers to have access to the existing acceptance infrastructure.”

“I think central bank digital currency can be a very powerful concept as long as it respects the existing payments industry, meaning, in an ideal scenario, a central bank digital currency will build what we call a true tier CBDC, where it basically means that the central bank is issuing that currency for the digital representation of the currency, but the private bank is competing for the distribution of that CBDC as they do today with real money.”