How CBDCs Will Deliver Financial Inclusion?

In the introductory post of our series on CBDC (Central Bank Digital Currency), Vince Graziani, CEO, IDEX Biometrics, explains how the use of touch free payments and CBDCs will be made more secure through biometric authentication methods.

There has been an increasing level of interest in the concept of CBDCs, with many governments around the world currently keen to investigate the adoption of this new version of legal tender. Standing for Central Bank Digital Currency, CBDCs are set to transform the way we think about money, and offers some attractive benefits too. Simply put, it is a digital token of a nation’s official currency, meaning that it is both issued and managed by the country’s financial authority. Using CBDCs can not only simplify governmental policies regarding money, but could also play a vital role in increasing financial inclusion to those members of the population who are unbanked.

The Unbanked Billions

Even today, financial inclusion represents a significant challenge for financial institutions around the world. Studies show that globally a staggering 1.7 billion adults do not have a bank account, with the highest proportions of these unbanked citizens to be found in China (225 million unbanked), India (190 million), Pakistan (100 million) and Indonesia (95 million). Even the USA has its share of adults without a bank account, with one in five citizens (a huge 66 million people) remaining alienated from modern banking methods.

And being unbanked puts you in a vulnerable position. Without a bank account, receiving wages from a job can be problematic, and you will be unable to build up the good credit history needed for accessing loans or mortgages. Forced to rely solely on the use of cash, the unbanked will also be unable to enjoy the safer ways of saving money or making transactions.

The Power Of CBDCs

With the adoption of CBDCs, however, the financially excluded can enjoy more fiscal freedom than previously. As a digital currency, a CBDC can enable swift, convenient touch free payments that have become standard in the modern banking world. Typically stored on an internet-enabled device such as a smartphone or laptop, CBDC can be simply transferred when necessary, opening up new financial horizons for the unbanked.

Yet the current reliance on these internet-enabled storage methods could also be problematic. Known as “hot” or “soft” wallets, these means of storing money pose a risk to customers from hackers. A better, and more secure option is the roll out instead of “cold” or “hard” wallets, which do not rely on an online presence. This could be something as simple as a traditional style payment card, albeit one with stringent security measures built-in as standard. The developments in biometric technology mean that embedding a fingerprint sensor into each card would represent a cost-effective and convenient means of ensuring all CBDC touch free payments are securely made by the authorised user alone, while avoiding physical interaction with payment terminals. The other advantage of such wallets is that those without internet access would not be excluded, representing huge potential for growth in this market.

Secure Touch Free Payments For All

Whilst it certainly seems likely that we will be seeing the revolutionary CBDC systems in place before long, gaining the trust of customers will be crucial, particularly the unbanked, who are often suspicious of financial institutions. Biometrics could well be the answer: building confidence through rigorous authentication security and thereby improving financial inclusion for all.