FIS is courting governments to win banks more business

FIS argues that now is the time for banks to get involved in the development of central bank digital currencies. 

"There will be a role for banks and other firms that provide financial services," said Julia Demidova, head of CBDC and digital currency strategy for FIS. "Central banks and public-sector institutions are looking to see what will be needed to support the new payment ecosystem."

FIS this week launched RealNet Central, a service designed to help central banks deploy digital-first, real-time payment networks. The bank technology company additionally added a CBDC Virtual Lab to aid governments in building CBDCs, or a digital form of a country's existing currency. Other large private-sector firms are seeking a position in CBDC development, with Visa and Mastercard both publicly courting central banks.

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"We're working on building functionality, determining what that use cases are and how that fits with existing payment systems," Demidova said. 

FIS is working with M10, a technology firm that tokenizes traditional currency, a process that creates a digital representation of an underlying liability held by a regulated financial institution. This allows banks to exchange tokenized cash for a tokenized digital currency.

Governments have become more active in payments technology in recent years. Real-time payment projects include FedNow, which is expected to launch in the U.S. in 2023, joining the private-sector-led RTP rail. Other real-time payment networks include Faster Payments in the U.K. and the Single European Payments Area in the European Union. Canada's Real Time Rail, a coalition of government and bank stakeholders, is expected to debut in 2023. 

Real-time settlement is a key part of CBDCs, which are intended to support online transactions for consumers, governments and businesses. There are dozens of CBDC projects underway globally, though the statuses of these projects vary, as do the structures of each CBDC. And in some cases, such as the U.S., there still isn't a firm commitment to issuing a government-backed digital currency. 

The pace and uncertainty over structure has created concerns over interoperability among CBDCs, and concerns from banks that government-backed digital currencies could dilute existing account balances. 

What about banks?

Writing for American Banker, Rob Blackwell, chief content officer of the InfraFit Network and former American Banker editor-in-chief, said the Fed could, through a digital dollar, create an alternative to federally insured deposits, draining funding from community banks and impacting the availability of credit. 

While FIS, Visa and Mastercard are producing technology designed for central banks, all three firms serve networks that have thousands of card-issuing banks, thus giving these banks a potential role in supporting digital currencies. 

"Banks are worried about disintermediation," Demidova said. "They're asking us what CBDCs are going to look like." 

Visa has partnered with Consensys, a blockchain technology company, to develop infrastructure that issuers can use to build services on top of CBDC systems. Visa is in discussions with central banks about how its network and missing banks fit into different CBDC models and how the card brand can work with commercial and central banks to process cross-border transactions that involve conversions between CBDCs. 

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Mastercard has also partnered with Consensys to co-develop blockchains, which could include CBDC payment processing. Mastercard has also partnered with a CBDC project in the Bahamas. 

In a comment letter to the Federal Reserve, which has been accumulating public input on a CBDC, Mastercard advocated for a tiered system that includes the U.S. government working with private companies to support a digital dollar. 

These collaborations suggest private banks will play a role in CBDCs, most likely providing products and services that allow consumers and businesses to transact in digital currencies. Demidova also envisions a role for banks as service providers and competitive technology developers that will support the use of digital currency. 

"Part of the central bank mandate is to provide secure accessible money," she said. "Central banks are the guardians of financial stability." 

FIS serves roughly 20,000 clients, including banks and merchants, in more than 130 countries. FIS acquired Worldpay in 2019, a $35 billion deal that was part of several large mergers that year that combined bank technology providers with payment processors, closely tying payment technology development to bank services. 

The CBDC lab "is an effort by FIS to enter new markets," said Tim Sloane, vice president of payments innovation at Mercator Advisory Service. "These platforms are relevant to nation states that have yet to develop their own faster payments network or are interested in developing CBDCs."