Banking with CBDC and Digital Wallets: an Opportunity for Financial Institutions ?

Achraf Ayadi


Central Bank Digital Currency, or CBDC for short, is an electronic form of money issued by central banks around the world and designed as a safe, secure, and efficient means for making payments and conducting transactions. China, Sweden and the European Union among others have launched CBDC projects worldwide. CBDC stands out from crypto assets like Bitcoin in that it is issued by a central bank; by contrast, crypto assets do not fall under any central authority and thus remain decentralized digital currencies. Cryptocurrencies such as Bitcoin, Ethereum and Litecoin exist independently from central banks or governments; while CBDCs issued by central authorities can be used alongside fiat currency to complement them. Stablecoins, on the other hand, are digital currencies pegged to fiat currencies, commodities or asset baskets in order to reduce volatility and banknotes are physical money that’s widely circulated as means of exchange by central banks.

CBDCs may become increasingly relevant as they offer several key advantages, from supporting monetary policy through more efficient payment systems to expanding financial inclusion by giving more people affordable digital payments and improving tax controls by tracking transactions more easily.


CBDC implementation presents several challenges from both banking and technical perspectives.

Concerns from a banking risks perspective include its effects on commercial banks’ balance sheets and any possible disintermediation in the sector. As CBDCs would enable individuals and businesses to hold digital currency accounts directly with the central bank, this may result in less need for commercial banks as intermediaries between depositors and borrowers. Commercial banks could experience reduced revenues and lending capacities as a result, potentially harming the economy in turn. As mentioned previously, shifting deposits currently held by commercial banks to CBDC accounts at the central bank would likely result in reduced bank deposits – the main source of funding for lending activities. Banks could potentially experience difficulty providing loans and credit to the economy if this situation persists. At times of financial stress or uncertainty, people might prefer CDBCs over commercial bank deposits as the latter will likely appear more secure due to being supported by central banks. Inextreme circumstances, this could trigger bank runs as people withdraw deposits from commercial banks in panic, leading to liquidity issues and even potential financial instability. Issuing CBDCs needs to communicate clearly to the public in order to avoid any panic effect.

Technical challenges associated with legacy IT include managing it effectively while meeting scaling, interoperability and security requirements for account administration and payments systems. Integrating CBDCs into the global financial system and developing mechanisms for cross-border transactions and currency FX conversion are significant challenges. Coordination between central banks and international financial institutions will be necessary to achieving interoperability of issued CBDCs and managing risks associated with cross-border transactions. Recent events – Target2 migration across Europe and widespread conversion to ISO 20022 formats by financial institutions from FIN messages to XML ISO formats – has brought into sharp focus the future development of cash management products and infrastructures used for cash clearing by correspondent banks; especially since cash clearing by correspondent banks could (possibly) requires mass adoption of digital wallets that may compete directly against traditional account management systems.


Digital wallets have quickly become an attractive alternative to traditional banking services and provide consumers with convenient payments without carrying cash or cards; access can be gained on computers and smart devices via ApplePay, Google Pay, Samsung Pay or PayPal accounts. Multiple Fintechs are also providing many successful use cases for Digital Wallets mass adoption.

Digital wallets may seem as safer as other payment methods due to the security measures in place and regulatory scrutiny in providing lisences, yet they could cost banks billions in lost payments and associated revenues. Retail bankers do not necessarily view digital wallets as being problematic because they still rely on card issuers to book transactions and record payments. Banks have collaborated with retailers to launch digital wallets and payment apps; however, big tech and a rapidly expanding ecosystem of Fintechs dominate this field of digital wallets. Digital wallets could disrupt banking and financial services, but banks still have an opportunity to remain competitive in this arena. Digital wallets enable access to discount coupons and loyalty cards instantly between systems – even if it remains unknown whether banks have lost out to big tech firms in both the United States and European Union in this digital wallet race.

Though CBDCs present challenges, commercial banks still stand to gain greatly by adopting them early and moving to an entirely different paradigm of digital payments. CBDCs hold enormous promise as an evolution in payment processing; early adaptors of CBDCs will be better poised than others to take full advantage of this emerging financial opportunity.

One of the main obstacles facing commercial banks adopting CBDC is any possible changes to their traditional banking model and legacy IT systems, where their role may shift within the financial system. With CBDC being implemented into business plans and other projects, banks may soon find themselves playing different roles than before. Banks will need to adjust their business models and operations in order to account for CBDC, taking steps such as meeting security compliance needs or regulatory standards, while taking advantage of any opportunities presented by its adoption. One major advantage offered by CBDC lies in its potential to both increase efficiency and decrease costs. Transactions processed faster at lower cost with this platform than with traditional methods. CBDC could offer greater access to financial services for underserved populations, while banks could utilize CBDC services for value-added customer interactions. Banks could potentially offer services like digital wallets or investment options to create additional revenue streams while increasing customer loyalty. While CBDC presents commercial banks with some challenges, there are also significant opportunities to take advantage of it and position themselves for success in today’s rapidly evolving financial environment.


Banking with CBDCs and Digital Wallets presents financial institutions with a tremendous new opportunity. As technology develops, digital mediums may enable increased efficiency when transacting transactions; reduced transaction cost/time associated with traditional methods; expanded financial inclusion by providing unbanked or underbanked populations access to banking services; as well as expanding financial inclusion to unbanked and underbanked populations through banking inclusion initiatives.

However, these opportunities come with significant hurdles and difficulties: adopting CBDCs or Digital Wallets requires extensive technological infrastructure and expertise that many banks do not possess; furthermore they could face untested regulatory environments or vulnerabilities to cyber threats that must also be considered when being implemented.

CBDCs and Digital Wallets are still developing; thus banks should proceed carefully when adopting them to ensure they can leverage these technologies without placing themselves or their clients at unnecessary risk. While their potential advantages are undeniable, their full implementation poses unique hurdles which must be navigated carefully to reach full fruition.

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