Visa, a global leader in payments technology, has announced the successful completion of a pilot test of tokenized deposits using central bank digital currencies (CBDCs).
On November 1, Visa announced that it had completed the Hong Kong Monetary Authority’s CBDC pilot program with leading financial institutions, HSBC and Hang Seng Bank, as part of the Hong Kong Monetary Authority’s (HKMA) “Digital Hong Kong Dollar” pilot program.
This pilot was part of the “Digital Hong Kong Dollar” program organized by the HKMA, which was initiated earlier this year in May and was the first use case globally to utilize tokenized deposits for interbank B2B self-transactions and cross-chain transactions.
The pilot focused on interbank business-to-business (B2B) payment processes, including property payments and settlements between payment institutions and merchants.
The test demonstrated the potential benefits of B2B payment tokenization, including increased payment speed, improved settlement risk management and control, enhanced payment network resilience, and greater transaction transparency.
During the pilot, Visa’s platform operated 24/7, outperforming traditional payment systems that often have limitations on operating hours. The tokenized deposits were transacted using encryption, ensuring privacy and security. They could be viewed on blockchain explorers but didn’t reveal the identity of participants, balances, or transaction amounts to non-bank users.
However, Visa expressed its commitment to further exploring the use of tokenized deposits in various areas, including tokenized asset markets and programmable finance.
For example, in the “Property Payments” use case, tokenized deposits could automate payments to property developers upon reaching the completion date of a contract, minimizing delays in the closing process.
As part of its key findings, Visa wrote:
“The time to final settlement for an interbank transfer, as confirmed through our pilot’s testing between the banks, was near real-time. Tokenized deposits were burned on the sending bank’s ledger, minted on the receiving bank’s ledger, and simultaneously settled interbank via the simulated wholesale CBDC layer.”
As a result of the successful pilot program, the e-HKD initiative will move into Phase 2.
Hong Kong’s e-HKD Pilot Program Advances with Visa and Emphasis on CBD’s Potential
In May, the Hong Kong Monetary Authority (HKMA) selected Visa as one of 16 firms from the financial, payment, and technology sectors to participate in the first round of e-HKD pilots for 2023.
The HKMA initiated the e-HKD pilot program in November 2022 to assess the commercial viability of an in-house central bank digital currency (CBDC) as part of its “Fintech 2025” strategy.
In the first phase, the program studied several areas, including full-fledged payments, programmable payments, offline payments, tokenized deposits, and the settlement of Web3 transactions and tokenized assets.
The findings from the phase one trial highlighted the potential benefits of programmability, tokenization, and atomic settlement for Hong Kong’s CBDC, benefiting consumers and businesses.
The e-HKD project follows a three-rail approach, with Rail 1 laying the technological and legal foundations for the e-HKD, Rail 2 exploring use cases and conducting pilots, and Rail 3 focusing on the launch of the e-HKD based on the results of the previous phases.
Additionally, the HKMA has been collaborating with central and commercial banks through Project mBridge to develop solutions for faster, more cost-effective, and transparent cross-border payments.
On September 25, HKMA CEO Eddie Yue revealed that mBridge would expand and be commercialized as it welcomed new banking members from China, Hong Kong, Thailand, and the United Arab Emirates.
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