Opinion William K. Santiago
The Caribbean, and specifically Curacao, has the opportunity to fix an archaic payment system that has been neglected and untouched for years. This current legacy system has prevented the deployment and implementation of new payment systems that support e-commerce, used in America, Europe, and the East among others.
Lack of any initiative to improve this situation has placed the Caribbean region in a global disadvantage.
Three pillars should be addressed by the Financial Sector to improve and support a new 21st century e-commerce payment system. These three are:
- A central bank-backed cryptocurrency
- A global real time settlement network
- Merchant processing solutions
In June last year I gave a presentation at a yearly RCBISS ICT Conference related to Ripple, the global real time settlement network, and there was a lot of interest related to cryptocurrency, Blockchain, and Bitcoin. A country that has initiated the development/research of implementing their own cryptocurrency to gradually replace their local physical fiat currency to a digital currency, is Barbados. Two other countries that recently joined this project are Aruba and The Bahamas.
The basic idea is for central banks to have a central bank-backed cryptocurrency.
The central bank would have control of the money supply and the currency on the network, and it would be declared legal tender and linked with whichever fiat currency the central bank issues
The central bank would also control development and determine which entities verify transactions. Commercial banks or crypto currency exchanges would provide user-facing services like wallets apps, in which users would retain control of private keys.
This would require the government to regulate in a clear and pragmatic way cryptocurrency and this new payment ecosystem. This new payment ecosystem would include the ability to integrate other payment systems like PayPal among others and would make it easy for small businesses to incorporate electronic payments besides the traditional Visa/Mastercard into the e-commerce infrastructure.
Other objectives/benefits that central banks and commercial banks would get by accepting this new innovation include:
- Strengthening and supporting AML/KYC requirements
- Help in reduction of “red tape” and improve bureaucratic efficiency
- Cost savings
- Increase security
- Solution to accomplish these objectives is to use a global real time settlement network
- A production ready example is Ripple Interledger W3C Community Group & Hyperledger under the Linux Foundation
For central banks the ability to reduce transaction costs and increase security while providing better AML/KYC, the blockchain Ripple, is the first open-standard, Internet Protocol (IP)-based technology for clearing and settling transactions in real-time via a distributed network. Ripple is considered a Distributed Ledger Technology (DLT). Banks can use DLT to make faster payments in more currencies to more markets — all with lower risks and costs than is possible today.
There is a clear opportunity to improve the infrastructure for inter-bank payments especially in Curacao, that has a great appetite in improving e-commerce and in turn boost its economy.
DLT is a basic infrastructure that optimizes the payment process and consequently enables new capabilities and commercial opportunities. DLT is for members, operators, and regulators of payment systems.
DLT would be an additional alternative that is fast and cost effective; basically an extra option to an RTGS system and SWIFT.
On the payment system, merchant processing solutions, provided by local commercial banks as services or small businesses licensed payment processors, could provide invoices and easy to use Point-Of-Sale (POS) applications that run on a smartphone or tablet. Many merchant processors instantly convert the cryptocurrency payment to local currency at the current exchange rate. In order for these small business merchant processors to start, they would have to be licensed and regulated by the central bank and be able to obtain banking relationships.
In Conclusion, Curacao, having a well diversified culture, a highly educated population, and with a historically strong financial sector, has a great opportunity to lead with this innovation and provide new opportunities in e-commerce. This will bring jobs and interest to young generations to pursue technology that is penetrating traditional finance (FinTech) just like Information Technology penetrated Accounting back in 1990s.
Bron: William Santiago