Central bank digital currencies (CBDCs) have existed in the virtual realm, with transactions initiated primarily through web and mobile interfaces.
However, a significant change has occurred with the launch of Eurasia's first CBDC cards in Kazakhstan, offering 20 million consumers a new and tangible way to manage their CBDC funds.
The First CBDC card transaction in Eurasia it was done successfully on November 15, 2023.
It was a contactless payment at the POS using a card issued by Eurasian Bank JSC in the Way4 digital payment software system. This marked a milestone in the journey of the digital currency in the region.
Today, six months later, plastic cards Digital tenge currency they are used for in-store and e-commerce purchases, and are accepted worldwide through the Mastercard and Visa networks.
Fast adoption of these cards emphasizes the success and growth potential of the project.
CBDC for cross-border payments, programmable money and DeFi
Kazakhstan's Digital Tenge project is achieving several ambitious goals: increasing cross-border trade, implementing social and innovative anti-corruption initiatives, and integrating decentralized finance (DeFi) participants and government-issued digital assets.
Tested Digital Tenge use cases include cross-border CBDC transactions with the Hong Kong Monetary Authority, CBDC vouchers for school meals, smart contracts designed to protect public funds allocated for road construction, and Digital Tenge stablecoins on the Binance cryptocurrency exchange.
These multiple use cases demonstrate the versatility and potential impact of Digital Tenge.
MVP in production: CBDC, banking and card network interoperability
Astana, the capital of Kazakhstan. Image by bahonya from Pixabay
Before launching the Digital Tenge, the National Payments Corporation of Kazakhstan studied various CBDC architecture models advocated by the IMF, BIS, ECB, Monetary Authority of Singapore and other institutions.
The regulator decided to centrally issue and redeem Digital Tenge and facilitate CBDC workflows related to accounts, cards and payments thanks to reputable market participants.
Corda, a blockchain and tokenization platform developed by R3, a provider of digital currency, digital asset and integration and interoperability solutions, became the foundation of the Digital Tenge infrastructure.
The National Payment Corporation of Kazakhstan is adapting this platform and creating APIs for other participants.
In Kazakhstan, commercial banks achieved a fast and smooth onboarding to the CBDC initiative with their modern, flexible and fast-integrating infrastructure. In this respect the country stands out.
Over the years, many local banks have taken part OpenWayWay4 software system to pioneer payment innovations such as the first UnionPay cards issued outside of China and the world's first Visa P2P mobile transfers.
Today, Path4 Digital Tenge is responsible for issuing and acquiring innovations for many members of the ecosystem: the National Payment Corporation of Kazakhstan, Eurasian Bank, Altyn Bank, Halyk Bank and the national postal service, Kazpost.
Of these, three commercial banks integrated their card processing system with the Digital Tenge platform in six weeks with the help of integration partner OW Kazakhstan.
By the end of 2023, these three banks managed to penetrate 72% of all CBDC cards in the country, and were processing 75% of all card transactions on Digital Tenge.
CBDC services launched by three Kazakh banks
CBDC services launched by Eurasian Bank, Altyn Bank and Halyk Bank include opening a Digital Tenge account on the government's Digital Tenge platform for an individual or legal entity.
They also issue Mastercard or Visa plastic cards linked to the Digital Tenge account.
Banks process card payments in Digital Tenge at POS terminals, both closed-loop and open-loop transactions, converting from Digital Tenge to regular non-cash Tenge in real time.
They also make it easy to withdraw cash in Digital Tenge at the bank's ATM network. This accessibility ensures that users can convert digital funds into physical currency when needed.
How banks are differentiating their CBDC offerings
Thanks to the flexibility of the Way4 system, each bank can make its own unique CBDC offer. This customization capability is key to meeting the diverse needs of customers.
Eurasian Bank allows an additional type of retail transaction for Digital Tenge cards, which does not require conversion from Digital Tenge to regular non-cash tenge. The bank also processes P2P transfers between its customers in Digital Tenge.
Altyn Bank is currently the only bank that accepts cash withdrawals from a Digital Tenge account using other banks' ATMs.
Eurasian Bank and Halyk Bank issue plastic cards linked to a digital tenge account.
Altyn Bank and Halyk Bank make payments in Digital Tenge from a legal entity to a list of individuals.
Meanwhile, Altyn Bank and Eurasian Bank process e-commerce transactions in Digital Tenge.
Expanding Digital Tenge's footprint in 2024
Based on the achievements of these early participants, more banks in the Way4 system may decide to work with CBDC cards in 2024.
Increasing the number of participating banks is the first item on the National Bank of Kazakhstan's to-do list for the Digital Tenge project.
Other plans include exploring new scenarios for wholesale CBDC, implementing smart contracts to ensure the level of Digital Tenge matches its stablecoin reserves, introducing Digital Tenge vouchers for educational services, testing offline payments and transfers on Digital Tenge for users without internet access, and more to do Other CBDC innovations.
Digital Tenge accounts will also adhere to Open API standards, which ensures integration into the wider financial ecosystem.
Binur Zhalenov
“We can shape the global discourse on digital currencies, and by the time it is everywhere, it will work successfully in our country,”
predicts Binur Zhalenov, CEO and board member of the National Payment Corporation of Kazakhstan.
With this project, Kazakhstan is strengthening its position on the international economic stage.
To access the full OpenWay case study, visit here.
