IoT Payments: a case for CBDC

According to leading mobile market firm GSMA Intelligence, the number of devices connected to the IoT is 19 billion in 2023, and is slated to approach 26 billion by 2026.¹ According to the United Nations, the global population surpassed 8 billion in November 2022.² In 2026, therefore, there will be more than three devices per person globally, up from about two right now. This relation shows us that the sheer size of the IoT is already staggering, and indicates that the future trajectory will trend steeply upward.

Another macrotrend that is influencing this growth is the increasing use of artificial intelligence (AI) and its related technologies. With better algorithms and the availability of ever more computing power, there seems to be no structural reason that the IoT will cease its expansion. 

Finally, digital payments are exploding as well, and evolving to autonomous payments. In this scenario, machines and devices will be interacting with each other, including in payments, with varying levels of autonomy. The size of the market for IoT payments can only be guessed at, but secure, stable payment for goods and services will be crucial. 
 
Numerous options have been touted as solutions – cryptocurrencies among them – to the various issues with payments that have become apparent as the IoT comes increasingly of age. The demonstrable strengths of central bank digital currencies (CBDCs) make them a real contender in this field.

An issue of trust

Customers are understandably hesitant to trust a machine or device with their financial details. This is a threefold issue: devices must be secure, the connection needs to be secure, and the payment solution being utilized must be secure. This isn’t just true for consumers accessing the consumer IoT (CIoT): enterprise and other business owners also face challenges in this regard.

In this context, a well-designed CBDC solves the challenges people and industry face when making and receiving IoT payments. In doing so, a CBDC could also enable business models that offer new directions for service providers and end users.

Advantages of a CBDC in the IoT

These accrue from a number of factors that come from the design of the CBDC itself.

• Instant settlement: money is transferred from payer to payee in seconds. These amounts don’t have to be huge. In view of the number of connected devices, even small payments in such a large quantity would add up to huge benefits such as  avoidance of transaction/provisional costs; better process efficiency when settlement is prompt and not in subsequent and additional processes; and, last but not least, increased liquidity for the companies involved
• Like cash, but digital: a token-based CBDC is a bearer instrument that is stored on a device
• Resilience is built-in: small bandwidth, low energy consumption, and payment without intermediaries
• A CBDC is interoperable through standardized tokenization: this can happen through data or through established messaging standards
• Tech-independent: once embedded with a secure element, the channel the user deploys and the device they use it on is irrelevant. A CBDC works across various communication and connectivity protocols, such as Bluetooth, 5G, LoRaWAN, near-field communication (NFC), etc.
• Programmable payments: because they are “smart”, CBDC wallets can be programmed to implement triggers and conditions. These include regular payments for recurring outlays like electric bills from smart meters and other home automation devices, or taking care of your family’s transport needs
• New business models could be enabled: micropayments are not worthwhile via fee-charging digital payment systems, as the transaction values are too small. CBDCs enable direct settlement between user and vendor, so transaction value is of little importance
• CBDCs enable both proximity and remote payments: because CBDC functions over Bluetooth, for example, devices with limited range can still send and receive payments from each other. CBDCs are of course also secure when used over larger distances and over other connectivity protocols, like 5G, etc.

Designed for security and efficiency

It is clear that a CBDC solution can work well in the IoT sphere. A well-designed, token-based CBDC like G+D Filia^® makes for easy, secure IoT payments for consumers. It is suitable for vendors of services and goods providers as well, while being stable and cost-effective and offering the benefits of instant settlement.

Published: 27/06/2023