.svg)
Japan will use its local card-based payments network to trial in-person merchant payments using a central bank digital currency (CBDC).
Japan Credit Bureau (JCB), the country’s domestic and international card payments network, has launched a new CBDC pilot that will use contactless cards to test in-store payments.
Partnering with Soft Space, a Malaysian fintech, and IDEMIA, a French identity technology provider, the pilot will test card-based CBDC payments among Tokyo merchants in a retail setting.
Known as JCBDC, the pilot aims to study merchant and consumer acceptance of CBDC when payments are delivered using a familiar technology — in this case, an existing JCB Contactless card.
The three partners said they will be developing the JCBDC payment system until the end of 2022, and will then run the live phase of the pilot until March 2023.
Julia Schoonenberg, executive vice president of financial institutions at IDEMIA, said she hopes that the pilot will show that CBDC payments can find acceptance among all consumers, including those who are less tech-savvy.
“IDEMIA’s collaboration with JCB and Soft Space shows how to leverage the existing card and POS acceptance infrastructure to unlock new forms of payments,” she said.
“We recognise that CBDCs are set to redefine the fundamentals of the payment ecosystem.
“The good news is that consumers and merchants can enjoy the payment experience in the usual way, with the same user interface.”
Building a CBDC sandbox
Speaking to Japanese news agency Atarashii Economy, a JCB spokesperson said the pilot will utilise JCB Contactless infrastructure.
This will involve upgrading the JCB Contactless network so that it can receive, handle and store CBDC payments through a new user interface.
It will also involve Tap on Mobile, a joint solution from JCB and Soft Space that allows a smartphone to be used as a point of sale (POS) contactless card reader.
First launched in 2020, Tap on Mobile by Soft Space can turn almost any Android smartphone with a near-field communication (NFC) module into a POS device.
“Although CBDCs are still in their infancy, this pilot takes us forward from theory to reality, by harnessing our in-store payment experience and existing payment platform expertise,” said Joel Tay, CEO of Soft Space.
JCB said that in the first pilot stage, only contactless cards will be used to test CBDC payments.
In future, however, JCB plans to test mobile payment solutions such as JCB QUICPay, QUICPay+ and QR codes, so that CBDC payments can be made using either a smartphone or contactless card.
The pilot will also construct a simulated CBDC handling environment. Partnering with Soft Space and IDEMIA, JCB will build a blockchain-based system whereby CBDC tokens can be transacted between users, and users will be able to query their balances and transactions.
Cash-friendly Japan moves in on CBDC
The Bank of Japan (BOJ) first outlined its plans to study CBDC in October 2020, stressing the need for a two-tiered system of “wholesale” and “general purpose” CBDC.
The BOJ said the general purpose CBDC — also known as retail CBDC — would have three main functions: to introduce a new payment instrument alongside cash; support private payment services; and develop payment and settlement systems for a digital society.
Given the country’s historical preference for cash, the BOJ also pledged that it would continue to issue cash, regardless of the results of its CBDC study or the introduction of a CBDC.
“As long as there is public demand for cash, the bank will stay committed to supplying it,” the BOJ said in its announcement.
In April 2021, the BOJ launched Phase 1 of its Proof of Concept study, which ran for about a year and tested the “technical feasibility” of the core functions and features required by a CBDC.
Phase 2 launched a year later and is focused on whether limits ought to be applied to individual holdings of CBDC.
Haruhiko Kuroda, governor of the BOJ, has previously said Japan could decide on whether to issue a CBDC as early as 2026, but it will depend on how quickly other nations move forward with their own CBDCs.
In a speech in March this year, Kuroda said: “While there is no change in the Bank's stance that it currently has no plan to issue CBDC, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems.”
