While officially the BoE says that “no decision has been taken on whether to build a digital pound,” understanding feasibility is a key focus. Meanwhile, it has just published its report, Point of Sale (POS) Proof of Concept.

What did the Bank of England test?

A key focus is for a digital pound to be useful for everyday payments, especially in store and in person. Utilising the existing POS infrastructure would eliminate a need for new hardware, potentially a big win, so the BoE has worked with a consultancy to test payment initiation using traditional and mobile POS terminals, and POS software on an Android phone.

These have been used in conjunction with EMV-compliant (Europay, Mastercard and Visa) contactless rules and with Smart cards (including fingerprint sensor) with EMV applications, and verification methods such as Consumer Device Cardholder Verification Method (CDCVM) and Online PIN. The BoE explored three payment flows:

• PASSTHRU – where a request for payment is sent to the BoE API via the merchant’s Payment Interface Provider (PIP)
• DIRECT – where a request for payment is sent directly to the BoE API, bypassing the merchant’s PIP
• PEER – where a payment is made between two devices without network connection, supporting offline payments.

PASSTHRU and DIRECT were successfully implemented across the three varieties of terminals. DIRECT however, required all POS terminals to be connected to the BoE API, which created significant load. PEER was only partially successful: online payments could not be implemented on mobile POS terminals while offline payments were.

Authentication wise, CDCVM was possible for all payment flows. Online PIN was implemented in PASSTHRU. It was successful in DIRECT with complexities, and successful in PEER for online payments only.

The BoE concludes that this has demonstrated the technical feasibility of using existing POS hardware to initiate payments, albeit based on design assumptions that have yet to be made.

Importantly, it acknowledges that technical feasibility is only one of many considerations that would impact design choices.

So what: the big questions for merchants, issuers, and customers

This is a (very) technology focussed exercise, and the report acknowledges there are other considerations to address. Clearly any changes to the POS infrastructure could cause concern around cost (who foots the bill for new hardware) but utilising the existing infrastructure would be a major win.

Let’s talk about the Consumer Device Cardholder Verification Method (CDCVM.) If we take Apple Pay today where the Consumer Device is their phone; the customer uses touch ID or the device passcode as verification. Great, no change.

While the technology element is only one consideration, it is positive to see a proof of concept that sets out to use what exists in shops and online retailers today. But an important factor to mention is that this proof of concept used biometric smart cards with fingerprint verification, which is A) not a common feature of the UK market and B) more costly than normal cards. So, while acquirers will be thrilled its business as usual for their POS hardware, issuers could face upfront and ongoing costs in issuing biometric payment cards.

Then, there’s the customer impact, and it’s here where lab conditions have their drawbacks. There are no insights as to how a customer may have found the experience or derived any value out of it over and above how they would pay with a traditional debit card payment for example.

It’s equally difficult to judge how customer psychology would impact uptake or appetite in practice. Members of the public who may already be sceptical about a digital pound or central bank digital currencies (a sample size that remains relatively unknown) are unlikely to be the same folks racing to queue up to register their fingerprints and retinas for biometric use.

As custodians of the customer, it’s important we view this through their eyes as it evolves, until such time they can play an active part and give feedback for themselves.

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