How OpenWay’s Way4 Enabled the First CBDC Card Transaction in Eurasia

How OpenWay’s Way4 Enabled the First CBDC Card Transaction in Eurasia

by May 28, 2024

Central bank digital currencies (CBDCs) have largely existed in the virtual realm, with transactions initiated primarily through web and mobile interfaces.

However, a significant shift has occurred with the launch of Eurasia’s first CBDC cards in Kazakhstan, providing 20 million consumers with a new, tangible way to manage CBDC funds.

The first CBDC card transaction in Eurasia was successfully made on 15 November 2023.

It was a contactless payment on POS using a card issued by Eurasian Bank JSC on the Way4 digital payments software system. This marked a milestone in the region’s digital currency journey.

Today, just six months later, plastic cards in the Digital Tenge currency are used for both in-store and ecommerce purchases – and are accepted globally through the Mastercard and Visa networks.

The rapid adoption of these cards underscores the project’s success and potential for growth.

CBDC for cross-border payments, programmable money, and DeFi

Kazakhstan’s Digital Tenge project is pursuing several ambitious goals: intensifying cross-border trade, implementing innovative social and anti-corruption initiatives, and integrating digital assets issued by decentralised finance (DeFi) participants and those issued by the government.

Trialed Digital Tenge use cases include wholesale cross-border CBDC transactions with the Hong Kong Monetary Authority, CBDC vouchers for school meals, smart contracts designed to safeguard public funds allocated for road construction, and Digital Tenge stablecoins on the Binance cryptocurrency exchange.

These varied use cases demonstrate the versatility and potential impact of the Digital Tenge.

MVP in production: interoperability of CBDC, banks, and card networks

Astana, the capital of Kazakhstan. Image by bahonya from Pixabay

Before launching the Digital Tenge, Kazakhstan’s National Payment Corporation had studied various CBDC architecture models advocated by the IMF, BIS, ECB, the Monetary Authority of Singapore, and other organisations.

The regulator decided to issue and redeem Digital Tenge centrally and allow reputable market participants to facilitate CBDC workflows related to accounts, cards, and payments.

Corda, a blockchain and tokenization platform developed by R3, a provider of digital currency, digital asset, and integration and interoperability solutions, became the cornerstone of the Digital Tenge infrastructure.

Kazakhstan’s National Payment Corporation is adapting this platform and creating APIs for other participants.

In Kazakhstan, commercial banks achieved a rapid and smooth entry into the CBDC initiative thanks to their infrastructure which was modern, flexible, and capable of quick integration. The country stands out in this regard.

Over the years, many banks here have embraced OpenWay’s Way4 software system to become pioneers in payment innovations – such as the first-ever UnionPay cards issued outside of China and the world’s first mobile Visa P2P transfers.

Today, Way4 powers card issuing and acquiring innovations for many members of the Digital Tenge ecosystem: National Payment Corporation of Kazakhstan, Eurasian Bank, Altyn Bank, Halyk Bank, and the national postal service, Kazpost.

Of these, the three commercial banks integrated their card processing system with the Digital Tenge platform in just six weeks, assisted by their integration partner OW Kazakhstan.

By the end of 2023, these three banks succeeded in onboarding 72% of all CBDC cardholders in the country – and were processing 75% of all card transactions in Digital Tenge.

CBDC services launched by three of Kazakhstan’s banks

The 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.

The banks process card payments in Digital Tenge on POS terminals, both closed-loop and open-loop transactions, with real-time conversion from Digital Tenge to regular non-cash tenge.

They also facilitate cash withdrawals in Digital Tenge across the bank’s ATM network. This accessibility ensures that users can easily convert digital funds into physical currency when needed.

How banks differentiate their CBDC offering

The flexibility of the Way4 system allows each bank to craft its unique CBDC offering. This customisation capability is key to meeting diverse customer needs.

Eurasian Bank enables 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 in Digital Tenge between its customers.

Altyn Bank is currently the only bank supporting cash withdrawals from a Digital Tenge account using ATMs of other banks.

Eurasian Bank and Halyk Bank issue plastic cards linked to the digital tenge account.

Both Altyn Bank and Halyk Bank support payments in Digital Tenge from a legal entity to a list of individuals.

Meanwhile, Altyn Bank and Eurasian Bank process ecommerce transactions in Digital Tenge.

Expanding the Digital Tenge footprint in 2024

Considering the achievements of these early-bird participants, more banks on 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 that the level of Digital Tenge matches its stablecoin reserves, introducing Digital Tenge vouchers for education services, piloting offline payments and transfers in Digital Tenge for users without Internet access, and advancing other CBDC innovations.

Digital Tenge accounts will also adhere to Open API standards, which ensures their integration within the broader financial ecosystem.

Binur Zhalenov

Binur Zhalenov

“We can shape global discourse on digital currencies, and by the time it is everywhere, it will be working successfully in our country”,

forecasts Binur Zhalenov, the CEO and Board Member of Kazakhstan’s National Payment Corporation.

With this project, Kazakhstan is strengthening its position on the international economic stage.

 

 

To access the full case study by OpenWay, visit here.