What payment system inefficiencies can CBDCs solve?

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Central Bank Digital Currencies represent a fundamental shift in how payments are processed, settled, and cleared across global financial systems.

As we move through 2025, multiple CBDC pilots have demonstrated concrete efficiency gains, cost reductions, and enhanced capabilities that address longstanding payment system bottlenecks. And if you need to understand this market in 30 minutes with the latest information, you can download our quick market pitch.

What specific frictions in today's cross-border payments could a CBDC eliminate or reduce significantly?

Cross-border payments currently suffer from layered correspondent banking networks that add 3-5 days to settlement times and increase costs by up to 40% due to foreign exchange timing mismatches and liquidity constraints.

Wholesale CBDC platforms like mBridge have demonstrated atomic payment-versus-payment settlement that eliminates the need for multiple correspondent banks entirely. The system processes transactions in seconds rather than days, removing the liquidity risk associated with unsettled foreign exchange positions.

The traditional nostro/vostro account funding requirements disappear with CBDC settlement, as central banks can settle directly in their respective digital currencies without requiring commercial banks to maintain prefunded accounts across multiple jurisdictions. This elimination of trapped liquidity represents billions in capital efficiency gains for financial institutions.

FX counterparty risk, which currently requires costly credit facilities and collateral arrangements, becomes negligible when settlement occurs simultaneously in central bank money. Pilot programs in Asia have shown 40% cost reductions specifically from eliminating these risk management overheads.

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Which current transaction fees in retail and wholesale payment systems could be lowered or removed with CBDC deployment?

Retail payment systems impose interchange fees averaging 1-3% per transaction, merchant service fees, and processing charges that CBDCs can eliminate through direct settlement in central bank money.

Card network interchange fees represent the largest addressable cost, as these payments could bypass Visa, Mastercard, and other network operators entirely. India's e-rupee pilot has already demonstrated merchant cost reductions by allowing direct peer-to-peer transfers without card network involvement.

ACH processing fees, which typically range from $0.20 to $1.50 per transaction, become unnecessary when retail CBDCs settle instantly without requiring batch processing through clearinghouses. This represents significant savings for high-volume merchants and payment processors.

Wholesale payment systems face correspondent banking fees exceeding $30 per transaction, plus liquidity management charges for maintaining nostro/vostro accounts. CBDC settlement eliminates both categories of fees by enabling direct central bank settlement without commercial bank intermediation.

Cross-border wire transfer fees, which can exceed $50 per transaction when multiple correspondent banks are involved, disappear when wholesale CBDCs enable atomic settlement between central banks.

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How could CBDCs impact settlement times across domestic and international payment networks?

CBDCs enable 24/7 instant settlement that eliminates the batch processing windows and business-hour limitations that characterize current payment systems.

Domestic retail CBDC transactions finalize in real-time rather than waiting for end-of-day batch processing through ACH networks. This removes the float period during which funds remain unsettled, improving cash flow for merchants and reducing operational risk for financial institutions.

International settlements currently require T+2 processing for foreign exchange trades, but CBDC platforms can achieve atomic settlement in under 10 seconds. The New York Federal Reserve's experimental platform has demonstrated FX settlement times of less than 10 seconds compared to the current two-day standard.

Wholesale payment systems can operate continuously without the RTGS business-hour constraints that create liquidity bottlenecks during market opening and closing periods. This continuous operation smooths liquidity management and reduces the intraday funding spikes that characterize current systems.

Weekend and holiday payment processing becomes possible with CBDC infrastructure, eliminating the delayed settlement periods that currently affect time-sensitive transactions during non-business days.

What inefficiencies in financial inclusion, especially in unbanked or underbanked populations, can CBDCs realistically address in 2025–2026?

CBDCs can address the account opening costs, geographic barriers, and digital literacy requirements that prevent 1.4 billion adults globally from accessing formal financial services.

Mobile wallet-based CBDC access eliminates the requirement for traditional bank accounts, allowing unbanked populations to participate in digital payments through basic smartphones. Central bank pilots in the Caribbean, Africa, and Asia have demonstrated successful onboarding of previously unbanked users through simplified digital identity verification.

Cost barriers disappear when CBDC wallet maintenance costs are 50% lower than traditional deposit accounts. Economic modeling suggests this cost reduction could eliminate up to 93% of the unbanked population in developing economies where high account fees currently exclude low-income individuals.

Offline transaction capabilities in CBDC designs enable payments in areas with limited internet connectivity, addressing the geographic constraints that prevent rural populations from accessing digital financial services. Peer-to-peer validation systems allow transactions to process without constant network connectivity.

Tiered Know Your Customer (KYC) requirements in CBDC systems allow basic payment access with minimal documentation, while higher transaction limits require additional verification. This graduated approach provides immediate financial inclusion while maintaining regulatory compliance.

How do current intermediaries (banks, PSPs, card networks) contribute to payment system costs, and which of these roles could be disintermediated by CBDCs?

Current payment systems require multiple intermediaries that each add fees, processing time, and operational complexity without necessarily providing value in a CBDC environment.

Payment service providers typically charge 2-4% of transaction value plus fixed fees for processing, risk management, and regulatory compliance. CBDCs can eliminate these charges by enabling direct peer-to-peer transfers that settle in central bank money without requiring PSP intermediation.

Card networks like Visa and Mastercard collect interchange fees and network access charges that add approximately 1.5-2% to merchant costs. Retail CBDCs bypass these networks entirely by enabling direct transfers between digital wallets without card-based authorization.

Correspondent banks in cross-border payments charge fees for currency conversion, settlement services, and risk management that can exceed $30 per transaction. Wholesale CBDCs eliminate the need for correspondent banking by enabling direct settlement between central banks.

Settlement and clearinghouse operators charge fees for batch processing, risk management, and regulatory reporting that become unnecessary when CBDCs settle individually in real-time. The two-tier CBDC model preserves banks' credit intermediation role while removing their settlement function.

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What measurable operational risks in legacy RTGS and batch clearing systems could CBDCs reduce, and how?

Legacy Real-Time Gross Settlement systems operate within business-hour windows that create liquidity risk spikes and intraday funding pressures that CBDCs can eliminate through continuous operation.

RTGS systems currently experience peak liquidity demands during market opening and closing periods, requiring financial institutions to maintain expensive intraday credit facilities. CBDC platforms enable continuous net or gross settlement that smooths these liquidity spikes throughout 24-hour periods.

Batch clearing systems accumulate settlement risk during processing windows, creating exposure to participant default before final settlement. CBDCs settle individual transactions immediately in central bank money, eliminating the build-up of unsettled obligations that characterize batch processing.

Operational outages in centralized RTGS systems can freeze entire payment networks for hours, as demonstrated by periodic failures in major economies. Distributed CBDC architectures with multiple nodes reduce single-point-of-failure risks and enable continued operation during individual node failures.

Credit risk exposure in current systems requires complex collateral arrangements and credit scoring that add operational overhead. CBDC settlement in central bank money eliminates counterparty credit risk entirely, removing the need for these risk management processes.

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What pilot programs or live implementations in 2025 have demonstrated clear efficiency gains from CBDC use, and what were the metrics?

Multiple CBDC pilot programs in 2025 have provided quantitative evidence of efficiency improvements across settlement speed, cost reduction, and operational performance.

How could CBDCs enhance programmability and automation of payments (e.g. conditional payments, smart contracts), and in which sectors is this most actionable?

CBDC programmable features enable conditional transfers, multi-party escrow arrangements, and automated execution based on predetermined criteria that are impossible with current payment systems.

Government benefits distribution becomes highly efficient through programmable CBDCs that automatically release funds when eligibility criteria are met, eliminating administrative overhead and reducing fraud through built-in compliance checks. Pilot implementations in Asia have demonstrated programmable vouchers for social benefits that activate based on verified recipient status.

Supply chain payments can execute automatically upon delivery confirmation, IoT sensor data, or quality verification, reducing disputes and improving cash flow for suppliers. Smart contracts embedded in CBDC transactions can release payments when goods reach specific geographic locations or meet predetermined quality standards.

Securities settlement benefits from delivery-versus-payment automation, where CBDC transfers execute simultaneously with security delivery, eliminating settlement risk. Australian pilot programs have demonstrated atomic settlement for tokenized securities with automated margin calls based on market movements.

Utility and infrastructure payments can automate based on usage data, enabling pay-per-use models for electricity, water, transportation, and telecommunications without requiring monthly billing cycles or credit arrangements.

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What are the cybersecurity and fraud vulnerabilities of current payment systems, and how could CBDCs be designed to mitigate them more effectively?

Current payment systems rely on centralized payment service provider networks and card rails that create single points of failure susceptible to data breaches, ransomware attacks, and systematic fraud.

Data breach vulnerabilities in centralized databases storing payment credentials can be mitigated through CBDC designs that use cryptographic tokens without storing sensitive payment information in centralized repositories. Transaction-level encryption ensures that individual payment data remains secure even if network infrastructure is compromised.

Card fraud, which costs the industry billions annually through skimming, counterfeit cards, and account takeover, becomes impossible with CBDC systems that don't rely on static card numbers or magnetic stripe data. Digital signatures and cryptographic authentication replace vulnerable physical card authentication methods.

Permissioned ledger architectures in CBDC systems can provide access controls that prevent unauthorized network access while maintaining transaction privacy. Identity verification integrated at the protocol level reduces reliance on third-party authentication services that represent additional attack vectors.

Offline CBDC designs with peer-to-peer validation preserve payment capability during network outages or cyberattacks on centralized infrastructure, ensuring payment system resilience during crisis situations. Distributed validation prevents single-point failures that characterize current centralized payment networks.

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How do current systems handle micropayments or high-frequency transactions, and what competitive advantages would CBDCs provide in this area?

Current payment systems impose minimum fee thresholds that make transactions below $0.10 economically unviable, preventing the development of micropayment business models and limiting pay-per-use services.

Credit card networks typically charge minimum fees of $0.30 plus percentage-based charges that make micropayments impossible, while ACH systems have minimum transaction sizes that exclude fractional payments. CBDCs can process transactions for fractions of a cent without fixed minimum fees.

Internet-of-Things applications requiring machine-to-machine payments become economically viable with CBDC micropayments, enabling new business models like pay-per-byte data usage, pay-per-minute equipment access, or pay-per-article content consumption.

High-frequency trading and algorithmic trading systems benefit from CBDC settlement speeds that enable multiple daily settlement cycles instead of T+2 processing, reducing counterparty risk and capital requirements for market makers and trading firms.

Digital content monetization improves dramatically when publishers can charge fractional amounts for individual articles, video views, or software features without transaction fees exceeding the content value. This enables new revenue models that current payment systems cannot support economically.

Which regions or economic blocs (e.g. ASEAN, EU, BRICS) are showing the strongest momentum in integrating CBDCs with cross-border infrastructure as of mid-2025?

ASEAN leads cross-border CBDC integration through the mBridge platform, which connects Thailand, Hong Kong, China, and UAE in a wholesale CBDC network that has demonstrated 40% cost reductions and seconds-level settlement times.

The European Union has advanced retail CBDC pilot frameworks under European Central Bank guidance, focusing on interoperability standards that will enable cross-border retail payments throughout the eurozone without correspondent banking intermediation.

BRICS nations are developing multiple wholesale CBDC initiatives including Project Dunbar and Project Jura that aim to create alternative cross-border payment rails independent of SWIFT and Western correspondent banking networks. These projects specifically target trade finance and commodity payments between member countries.

Latin American countries are implementing retail CBDCs focused on financial inclusion and remittance efficiency, with particular emphasis on reducing the cost of cross-border worker remittances that currently face high fees through traditional money transfer services.

African Development Bank initiatives are promoting regional CBDC interoperability to facilitate intra-African trade payments and reduce dependence on hard currency intermediation for cross-border commerce within the continent.

Over the next five years, what key infrastructure upgrades (e.g. ISO 20022, tokenization layers, API standards) will intersect with CBDC implementation to drive systemic efficiency?

ISO 20022 messaging standard adoption creates the foundation for rich data exchange that enables CBDCs to carry detailed transaction information, supporting programmable features and regulatory reporting without additional processing overhead.

Tokenization layers for asset digitization will integrate with CBDC settlement to enable atomic delivery-versus-payment for a wide range of financial instruments, from securities to commodities to real estate, eliminating settlement risk across multiple asset classes.

API standardization through initiatives like Open Banking and PSD2 will enable CBDC wallet integration with existing financial services, allowing third-party developers to build payment applications that leverage CBDC infrastructure while maintaining interoperability.

Privacy-enhancing technologies including zero-knowledge proofs and homomorphic encryption will enable CBDC designs that preserve transaction privacy while maintaining regulatory compliance and anti-money laundering capabilities.

Distributed ledger platforms supporting atomic settlement and programmable smart contracts will provide the technical foundation for complex CBDC use cases including conditional payments, automated escrow, and multi-party transaction coordination.

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Conclusion

Sources

1. Bank of Thailand CBDC Presentation
2. Bank of Thailand CBDC Benefits
3. NBER Working Paper on CBDC Transaction Costs
4. Economic Times India CBDC Transaction Costs
5. The Payments Association CBDC Cross-Border Report
6. Bloomberg Law NY Fed CBDC FX Settlement
7. CoinDesk NY Fed CBDC Settlement Speed
8. Dallas Fed CBDC Financial Inclusion Study
9. BIS Financial Stability Institute CBDC Insights
10. Asian Development Bank Financial Inclusion Forum
11. IMF Cross-Border Retail CBDC Report
12. Reserve Bank of Australia CBDC Pilot Report
13. Financial Express India CBDC Programmable Features
14. BIS CBDC Cybersecurity Report
15. JPMorgan Multi-CBDC Cross-Border Value Report