Project Bakong launched in 2019 as the world’s first or second central-bank digital currency, under the auspices of the National Bank of Cambodia.
Now the fintech company behind Bakong is pitching a means of helping banks begin to layer credit and other services on top, in a global CBDC challenge organized by the Monetary Authority of Singapore.
Soramitsu, a Tokyo-founded, Swiss-domiciled tech company, is one of fifteen finalists named by MAS. (DigFin is profiling a number of these finalists and their use cases.)
“We bring a unique perspective to blockchain-based payments identity,” said Andrew Wong, COO in Tokyo. The MAS proposal augments the Bakong protocol with Soramitsu’s own decentralized finance (DeFi) functions, including the company’s own governance token.
“We want to overlay the CBDC payment infrastructure with applications that empower financial institutions to access digital payments data,” he said. “This would let them build customized offers to the unbanked, while raising both financial health and financial inclusion.”
Asia’s first live CBDC
Cambodia launched Bakong in 2019 with two goals. One was to generate more demand for the riel and reduce Cambodia’s dependency on U.S. dollars. The primary aim, however, was to provide a means of letting people with phones, but not bank accounts, access basic financial services.
NBC says about 78 percent of Cambodians lack a bank account, but more than 50 percent have a smartphone.
Bakong is a retail CBDC, in which user transactions reflect directly onto the central bank’s balance sheet. The actual transactions are generated from over 20 participating financial institutions’ mobile apps.
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As of June, NBC says there are 200,000 users of the Bakong mobile wallet. In the first half of 2021 they conducted 1.4 million transactions valued at $500 million.
Wong adds the overall system reaches about 5.9 million users, including those reached indirectly through member bank mobile apps. That’s more than a third of Cambodia’s population of 16.5 million.
This is proven scale, Wong says, upon which new functionality can be built: “Bakong is an ideal base layer on which to implement our proposed solution.”
From transactions to data
Right now Bakong has limited functionality. It can be used as cash. People and businesses in Cambodia can use it to make payments.
In the context of the MAS challenge, Soramitsu is keen to develop a means to get that user behavior data into the hands of banks or insurance companies, which could then tailor offers, as is the case with other types of alternative credit-scoring schemes.
Only this time, the user data would be people’s use of digital cash.
On the privacy front, Soramitsu’s proposal would require explicit consent from any user to grant access to a given data point.
As for what that data might comprise, Wong suggested three ideas. One is whether someone’s CBDC account receives regular payments – this would suggest a steady job. Another is whether they are making regular payments to the same external wallet – this might indicate they are paying back their own debts. Third is geolocation of payments, to gauge if someone has a stable address.
The app would then generate a risk profile.
Credit scores and financial inclusion
Financial institutions would find this valuable, as they would not otherwise have a way to assess an unbanked person’s behavior or creditworthiness. The existence of Bakong is creating a new group of people who lack bank accounts but are integrating into the financial system, but who otherwise lack the means to establish their credentials.
“We are proposing a way to let financial institutions query specific payment data points from retail CBDC wallets, with explicit consent,” Wong said. “We don’t want to give banks unbridled access to user information, or abuse data – like discriminate against people – or create financial monopolies.”
Although the company’s pitch to MAS builds specifically off its Cambodia experience, Wong says the technology could apply to any CBDC. He says CBDCs should complement existing systems, including physical cash.
Bakong was built on Hyperledger Iroha, an open-sourced permissioned blockchain developed under the auspices of the Linux Foundation. Original contributors of code include Soramitsu, Hitachi, and NTT Data.
Iroha is designed for enterprises, particularly those engaged in payments and identity management. It is known for a development environment that is friendly to mobile app designers and programmers who use common languages such as C++. It relies on Byzantine Fault Tolerance tools for consensus, which makes it faster and easier to operate than the public, proof-of-work blockchains such as Bitcoin or Ethereum. This allows it to scale to meet national-level volumes and throughputs, at a cost the National Bank of Cambodia, for the Bakong project, has deemed justified.