As digital transformation accelerates within financial services, the market adapts to the changes. The use of physical fiat money has seen a rapid decline, having lost 20 percentage points in the share of global payments over the past five years. As a result, there is an increasing preference for digital payment solutions.

The global financial payments industry is moving away from traditional payments towards faster, more efficient transaction methods, which involves not only the adoption of traditional online banking and payment systems but also the emergence of new technologies.

The latest evolution of financial systems in 2023 was marked by the expansion of digital currencies, including regulated stablecoins and central bank digital currencies, each built on different technologies. These range from centralised or decentralised systems with modern blockchains based on open or permissioned distributed ledger technology. Different architecture concepts, such as these systems, are needed to support a comprehensive set of retail, interbank and wholesale, domestic and cross-border use cases in 2024.

In this evolving environment, CBDC transactions are expected to experience significant growth, with projections indicating an increase of 260,000% from $100m in 2023 to $213bn by 2030. There are also currently over 130 countries globally which are either investigating, developing or have already launched CBDCs. Growth of this proportion highlights the rapid adoption and potential impact of digital currencies in reshaping global financial transactions.

However, the transition to a digital financial landscape brings forth significant challenges for future years, particularly in achieving interoperability among diverse financial systems. As financial institutions adopt digital currencies like regulated stablecoins and CBDCs, they confront the complexity of integrating these with existing payment infrastructures. These systems often operate on a unique and elaborate architecture, making it difficult to ensure consistent and secure communication between them.

Transformation of this scale – and the inherent barriers – underscore the pressing need for interoperable systems. As the industry moves forward, the focus on developing and implementing such interoperable solutions will be key to unlocking the benefits of a fully digital financial ecosystem.

In response to the complexities of the modern digital payments market, GFT, with other technology partners, built Universal Digital Payments Network as the digital payments infrastructure of the future. It is designed to serve as a global messaging payments network connecting digital currency systems to enable seamless and efficient transactions of regulated stablecoins and CBDCs. Throughout 2023, various proofs of concept were conducted with leading financial institutions showcasing a wide range of financial operations. This included simple transfers and digital currencies’ swaps, CBDC hybrid issuing and circulation and foreign exchange between CBDCs and stablecoins.

The development of infrastructures like UDPN is indispensable in the effort to address a key factor in the digital financial market: interoperability. By enabling seamless and efficient transactions across various digital currency systems, platforms like these are pivotal in solving interoperability issues, thus meeting a critical need in the evolving landscape of digital finance.