Today security tech company Giesecke+Devrient (G+D) unveiled G+D Filia Unplugged, its offline payment solution. On the face of it, one of the most appealing features of the tokenized payment solution is it works with existing payment systems, mobile money services and future commercial bank tokenized deposit systems.
Hence, if there’s a telecoms outage, a poor internet signal or weak infrastructure, offline payments help to fill the gap.
However, understanding how it works, reveals that it’s essentially a separate payment system.
How it works
Money has to be transferred from the online solution to the offline solution where it’s stored either on a smart card or the secure enclave of a smartphone. User make transfers by touching two wallets together using NFC or bluetooth.
G+D helpfully provided an analogy with streamed video. If you know you’re going to take a flight or train journey you can download a video onto your device for watching later. That’s a good analogy, except you often know in advance you’re going to take the trip. Whereas frequently internet connectivity lets us down when we least expect it. Hence, for this to work, it requires people to keep a cash balance in their offline wallets.
The solution has the potential to offer cash-like privacy, because any compliance will be performed at the point of top up.
The branding, Filia Unplugged, shares part of its name with G+D Filia, the company’s central bank digital currency (CBDC) solution. It’s been involved in offline CBDC trials in Hong Kong and Brazil, and is the CBDC partner to the Bank of Ghana and the Bank of Thailand.
In a recent report, the Bank of Thailand noted that the G+D solution supported multiple consecutive offline transactions. However, it found the bluetooth and NFC connectivity for payments was sometimes unstable.
“The capability of paying also offline in an existing digital system can enhance financial inclusion and payments resilience, support cash-like features in the digital world, and drive innovative use cases for the tokenized economy,” said Dr. Raoul Herborg, Managing Director Central Bank Digital Currency at G+D.
Strategic implications
Given this offline functionality is separate from the primary payment systems, retail outlets would need to support offline wallets.
That’s a critical point because currently there are a relatively small number of providers of offline payment technology. We suspect each offering differs considerably. NFC and bluetooth may be standard and the payment data communicated may be standard, but not so much the wallet, which needs to be exceptionally secure.
If a CBDC deploys an offline solution, that encourages private payment systems to adopt the same solution to avoid retail outlets needing to support more than one wallet. This works vice versa – if private payment systems get retailers to adopt a particular offline payment solution, then any CBDC would likely follow suit.
In the absence of standards to make wallets compatible – and doing so this early might inhibit innovation – this means there’s a race for offline dominance. However, there is another option that may prevent the first offline payment solution being the only one for the entire country. That and more is covered in our upcoming report on bank stablecoins and tokenized deposits.
