Will 2022 be the year that CBDCs – central bank digital currencies – finally emerge from concept to solution? One of the countries that has been most aggressive in developing these digital assets – China – announced this week that it has launched its digital yuan wallet in both the Android and iOS app stores. The launch comes after more than seven years of development and extensive field testing across the country. This includes a pilot project that involved using the digital yuan (or e-CNY, as it is also known) for transactions worth more than $5 billion as of June of 2021. The Chinese central bank claims that, to date, its digital yuan has been used in more than 70 million payments across 1.3+ million scenarios.

What does this suggest for the digital yuan in specific and CBDCs in general going forward? Here are a handful of takeaways from this week’s announcement out of China.

China is still the global leader in CBDC innovation

Talking with CBDC experts like James Wallis of RippleX about which countries are leading the way on innovation in CBDCs, China is often treated as if it is in a category of its own. Among the more advanced economies in the world, none rival China in terms of their commitment to developing a CBDC. This week’s news of China’s digital yuan wallet being made available via the Android and iOS app stores is a testament to this leadership in the field.

While the United States has certain advantages in what has been called “the digital currency space race,” the lack of institutional support compared to what the e-CNY is receiving could play a significant role as digital currencies move toward broader use. This relative lack of support is a potential challenge both inside of the U.S. as well as internationally. “In the long term, the absence of U.S. leadership and standards setting can have geopolitical consequences, especially if China maintains its first-mover advantage in the development of CBDCs,” researchers from the Atlantic Council, a nonpartisan think tank on international affairs, concluded in December.

A digital yuan challenges offerings from Ant Group and Tencent

The timing of the Android and iOS app store launches is also noteworthy. The Winter Olympic games begin in less than a month in Beijing and it is believed that the Chinese government hopes to showcase the new technology during the weeks-long event. It has been suggested that if the new digital yuan wallet gains traction swiftly enough – selected Chinese citizens in any one of 10 provinces including Shenzhen, Shanghai, and Chengdu are eligible to download the wallet – there is a likelihood that the wallet will compete with commercial payment options from domestic firms like Ant Group and Tencent.

Interestingly, some American politicians are concerned enough about the presence of a digital yuan at the Winter Games that they have written a letter to the U.S. Olympic and Paralympic Committee asking that American athletes be banned from using it. The authors of the letter point to possible security risks, including potential “tracking and tracing” of athletes. The Chinese central bank, for its part, has indicated that the e-CNY will feature “controllable anonymity” that will protect data and prevent fraud.

The e-CNY could serve both China’s consumer tech and international finance goals

One of the conversations from 2021 that China watchers will be continuing in 2022 is the degree to which the country’s government is incentivizing “science-based” technology such as its semiconductor industry relative to more consumer tech/internet-based technologies. In some ways, development of its digital yuan cuts against this dichotomy. On the one hand, a digital yuan opens up consumer payment opportunities that could disadvantage commercial payment offerings, as noted above. On the other hand, the rise of a Chinese CBDC has the potential to play a major role not only in the digitization of China’s financial system, but also as a potential reserve currency for emerging countries or as a universal payment instrument for China’s economic partners.

“In the coming years, the e-CNY will likely be deployed across China as part of Beijing’s focus on bolstering domestic financial security,” Robert Greene wrote in a commentary for the Carnegie Endowment for International Peace last July. “The e-CNY could also be used to navigate international transactions around payment systems and networks that can be shut off to Chinese financial institutions serving U.S.-sanctioned entities.”

For more on China’s plans for its CBDC, check out this white paper published by the People’s Bank of China in July of last year.

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Regardless of where you stand on the Revolut/Yoppie partnership “intention versus execution” debate, it is nevertheless remarkable how fintechs and financial institutions are reaching out beyond their traditional collaboration competencies to reach new markets and promote an ever-widening array of causes.

This week’s Finovate List Series looks at three ways that banks and fintechs are helping pave the way in terms of greater financial inclusion for underrepresented groups and deeper understanding of how everyday behaviors can have a significant impact on the environment.

Gender

The first digital banking platform in the U.S. dedicated to serving the LGBT+ community, Daylight, launched earlier this month. The platform is built to help LGBT+ financial services consumers to manage their finances and save for future expenses ranging from emergency funds to gender transition surgery and related medical expenses. The company notes that with an estimated 30 million people in the United States who identify as LGBT+, the community remains significantly underserved in financial services.

“This country is at a critical turning point where we have recognized companies and services have been performatively suporting the LGBT+ community versus serving its unique needs,” Daylight co-founder and CEO Rob Curtis told Retail Banker International earlier this month. “Despite our community’s combined $1 trillion in buying power, we are still ignored – roughly 20% of LGBT+ people are unbanked or underbanked.”

Daylight will offer Visa-branded cards in the customer’s preferred name, rather than the customer’s legal name, as well as financial tools to help prioritize spending decisions and meet financial goals. The platform will also provide expert financial advice and access to a network of financial management “coaches” that specialize in responding to the unique financial needs of those in the LGBT+ community. A member of Visa’s Fintech Fast Track program – and the program’s first LGBT+-based fintech – Daylight is also supported by card issuing platform and Finovate alum Marqeta.

Daylight has announced that it will begin operations in the middle of next month, starting with an invite-only, beta period involving “a few hundred people.” The company will focus first on markets in California and New York.

Ethnicity

In the wake of the George Floyd-inspired, Black Lives Matter protests of 2020, a spotlight has been shown on the rising number of financial institutions catering to African Americans.

Among the newer entries to this cohort is Adelphi Bank, which announced earlier this month that it has filed paperwork with the FDIC to become the first black-owned, depository institution in Ohio.

“We know that African Americans typically don’t have access to financial institutions to the degree that the majority community has,” former Fifth Third Central Ohio president and CEO Jordan Miller said to The Columbus Dispatch. “We know that our financial situations are not as strong in most cases. And so we want to make a difference in the community across Franklin County, to give those underserved a voice and financial services,” Miller, one of Adelphi Bank’s proposed incorporators, added.

The bank would be located in the King-Lincoln/Bronzeville neighborhood, and its backers stated that they plan to raise $20 million in equity capital upon earning FDIC approval to open. The institution takes its name from the city’s first black-owned bank, Adelphi Loan & Savings Company, which was launched in the early 1920s. The new bank will be part of a $25 million development called Adelphi Quarter, which will feature both housing and ground-floor businesses. The Columbus Dispatch reported that the original facade of Adelphi Loan & Savings has been incorporated into the new structure.

Sustainability

This week we reported on the partnership between Tink and ecolytiq to give banks, financial institutions, and fintechs the ability to offer environmental impact data to their customers. These kind of solutions, which include options like carbon footprint calculators, have been among the chief ways that many innovative companies have sought to bring their sustainability technology to the world of financial services.

Today we learn that micro-investing platform Wombat has added a new option to its impact investment offerings: a sustainable food ETF (exchange-traded fund) that enables investors to get exposure to dozens of companies that are involved in developing sustainable food production systems and products. These companies include new, but well-known brands such as plant-based food company Beyond Meat, oatmilk company Oatly, and farm-to-table business Tattooed Chef.

The fund, called The Future of Food, is the fifth impact investment offering on Wombat’s platform. The ETF was created via a partnership between thematic ETF issuer Rize and thematic research company Tematica Research. It will trade on the London Stock Exchange under the ticker “FOOD LN.”

“At Wombat we have found that some of our most popular thematic funds are those that offer impact investment opportunities, such as our Medical Cannabis and Green Machine ETFs,” Wombat co-founder and CEO Kane Harrison said. “We think this new sustainable food fund is a great addition to that range and it means we now offer a very competitive choice of impact investments when compared with other micro-investing platforms.”

Founded in 2019, Wombat currently has more than 190,000 users.

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