What Can DLT Innovation Do for Central Banks, with HaitiPay and EMTECH

Oh welcome to gossip about gossip. Powered by Hedera Hashgraph. And each episode will cut through the hype of blockchain promises and explore real world examples of organizations creating the next generation of decentralized applications, which will bring trust back to the internet for us all. Hello, and welcome to the latest episode of gossip about gossip. The podcast where we talk about real world implementations of distributed ledger technology. My name is Zenobia Gottschalk and I am the SVP of communications for world's labs. Empowering and growing the Hedera ecosystem. I am joined by karmel cadet and Andy reny from MDEC and Haiti. Pay respect respectively. Kamal, welcome. And I know a lot of the members of the community know you, but for those who don't. Can you maybe start with an introduction? Absolutely so I'm Kamal cadet and founder and CEO of MDEC. Then it has been a pleasure engaging in this community and this conversation on building on Hedera. I did not know what we were signing up for when we were actually starting the conversation with Hedera. We really fell in love with the protocol and what the solution and how much of a fit it was for our use case. But then the love came with it, so we're really happy to be part of it. That's fantastic. Great to hear. And then, Andy, it sounds like you discovered both Hedera as well as imtech, perhaps in parallel. Can you share a little bit about what Haiti does and how you found both of these organizations? Yeah Thanks. Yeah, I'm handy, Renee. CEO of ADP, we've been collaborating with imtech for over a year now. We've piloted different solutions, and we finally decided to go ahead with the Hedera technology. We're a fintech company based out of Haiti, one of the toughest market in Latin America for implementing mobile money services. We've been in operation for more than five years now, and it's only now that the central bank is regulating the fintechs in Haiti with the publication of a new, new central bank directive. So very excited about this opportunity to be working with Hedera in order to be one of the players distributing head based CBDC in Haiti. And Andy, what exactly does the directive say? What does it open up the possibilities for? OK so the directive clearly provides guidance and conditions and regulations for electronic payment services in Haiti, including Fiat currency and also digital assets. The directive is very modern in its approach not to limit the type of projects, the type of startups that can enter in that field, but providing guideline general guidelines to be respected, very strong on the CUIC and ML guidelines, but leaving leave it open for any type of technology to come in as long as it's interoperable and and it's very highly secure. So the central bank has done a lot of research. They've been working on this project for at least three years, looking at what's happened in the region, in the Bahamas, other central banks, getting input from them. So the directive for us was very when we read it, it was very, we're very happy of that approach from the central bank. So it leaves the door open for innovation and also provides security into our investments as a fintech, as an investor, as an entrepreneur, to continue investing in the infrastructure of new infrastructure of money. So that's what we're building. We're really building a new infrastructure of money. And kamal, you work across a number of different countries. I know Andy said that they've been at this a long time, but in many ways, it feels like they are ahead of the curve. In terms of the government's thoughtfulness around the adoption here, how do you view what Haiti is doing in the larger context of what you're seeing? So one of the opportunities that we saw when I launched MDEC was really around the central banks tapping into that and you just talked about central banks have mandates and challenges that they've really been really struggling through over the past ten, 20 years. Financial inclusion is one of them, but also financial stability and market stability is a major goal for them. And when looking at emerging markets, even currency stabilization is very difficult. So one of the things that have been developing over the past few years, and I think kudos to the central bank of Haiti and other central banks working into this space to really think about what innovation can do for them, how can they tap and how can they leverage the innovation that's happening in the market for them to solve those challenges? So we are seeing central banks putting in place new regulatory frameworks for fintechs. Financial technology really addresses some retail gaps that the banks have not been able to really address effectively. How do you address the other 63% or 73% of people and Haiti that does not have access to banking services. Haiti only has about a 27% banking penetration. If you actually want to reach the UN bank, you have to think of different players that are going after reaching the unbanked. And fintech is doing that better. I think we've all been watching and as have day over the past 10 years, seeing fintech growing as an industry and seeing what problems and how can they go about solving challenges. So now you're seeing regulation and frameworks being put in place to really recognize this sector, but make it viable, make it compliant, make it strong and resilient, and not introduce something that might make markets even. More destabilized. Yeah and Andy, when we were chatting just a little bit ago, we were talking about the fact that in the US at least some regulators are saying, hey, there is a concern that cryptocurrencies are actually leaving behind the unbanked and the underbanked. And I think Haiti is an example of flipping that on its head. But what does it require to for a central bank and a country to say, I'm going to adopt this technology and I need to make it available to that vast majority of my population that today does not have access to banking and can't afford those kinds of fees. Yeah I mean, this argument about the cost of transaction, it's true when you're dealing with a very volatile asset, not to name the assets that are volatile today, but when you're dealing with CBDC and when you have a digital asset that is pegged to a stable currency, I mean, it makes more sense to go digital. For for us, as I think that central bank of Haiti, as a private entrepreneur, I mean, I'm really seeing a set of policies that are based on a national strategy that they had drafted almost 10 years ago today. So this is the implementation of the National Strategy for financial inclusion that was drafted in publishing, I think, around 20, 2012. And one part of that was to provide universal access to digital financial services. So having a CBDC see technology, which is that both provides security be ubiquity and also stability on the currency is key and there are not a lot of technology out there that can provide that. So I think that for us as a fintech, we although we have a mission to digitalize, you know, segments of the population that at the bottom of the pyramid, you know, the poorest the poorest of the poorest. So we have a huge challenge and for our project to succeed because basically, you know, if we're able to digitalize people in Haiti, I mean, you can do it anywhere in the rest of the world because this is one of to be in. And if we're able to when we succeed and it's going to be a very nice success story that will definitely provide confidence in the sector and be deployed in other countries. So we hope. And so can you talk a little bit about how you structure that cost model and how you structure that transaction model to make it affordable for everybody? Yeah, for us, there are the infrastructure basically when we don't have I mean, when we rely on a central bank ledger, I mean, as an operator, it's sort of a shared infrastructure that all the distributors of the financial institution locally don't have to basically create themselves. Right now, you have a very have models where every bank or every financial institution is creating their own closed loop system, closed loop network. You know, right now there's a mobile financial mobile money offering users from telco a can send money to telco b, but there are two systems, you know, there are two investments to two set of infrastructures. There's not interoperability between the stakeholders, and it's very costly. So it makes the transaction costs using that model very high. As the board evaluates those players increase their fees and it's basically the client that pays the bill. So when you have a centralized investment done by the central bank on the ledger system where the cost is basically there's some visibility in the cost, you can actually amortize the cost within all the players. It makes more sense for us. It's a better approach where you have uniformity, you have interoperability, and that cost can be absorbed or spread out evenly between the users of the platform. Pay as you go, in a sense. So right now we're looking at very, very low cost. I mean, the pilot that we've done with imtech, the cost to do a P2P was. Like almost. Yeah, exactly. Almost, almost like have a gourd. So it's not even, you know, we don't even count the sense anymore, so. And one of the best features is that it's the time for the settlement. It's like almost as rapid as what we know today as processing times for any regular traditional transaction or debit card credit card transaction. It merely takes two to three seconds to have a validated transaction. So that capacity to settle the capacity to authenticate transaction. When you take into account that when you have a blockchain or a DLT technology coming into an existing ecosystem, it's not going to change everything overnight. So it's going to have a period where it's going to be cohabitating with legacy payment infrastructure that as we know, that as we know them today. So it needs to be a seamless integration. So for us, it was very important because we already had we already have interconnection with traditional banking rails. So there there there needs to be similarity as far as time of transaction. And that's great for us. I mean, this is a technology that allows us to do that. And kamal, can you talk a little bit more about the pilot that you all are working on together? Sure so what brought us together is really given the fact that imtech plays and builds a technology for a central bank. We are not a financial service provider. We don't intend to be in the value that we saw. And to create for central banks is that CBDC is such a major innovation that it's a big decision that they have to make. And we're seeing central banks. I've been part of the initial design and pitch for the central bank of Bahamas when we're doing projects and dollars and being able to see that in the early age and early stage, you really get to see the difficulty and the questions that come up and the need for engagement, the need for education and capacity building. When we saw what Haiti was building. And when we got reduce, we were part of an event together and we got introduced to speak at an event. Really, the opportunity is to say, how can we show the central bank what this actually looks like? Right and given that they are working on their licensing and they were willing to innovate, they also wanted to know what a CBDC would mean for them. And we're seeing that across the board as well. As far as fintechs being very curious on what does this mean for me and even banks wondering what is introduced using a central bank digital currency in my jurisdiction mean for payment fees, for deposit fees, for accounts. Are people going to keep their money from their banks to move into CBDC wallet? Is CBDC a competitor to the banks or to the fintechs or to Bitcoin or what is it? Right, so many questions and we wanted to pick a problem that was close to us. I grew up in Haiti. And I was born and raised in Haiti as well. We understood the problem enough for us, put our heads together and say, let's see what we can actually showcase. So this has been months in the works. We're really looking for a great platform to introduce that to. We wanted it to be visible to the central bank, but we also wanted that to be really example of how the space is moving here and that innovation can happen much quicker than decisions can be made. But innovation and examples like this hopefully make decisions a bit better informed. And what has the feedback been from those who have seen the pilot or those who have sort of been able to kind of access the power of what you're sharing there? Yeah, everybody is excited. I mean, I'm not the tech guru in the ETP, but our CTO and our developers are very excited about how well it embeds. This technology is embedded in our existing stack. Haiti pay offers a universal wallet meaning that we have on the same wallet. We we try to have a user experience that is that allows the user to choose what type of store value he wants to put in his wallet. So you have our regular Fiat account management. So the person can access this regular Fiat account with our own product cash, which is our Fiat based mobile money. The person can add his existing debit card, visa, Mastercard, credit debit card on the profile, and they have access to electronic vouchers or accounts for specific merchants. And then we added the CBDC beatclub, which is the name of the central bank CBDC currency. So the ability to have access to the, the MDEC platform API and to have transaction where you can send across Type of accounts, Fiat and CBDC and regular debit cards is basically what was fascinating for our audience, I mean, for our developers. How did we do that? Basically a lot of integration under the hood. But ATP and imtech have worked a lot on developing web services through the MDEC API and KDP also has had a very developed API library. So we were able to actually interconnect all those channels together. So it seamless for the user. So one of the best feedback we got so far is that Wow. You know, how it's easy and how it's seamless to the existing offering that we have is just another type of account. And people what they really ask is, what's the difference between the Fiat currency and the cbdc? And it's more an education process right now to then a technical issue. So it's really like an education process which the central bank has engaged by having financial education around the subject and around the project. Yeah, I mean for me, zenobia, it's been quite a, not only an educational experiment for us, really educate what CBDC could look like, but I think being able to say that this is actually doable, I think a lot of people did not believe it. It's one thing to read a lot of papers for a long time and talk about and redefine CBDC. So many times. Like what is a central bank digital currency? What can you do? Why should somebody do this? And versus very important questions around privacy, around can the central bank see your information? What happens on the wallet? Those are things that we spend some time talking to Haiti about, because today the regulatory environment really looks at putting certain safeguards in place for the financial service providers to manage that privacy. And we see central banks wanting to provide inclusion and something that everyone uses today. And providing that trust. But when you think about the fact that users don't want to lose their money and that's a problem that you can solve them, that instead of losing your cash or get robbed, if you ever lose your money on a wallet, it's recoverable, right? Or if your money was falsified or if there was any attack on the system that needed to be investigated, that you could go back and actually show a trail of a transaction happening and reconstitute and re-establish balances. But because of that, you probably need to put your name and your ID and your account number and your address. So that way you know that it is that needs to recover the money. So there are trade offs, but I think what you are going to see are more choices hopefully. And when you have financial service providers that are regulated by the central bank and they get to plug-in directly into a central bank system, I mean, you really changing the game? I think it opens the doors for a lot of innovation. And I think it's just the beginning of what that's going to look like. I'm going to switch gears for just a second here. And Andy, you mentioned your developers and your CTO. Were they the ones who sort of first shared the introduction to Hedera or was that from Kamal or was that from your side? Actually we had already with Kamal had developed a first version on Ethereum and we were already done. We had some and we provided a lot of feedback on some challenges for the time it took for the propagation on the ledger and for transaction authentication and validation. So that was one of the challenges that we had when we did our first version of the interconnection between the two platforms, ATP and imtech. So after I mean, we had our demo account on Hedera and when Kamal came back to me, he says, well, Andy, we're switching. We're no longer with material. Base, we're going to Hedera. Oh, OK. I was actually we just open a, an account on the testnet and we're testing it. So my guys already knew how to handle that. So that's for an integration. So so MDEC was the lead in providing us API layer. So because there needs to be specific functions, kyc, AML, the different entities, the creating classes of users, agents, merchants, clients, all that second layer of customization was done by imtech with our feedback. So we had really to develop on top of, of Hedera sort of business logics that, that applied to the local market. And the fact is, is that Hedera made it so simple for us to add those extra business logics. There was no constraint because of the rapidity of, of, of the transaction. So for us it was basically just like using regular or regular Fiat system. So, so our guys knew about Hedera theoretically because they, you know, they had read the papers, they had seen the videos, they were on the terracom website. I read a lot about it, but touching it and developing and coding is, is another world. So it was a great experience for we spent like three, three or four months working with imtech on that and they're, they're very proud of what they've done. So now I'll probably get a lot of flack for this, right, because, you know, I'm from IBM and Hyperledger was a first protocol that we started building on. And sure enough, I remember when we published a bit earlier, we were still thinking about ethereum, but and I tell people and I have investors who ask me all the time, why Hedera why the protocol. And the fact of the matter is, and if our CTO was here, if Tabor was here, he would tell you to him joining and after spending about a week looking at this, it's a no brainer, right? It's so much easier for us to build and not saying this because and when we finally decided to enter a formalize a partnership, that was because we were convinced. Right we've been talking for about a year with Hedera and it was like, Ah, you know, let's see how this is going to develop and got to know the team a little bit. But we just, we made that decision and started building on it won the governing council we think is a very strong value proposition when it comes to the client segment, that that's just the nature of the business. And I want to be able to walk into a central look. You don't have we're all building on blockchain protocol and it's actually management owned by companies that you already trust and use to do your security, your cloud, your this and that right that you use on your computer every day to search to search on line. So that aspect of it made it a little bit easier here. But then you really got to look at the space. Private blockchains bring a lot of benefits as far as privacy, but it's also very difficult when it comes to scaling up on use cases and different interoperability layers are difficult to build. And when you think about cash, you need that to be pretty interoperable, pretty open, pretty accessible as well. Performance, the approach to the lead itself and how do you do the gossip protocol instead of the typical blockchain aspect of it got you the better performance. So we looked at all of those and it just made sense for us. And that's where we're starting. Wonderful and Andy, can you give us a little bit of a preview of what comes next for haiti? Pei how do you envision, in an ideal world, this sort of rolling out? Yeah I mean, one thing. What we've did with imtech basically was in preparation for a request for proposal that the central bank has ongoing in order to choose the technology that will support the CBDC bitcoin, which is the name of the, of the CBC. Gord so this according to the central bank a month ago, they've, they've publicly stated that this is going to come out by the end of June, beginning of July. So the terms of reference is for request for proposal from the central bank to invite technology CBDC platform providers to come in and to bid for this contract. So we were approached by several providers, several technology. It's been a year, a year and a half that people are coming in, coming in and out, calling us. And we chose to go with imtech because of their choice of it. So our next, we're going to be putting in a formal I mean, imtech is going probably hope is going to be participating in this RFP coming out very soon by central bank. And we will be ready to play our role as a financial fintech institution regulated under the new central bank directives to be able to be one of the local entities that will be distributing the Bitcoin that the central bank will issue. So we are a local player. And I think that the fact that we've worked with imtech on this project provides us maybe more, more knowledge of the technology. But I mean, we'll be collaborating with other financial institutions locally also to as we're part of we're all part of a formal alliance for financial inclusion. The fintechs, the banking association, the microfinance association and the villages savings and Loan Association have all put together inside an alliance. It's called Haitian alliance for financial inclusion. So within that forum, we will be presenting the imtech platform and kind of collaborate with the other financial institution locally so they can adapt their systems in order to be able to distribute seamlessly the new central bank CBDC. So that's the role we're going to be playing in the near future. We're very, very happy with the results that we have. Again, Haiti pay were a universal wallet, meaning that we take we'll be taking the bit of the debit, the Visa's and the Fiat currency all in one place. And that was important for us to be able to integrate this technology into our existing stack. So so we will be able to be providing feedback to the local, other local financial institutions. So they could also have a great experience using this. Well, Kamal and Andy, an incredible amount of work done by both of your organizations to date. And we know that there is still much more to be done. We hope that you will come back and share with us your progress as you continue on this journey. Absolutely we look forward to. And as we move forward, we look to build with ecosystem players like this. I think as the ecosystem continues to innovate with new apps and new solutions, being able to plug-in into a central banking system we think can unlock a lot of value and liquidity around the world. In Haiti, pay is the flagship fintech that gets to showcase that, and we get to bring that to the central bank of Haiti and to others as we continue to grow. So we're really excited. Wonderful Thank you both so much. Have a good one. Thank you.