Hong Kong Hang Seng, HSBC Bank, and VISA to Experiment with Digitalizing Hong Kong Dollar Deposits

According to an announcement on the VISA official website, Hang Seng Bank and HSBC in Hong Kong are collaborating with VISA to experiment with tokenized deposits use cases and methods as part of the Hong Kong Digital Hong Kong Dollar Pilot Program.

Background: Hong Kong Digital Currency Initiative

The Hong Kong Monetary Authority announced the launch of the "Digital Currency Initiative" pilot program on May 18 this year, marking the first global experiment through collaboration. The initiative plans to work with 16 industry partners to jointly experiment and research potential use cases of "Digital Currency" in six areas, including comprehensive payments, programmable payments, offline payments, tokenized deposits, Web3-related transaction settlements, and tokenized asset settlements. This is to prepare for the potential launch of the central bank digital currency - the Digital Hong Kong Dollar.

It should be noted that the Hong Kong Monetary Authority has not yet made a decision on whether to formally launch the "Digital Hong Kong Dollar" and is still in the experimental phase.

Tokenized Deposits

Visa's collaboration with HSBC and Hang Seng Bank, announced recently, is part of the above-mentioned "Digital Hong Kong Dollar" pilot program - tokenizing bank deposits. The pilot test will involve tokenizing bank deposits using the central bank digital currency e-HKD, attempting to tokenize B2B transactions through bank payments and transfers to test use cases of digital Hong Kong Dollar atomicity and interoperability.

Visa stated that tokenized deposits could potentially change the way banks handle digital assets and has been gaining increasing attention in the financial industry.

The current focus of this collaboration is on optimizing B2B payment processes, and two simulated case studies are being researched:

• Real estate payments

• Settlement between receiving institutions and merchants

Taking real estate and property management companies as an example, there are at least five major payment processes in property transactions, which reduce efficiency and increase transaction time and error probability; using tokenized digital currency for payments in the future can simplify the peer-to-peer transaction process between buyers and sellers and efficiently complete these transactions.

Visa states that tokenizing B2B payments can optimize payment speed and settlement risk control, offering potential advantages in various aspects. Therefore, future research directions will include bank settlements, asset market tokenization, programmable finance, expanded retail solutions, and cross-border payments.

For more information on the results of this pilot test and detailed information, please refer to the research report and introductory video.

Advantages Claimed for Tokenized Deposits

The Visa team pointed out that tokenized deposits for B2B payments could provide the following benefits:

• Enhanced transaction information security: After testing, the team confirmed that all on-chain transactions can be kept encrypted while completing transactions, and zero-knowledge proofs can be used for transaction auditing.

• Reduced transaction settlement risk: Tokenization can achieve point-to-point atomic settlements through smart contracts, reducing the likelihood of accounting errors.

• Increased transaction transparency: Users can view on-chain information to monitor transaction status in real-time.

• Accelerated settlement speed for large transactions: The final settlement time for interbank transfers can be reduced through blockchain technology and atomic transactions.

• Seamless experience for large transactions: Current financial intermediaries can restrict transactions for any reason, making them unsuitable for large B2B payment use cases. Tokenized bank deposits can solve this issue by offering high transaction limits, thereby enhancing the payment experience for large transactions.

• 24/7 online payment infrastructure: Creating a globally available blockchain network with unlimited operating time to optimize cross-border bank liquidity management.

• Programmable transactions: Tokenization will provide the programmability of smart contracts for banks, allowing existing and new business logic to be directly embedded in deposit accounts, achieving financial digitization and even automation more efficiently.

Visa believes that the results of this research and collaboration can bring new payment innovation use cases, enhancing payment efficiency and quality among banks, companies, and merchants, presenting new opportunities for the industry. Visa will continue to explore more feasible tokenized deposit use cases.