Category Archives: Fintech

RBNZ response to illegal breach of data system

The Reserve Bank of New Zealand (RBNZ) – Te Pūtea Matua continues to respond with urgency to a breach of a third party file sharing service used to share information with external stakeholders.

Governor Adrian Orr says the breach is contained, but it will take time to determine the impact. The analysis of the potentially affected information is being done with pace and care.

“We are actively working with domestic and international cyber security experts and other relevant authorities as part of our investigation. This includes the GCSB’s National Cyber Security Centre which has been notified and is providing guidance and advice.”

“We have been advised by the third party provider that this wasn’t a specific attack on the Reserve Bank, and other users of the file sharing application were also compromised.”

“We recognise the public interest in this incident however we are not in a position to provide further details at this time.”

Providing any further details at this early stage could adversely affect the investigation and the steps being taken to mitigate the breach. The Reserve Bank will continue to work with affected stakeholders directly.

“Our core functions and New Zealand’s financial system remain sound, and Te Pūtea Matua is open for business. This includes our markets operations and management of the cash and payments systems.”

We will provide further facts when it is appropriate to do so.

Key details of incident to date:

  • A third party file sharing service provided by Accellion called FTA (File Transfer Application), used by the Bank to share and store some sensitive information, was illegally accessed.
  • The system has been secured and taken offline while investigations are underway.
  • The Bank is communicating with system users about alternative ways to securely share data.
  • Work is continuing to confirm the nature and extent of information that has been potentially accessed. The compromised data may include some commercially and personally sensitive information.

Ukrainian Ministry of Digital Transformation to develop virtual assets and to facilitate CBDC infrastructure with the Stellar Development Foundation

On December 28, the Ministry of Digital Transformation of Ukraine and the Stellar Development Foundation (SDF) signed a Memorandum of Understanding and Cooperation, within which they will work on the development of a strategy for virtual assets in Ukraine.

Under the Memorandum, the Ministry of Digital Transformation and SDF will work to develop a modern virtual asset market infrastructure and enhance Ukraine’s status as an innovative digital country in the financial market in Eastern Europe.

“The Ministry of Digital Transformation is working on creating the legal environment for the development of virtual assets in Ukraine. We believe our cooperation with the Stellar Development Foundation will contribute to development of the virtual asset industry and its integration into the global financial ecosystem,” said Oleksandr Bornyakov, Deputy Minister of Digital Transformation for IT Development. “Another important aspect of this cooperation is contributing to the development of the infrastructure for a Ukrainian national digital currency. Most of the world’s leading countries are developing their own national digital currencies. The National Bank of Ukraine has been researching the possibility of CBDC implementation since 2017. It demonstrates Ukraine’s movement towards one of major financial trends. At the Ministry, we aspire to ensure our country’s adaptation to technological innovations and competitiveness in the financial market in Eastern Europe.”

The memorandum outlines the core focus of the partnership as follows:

  • cooperation on the development of the virtual assets market in Ukraine;
  • provision of support to projects related to virtual assets;
  • implementation and regulation of stablecoin circulation in Ukraine; and,
  • facilitation of the development of the digital currency of the Central Bank in Ukraine.

“We believe digital assets and national digital currencies are one of the most important innovations of our lifetimes and we are excited to play a role in the creation of Ukraine’s digital asset infrastructure,” said Denelle Dixon, CEO and Executive Director, Stellar Development Foundation. “Through the leadership of the Ministry, Ukraine has demonstrated its commitment to fostering an environment of innovation for the digital economy. We look forward to working with the Ministry and other stakeholders to digitize the hryvnia, to bring Stellar-based tools and services to the people and businesses of Ukraine, and to introduce new partnership opportunities in Ukraine to businesses in the Stellar ecosystem.”

Stellar Development Foundation will officially launch its activity with Ukraine in January 2021.

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About Stellar

Stellar is a decentralized, fast, scalable, and uniquely sustainable network for financial products and services. It is both a cross-currency transaction system and a platform for digital asset issuance, designed to connect the world’s financial infrastructure. Dozens of financial institutions worldwide issue assets and settle payments on the Stellar network, which has grown to over 4.7 million accounts. 

About the Stellar Development Foundation

The Stellar Development Foundation (SDF) is a non-profit organization that supports the development and growth of Stellar, an open-source network that connects the world’s financial infrastructure. Founded in 2014, the Foundation helps maintain Stellar’s codebase, supports the technical and business communities building on the network, and serves as a voice to regulators and institutions. The Foundation seeks to create equitable access to the global financial system, using the Stellar network to unlock the world’s economic potential through blockchain technology.

Nina Stoyanova: Adaptation and management of digital portfolios, digital banking services and client contacts in a pandemic crisis

Speech by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the Bulgarian National Bank, at the opening of the videoconference “Adaptation and Management of Digital Portfolios, Digital Banking Services and Client Contacts in a Pandemic Crisis”, organized by the Banker newspaper.

I would like to welcome you to the video conference on “Adaptation and management of digital portfolios, digital banking services and customer contacts in a pandemic crisis”, organized by the Banker newspaper.

In its “Strategy for the Digitalisation of EU Financial Services”, the European Commission states that the future of finance is digital. However, we can safely say that not only the future but also the present of finance is inextricably linked to digitalisation. This was clearly seen in the unprecedented situation caused by the coronavirus, in which it was through digital technologies that the continuity of the provision of financial services to consumers and businesses was ensured. The pandemic is about to permanently change our way of life, accelerating the processes of digitalization in all spheres of life – work, entertainment, shopping, administrative services. We are witnessing the emergence of new business models, services and solutions that create value, save time and effort, but at the same time are accompanied by new risks and challenges – both technological,

This trend in the development of the financial sector is particularly visible in the dynamic and customer-oriented area of ​​payments. Undoubtedly, the catalyst for these processes is the European legislation in this area, namely the Second Payment Services Directive, known as PSD2. As the main innovations in it we can highlight two aspects – opening access to payment accounts (the so-called “open banking”) and increasing the requirements for the security of electronic payments. These were the areas in which in 2020 the efforts and attention of both the business and the regulator continued to be focused.

As part of the first aspect, the directive introduced two new types of payment services provided entirely on the Internet – payment initiation and account information services, and regulated the activities of providers offering them. The provision of new services requires interaction between payment service providers who maintain customer accounts (most often banks) and the respective providers that offer new services. Most payment service providers holding accounts in our market have chosen to achieve this interaction by creating special interfaces for automated access to their managed payment accounts (so-called application programming interface – API).

Despite the created interfaces, the offer of the new services in Bulgaria, as well as in a number of other countries of the European Union, is still limited. In order to achieve a harmonized application of legislation at European level and to support payment initiation and account information service providers, the European Banking Authority (EBA) adopted an opinion on obstacles in early June 2020. within the meaning of Art. 32 (3) of the regulatory technical standards for in-depth identification of the customer and common and secure standards of communication1. The opinion highlights a number of technical or organizational obstacles that payment service providers, which maintain accounts, pose to the new services and which should be removed. Examples of such obstacles include the unavailability of all procedures for performing in-depth identification of the customer when using the new services, requiring manual entry of the IBAN on the payment account from which payment is initiated or requesting account information, repeated in-depth establishing the identity when initiating payment, the need to provide prior consent to the client to use the new services, etc.

Improving the security of electronic payments is the second major aspect of PSD2. In September 2019, the requirements for payment service providers to apply a procedure for in-depth identification of the customer when the payer accesses his payment account online, initiates an electronic payment transaction or performs another remote action that could occur risk of payment fraud. These requirements have started to apply to credit transfers made through the Internet and mobile banking platforms. However, for online card payment transactions, due to the necessary significant technical changes, both for payment service providers and merchants operating e-shops,

However, the delayed application of security requirements for online card transactions should not adversely affect customers. During the transitional period, payment service providers should recover the value of all unauthorized card payment transactions on the Internet for which no in-depth identification of the customer has been applied, and the BNB monitors compliance with this requirement. Although the pandemic has led to some delays in the implementation of migration plans, according to available data, we expect Bulgaria to successfully complete migration by the end of the year within the projected pan-European deadline.

Along with the work on the implementation of the current legal framework, many efforts are focused on its further improvement with a view to the emergence of innovative market participants, new technologies, changing business models. In September, the European Commission published the Digital Finance Package, part of which is the “EU Strategy for Retail Payments” and the “Strategy for the Digitalisation of EU Financial Services”. The aim of both strategies is to outline the medium-term guidelines and priorities for the development of digitalization in the financial sector. Central to the payment strategy is immediate payments, executed within seconds, 24 hours a day, 7 days a week, 365 days a year, called the “new rule” in the strategy.

Bulgaria is not lagging behind these trends. The project of Borika AD for immediate payments in BGN, based on the requirements of the SEPA scheme for immediate credit transfers, is in an advanced stage of development. As an operator of the real-time gross settlement payment system (RINGS), the BNB assists in the implementation of the project. The company’s ambition is in 2021 for payment service providers in Bulgaria to start providing their customers with immediate credit transfers in BGN.

In order to develop innovative, affordable, secure and convenient payment solutions both in the online environment and in physical stores, it is important to provide an interoperable infrastructure that allows the smooth execution of cross-border immediate payments within the EU, as well as the achievement of additional standardization to ensure compatibility between final payment solutions offered to payment service users (eg common standard for QR codes, provision of access to NFC chips in mobile phones, etc.). These, as well as other aspects related to technological changes in the field of payments, including the risks arising from unregulated services, especially technical ones, which are ancillary to the provision of regulated payment services,

I wish interesting and fruitful work to the participants in the videoconference.


1 Opinion of the European Banking Authority on obstacles under Article 32 (3) of the RTS on SCA and CSC

Gemini to Support Ethereum 2.0 Trading and Staking

Gemini: This month marked the momentous launch of Ethereum 2.0 Phase 0. While the full implementation of Ethereum 2.0 (Eth2) will roll out in phases, we plan to support Eth2 trading and staking as soon as possible.

Ethereum is an innovative blockchain that has pushed decentralized applications, including decentralized finance (DeFi), forward. We look forward to continuing to support the Ethereum community and new developments as Eth2 transitions and reaches its next milestone — so that we can provide all of our customers with the ability to access and earn from the latest developments in crypto.

Onward and Upward,

Team Gemini

BCSC gaining greater insight on fintech through new stakeholder forum

The British Columbia Securities Commission (BCSC) is gaining valuable insights from the financial technology (fintech) community through a new advisory group.

On November 24, the BCSC held the first meeting of its Fintech Advisory Forum, which advises BCSC staff on trends and development in the fintech space, as well as the unique situations faced by innovative businesses in the securities industry.

The 17 volunteer members of the Forum also have the opportunity to provide input to BCSC staff about the opportunities, risks and securities law issues facing the fintech industry.

The members will serve two-year renewable terms as volunteers, meeting on an ad-hoc basis with additional consultations as issues emerge. They come from a variety of backgrounds in the capital market, including:

  •  start-ups and early stage businesses
  • online investment platforms
  • advisers and fund managers that use AI/machine learning
  • crypto-asset trading platforms, and
  • financial institutions

The Fintech Advisory Forum is being led by the BCSC’s Fintech & Innovation Team (FIT). Established in 2017, the FIT has responded to hundreds of fintech-related inquiries and has facilitated the authorization of innovative business models, including security token dealers, crypto investment funds and client onboarding processes that use artificial intelligence. The FIT has also worked with other regulators in Canada and globally to adapt securities regulations to business models based on new technology. 

About the British Columbia Securities Commission (www.bcsc.bc.ca)

The British Columbia Securities Commission is the independent provincial government agency responsible for regulating capital markets in British Columbia through the administration of the Securities Act. Our mission is to protect and promote the public interest by fostering:

  •  A securities market that is fair and warrants public confidence
  • A dynamic and competitive securities industry that provides investment opportunities and access to capital

DBS to launch full-service digital exchange – providing tokenisation, and trading for digital assets

Singapore Exchange to take a stake in the DBS Digital Exchange

DBS today announced that it will set up a digital exchange, enabling Institutional Investors and Accredited Investors to tap into a fully integrated tokenisation, trading and custody ecosystem for digital assets.
With the DBS Digital Exchange, DBS will leverage blockchain technology to provide an ecosystem for fund raising through asset tokenisation and secondary trading of digital assets including cryptocurrencies. This includes:
 Security Token Offerings- A regulated platform for the issuance and trading of digital tokens backed by financial assets, such as shares in unlisted companies, bonds and private equity funds.
 Digital Currency Exchange- Cryptocurrency trading that will facilitate spot exchanges from fiat currencies to cryptocurrencies and vice versa. The DBS Digital Exchange will offer exchange services between four fiat currencies (SGD, USD, HKD, JPY), and four of the most established cryptocurrencies, namely Bitcoin, Ether, Bitcoin Cash and XRP.
 Digital Custody Services- An institution-grade digital custody solution to meet the increasing demand for secure custodial services tailored for digital assets under their prevailing regulatory standards. Leveraging on DBS’ experience in providing world-class custody services for conventional assets, DBS’ digital custody services provides the custody of cryptographic keys that control digital assets on behalf of clients.
The announcement follows the in-principle approval by the Monetary Authority of Singapore to recognise DBS Digital Exchange as a Recognised Market Operator, allowing it to operate organised markets for assets such as shares, bonds and private equity funds.
It was estimated that in 2019, the global daily trading value on the world’s digital exchanges ranged from USD 50 billion to USD 100 billion.
Piyush Gupta, Group CEO, DBS, said, “The exponential pace of asset digitalisation provides immense opportunities to reshape capital markets. For Singapore to become even more competitive as a global financial hub, we have to prepare ourselves to welcome the mainstream adoption of digital assets and currency trading. DBS is committed to accelerating the development of a fully integrated ecosystem to facilitate this. We believe
that this is the first of its kind integrated offering, which is differentiated in many ways.”


Setting the DBS Digital Exchange apart


The DBS Digital Exchange is a members-only exchange for Institutional Investors and Accredited Investors.
Members will benefit from DBS Group’s deep capabilities in multiple areas. These include:

Deep expertise in deal origination, leadership in the capital markets space across key markets in Asia and a bank-wide corporate network, which the DBS Digital Exchange can tap on as potential issuers
 Established investor base and distribution network through DBS Private Bank and DBS Vickers, enabling the DBS Digital Exchange to tap on a large and ready pool of potential investors
 Extensive experience in providing secure and reliable custodial services, which will be extended to provide institutional-grade custody for digital assets with robust cybersecurity controls
 Robust governance and controls – where proprietary artificial intelligence and machine learning solutions applied by DBS complement risk and control processes to monitor and prevent financial crime, credit risks and other potential cyber risks.
 Digital capabilities underpinned by a strong digital infrastructure to accelerate the development of a fully integrated digital asset ecosystem.

Singapore Exchange to take a stake in the Digital Exchange

Singapore Exchange (SGX) will take a 10% stake in the DBS Digital Exchange. Both parties will explore opportunities to deepen the liquidity, scale and growth of Singapore’s capital markets in the growing area of digital assets and digital currencies.
Loh Boon Chye, CEO of SGX, said, “We are excited to apply our strengths in market infrastructure and risk management to this venture. There are significant opportunities to bring trust and efficiency in price discovery to the global digital assets space. We look forward to working closely with DBS to advance Singapore’s standing as a multi-asset international financial centre.”
DBS has been recognised as the World’s Best Bank for the third year in a row, underscoring the bank’s growing presence among banking leaders worldwide. DBS’ latest global best bank accolade comes from New York-based financial publication Global Finance, which named DBS ‘Best Bank in the World’ for the second time in three years in its World’s Best
Global Banks 2020 Awards.

About DBS

DBS is a leading financial services group in Asia with a presence in 18 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The
bank’s “AA-” and “Aa1” credit ratings are among the highest in the world.
Recognised for its global leadership, DBS has been named “World’s Best Bank” by Euromoney, “Global Bank of the Year” by The Banker and “Best Bank in the World” by Global Finance. The bank is at the forefront of
leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney. In addition, DBS has been accorded the “Safest Bank in Asia” award by Global Finance for 12
consecutive years from 2009 to 2020.

DBS provides a full range of services in consumer, SME and corporate banking. As a bank born and bred in Asia, DBS understands the intricacies of doing business in the region’s most dynamic markets. DBS is committed to building lasting relationships with customers, and positively impacting communities through supporting social enterprises, as it banks the Asian way. It has also established a SGD 50 million foundation to strengthen its
corporate social responsibility efforts in Singapore and across Asia.
With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. The bank acknowledges the passion, commitment and can-do spirit in all
of our 29,000 staff, representing over 40 nationalities. For more information, please visit www.dbs.com.

The AI Trajectory 2021 – Virtual AI Conference

Event Overview

The current global happenings have transformed the long-standing business opportunity of digital transformation into necessity with cognitive technologies gaining increasing prominence. This however doesn’t mean that the challenges of emerging technologies have disappeared. Lack of trust and quality of data, as well as the dearth of adequate tools and talent still remain. In this fast-paced and challenging environment, leaders are put under extreme pressure with their urgent decisions resulting in long-lasting impacts. From the perspectives of AI experts and leaders, this event puts the spotlight on AI in 2021 – what we can expect from this technology in relation to our industries, businesses, societies and economies, and how leaders can navigate through the changes.

Event Speakers
A handful of carefully selected global AI leaders and experts from different disciplinaries covering our subject from the broadest and deepest views possible.

Event Audience
Our CognitiveVirtual online events usually gain over 1000 participants from over 80 countries. With our topic focusing on AI from the perspectives of business and society, we expect high interest in our event. Who would not want to know from the experts what the future holds for us after all?  

Date & Time

Thursday, 17 December 2020
16:00 – 19:00 CEST
10:00 – 13:00 EDT 

Location

Virtual Conference

Languages

All sessions are held in English

Entry

By invitation and publicly available registration links

What to expect… and what not to
This is a strictly non-sales event. Therefore, you can expect only content-focused panel discussions and keynotes, giving transparent insights into the global AI ecosystem. No BS Just Content.  

The AI Trajectory 2021 website

EURO STABLECOIN (EURB) ON STELLAR

Bitbond and Bankhaus von der Heydt release Euro Stablecoin (EURB) on Stellar

EURB is the first stablecoin issued directly by a banking institution on Stellar, and the first of its kind on the European cryptomarket

Bitbond, Germany’s leading technology provider for the tokenization and custody of digital assets and Bankhaus von der Heydt (BVDH), one of Europe’s oldest banks, have joined forces to issue a Euro Stablecoin (EURB) via the Stellar network. The EURB available today is the first stablecoin issued directly by a banking institution on Stellar and one of the first of its kind on the cryptomarket.

BVDH, which has been active since 1754, specialises primarily in supporting institutional customers in securitisation transactions. Bitbond’s white label tokenization technology proved to be the ideal fit for converting the securitization business to DLT technology. The Stellar Development Foundation, a non-profit organization that supports Stellar’s development and growth, facilitated the development of EURB and advised both Bitbond and BVDH on the technical integration.

EURB can be used by both BVDH customers and third-party platforms to process payment transactions on-chain. With the go-live on Stellar, Bitbond also integrates the stable coin into the securitization platform developed for BVDH, including the automatic mining and burning of tokens. For the Stellar ecosystem this means a new on- and off-ramp for EUR in the network. Users or companies that want to access EUR via the Stellar network can now do so.

“This is a prime example of how traditional banking and block chaining can work together, bringing together one of the oldest banks in Europe with a FinTech start-up to deliver exciting innovations in digital currency,” said Denelle Dixon, CEO and Executive Director of the Stellar Development Foundation. “The addition of a high-quality euro asset issued by a bank to Stellar is of great importance to the users and developers in our network and is driving a new wave of financial innovation that is immediately flowing into Stellar-based applications such as DSTOQ, Vibrant and Lobstr”.

“Bitbond has worked with Stellar since 2019. At that time we issued the first tokenized security approved by the German Federal Financial Supervisory Authority (BaFin),” said Radoslav Albrecht, founder and CEO of Bitbond. “With the development of the technology for issuing stable coins, we at Bitbond have completed our Digital Assets Tech Suite, which previously included the technology for custody and issuance of digital assets.

BVDH can now internalise the paying agent function to accelerate the issuance of new securitisations and create new offerings for bank customers who wish to issue tokenised products with full on-chain processing. Financial application developers can use BVDH’s EURB to process the transfer of digital assets on-chain with a fully regulated and 1:1 EUR stablecoin.

“We were convinced by Bitbond and Stellar because issuing and managing assets via the network is so easy”, said Philipp Doppelhammer, Managing Director of Bankhaus von der Heydt. “In our first use case, SatoshiPay, a block chain payment provider and one of the first members of the Stellar network, will implement our EURB in its DTransfer service. DTransfer facilitates global money transfers for its business customers by exchanging different Stablecoins and connecting to banking systems around the world.

About the Stellar Development Foundation

The Stellar Development Foundation (SDF) is a non-profit organization that supports the development and growth of Stellar, an open source network that connects the world’s financial infrastructure. Established in 2014, the foundation helps to further develop Stellar’s code base, supports the technical and business communities that develop the Stellar Network, and serves as a voice to regulators and institutions. The Foundation seeks to create equitable access to the global financial system by using the Stellar Network to unlock the world’s economic potential through block chain technology.

About Bitbond

Bitbond provides solutions based on block chain technology for banks and financial service providers. The white label software improves the issuance, settlement and custody of securities and other financial instruments. The modules offered consist of digital asset custody technology, asset tokenization and on-chain payment processing. Bitbond was founded in Berlin in 2013 and has already implemented software for regulated customers in Europe and Asia.

About Bankhaus von der Heydt

Bankhaus von der Heydt is one of the oldest banks in Europe and has been in operation since 1754. Today, von der Heydt is one of the first banks to use Blockchain technology, thus breaking new ground in the world of finance.

Adnan Zaylani Mohamad Zahid: Islamic finance, e-payments and fintech

Opening speech by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 3rd Islamic Fintech Dialogue (IFD2020), 1 December 2020.

It really is a pleasure for me to join you this afternoon to be part of what I am sure will be an illuminating and stimulating dialogue over the next two days. I would like to record Bank Negara Malaysia’s appreciation to ISRA for organising this, but also more broadly, its continued contribution to the development of Islamic finance not just in Malaysia but internationally. As a prestigious research academy, it needs to produce prestigious and breakthrough research, and it needs to have events like this dialogue to further advance the knowledge and exchange of ideas and the cause of Islamic Finance.

In 2011, Bank Negara Malaysia issued a 10-year Financial Sector Blueprint. One of the key agendas we wanted to drive was to promote e-payments; at the time, greater use of payment cards, internet banking and online fund transfers. Little did we expect that ‘fintech‘, which according to Google Trends was still a nascent term at the time, would grow at the pace and scale we are seeing today. It appears that interest in fintech only picked up rapidly from 2015. Today, many countries, including Malaysia, have adopted it as a key development theme for their financial sector. Indeed, fintech is to take us beyond payments – faster and cheaper delivery of a far wider range of financial services. Increasing outreach and inclusion. Injection of new competition and transformation of the industry.

We see this materialising. There are well over 12,000 start-ups disrupting the financial market globally with fintech investments reaching a record high of $150.4 billion in 2019. The International Monetary Fund (IMF) reported that as of April 2019, there were around 200 fintech start-ups in Malaysia in the areas of payments, blockchain, and lending. CPA Australia apprised that over 75 per cent of Malaysian businesses have embraced at least one fintech product or service over the past 12 months, according to a regional survey. While the disruption continues, traditional financial institutions have been responding. Insights from PWC indicate 77% of traditional financial institutions are increasing internal efforts to innovate, 56% have put disruption at the heart of their strategy, and 31% are already purchasing the services of fintech companies. Many are also partnering with fintech companies.

For Bank Negara Malaysia, we have also embraced the fintech agenda, setting up our internal Fintech Working Group in 2016, launching our Fintech Sandbox not long after that and finally, organising our very own industry conference – the MyFintech Week in 2019. To be future ready, we are highly committed to support the digital transformation of the financial sector. Earlier this year, we issued the e-KYC policy document to enable digital on-boarding of customers to occur anytime and anywhere. This is expected to be a catalyst in the provision of end-to-end financial services, particularly in a ‘low touch’ environment. The financial industry is taking steps to ensure safe and secure introduction of e-KYC, with several banks planning to launch e-KYC solutions in the coming months with more to follow in 2021. We are also currently in the final stages of developing the licensing framework for digital banking, which we envision can enhance access to affordable and quality financial solutions, particularly for the underserved and hard-to-reach market segments. From our sandbox experience, we also observe similar digital alternatives and solutions being developed in the insurance and takaful sector. Our shift towards e-payments has also been sustained, with a 47% increase in the volume of transactions made through internet and mobile banking, and a 260% increase in active e-wallet users between August 2019 and 2020. Furthermore, good progress has been made in enabling the interoperability of e-wallet services offered by banks and non-bank e-money issuers. Looking ahead, Bank Negara Malaysia will continue to focus on fostering well-designed regulations to facilitate digitalisation and innovation in financial services.

All these efforts are intended to support the financial services industry accelerate its transition to an age of digitalisation and innovation. We have high hopes for Islamic Finance to capitalise on this. In 2017, we launched the Value-Based Intermediation (VBI) initiative. VBI encapsulates the industry’s vision to be more impact driven, reinforcing the overarching intent of Shariah to promote good and prevent harm on the people and planet, which closely aligns with the global shift towards sustainable finance and ESG. Through the VBI initiative, Islamic financial institutions have also been spearheading the sustainability agenda. Digitalisation can further this cause, helping Islamic Finance unleash its full potential in striving towards fully embracing and adopting VBI to contribute meaningfully towards an inclusive, sustainable and impactful growth. There are two main outcomes for which digitalisation can be deployed to create winning strategies for Islamic finance.

Firstly, technological advances can reduce operational costs therefore allowing Islamic financial service providers to reach the underserved and the unbanked with more affordable digital financial services. High mobile penetration and internet usage, the shift towards e-commerce and increased usage of e-payments are all important trends that hold great promise to bring financial inclusion in Malaysia to the next level. Coupled with new technological advances such as cloud computing, artificial intelligence (AI) and data analytics, financial services providers are now able to better assess creditworthiness using real time and alternative data, thereby overcoming the traditional obstacle of making sound credit decisions for customers who lack collateral and credit history. In the same vein, the deployment of telematics, internet of things (IoT), affordable usage-based insurance (UBI) and other value added services open up scope for the takaful industry to create efficiencies whilst addressing customer demand, further closing the protection gap of the Malaysian population. A well-designed digital takaful solution that not only offers affordability but also seamless customer experience can go a long way towards elevating consumer trust and changing perceptions about the value of takaful protection, particularly among low income groups.

Secondly, technological advances present opportunities for Islamic financial services providers to further automate their business to bring about greater efficiency and transparency as well as manage risk effectively in delivering value-driven and impact-focused products and services that can realise the aspiration of Maqasid Shariah. This is particularly important for products and services with multiple applications of shariah contracts as well as those instruments such as risk sharing, waqaf and sadaqah, which demand not only a high degree of transparency and disclosure but also positive customer service and engagement to engender trust and confidence. There is scope for the industry to explore the potential of new technologies that can transform risk management and compliance, remove information asymmetry and integrate the value chain of financial intermediation seamlessly with the real economy, particularly in trade and the Halal industry. Ultimately, realising the full benefits of digitalisation to deliver the intrinsic values of Islamic finance successfully, relies on the foresight to embrace innovation to deliver greater customer value, openness to change and responsible adoption by the industry.

Right now, digitalisation is riding on the coattails of the Covid-19 crisis. With social distancing and travel restrictions, anything that can be done online or virtually is being done so. There is no option for financial institutions but to be able to deliver and ensure the integrity of their services – banking, payments, insurance or takaful, in dealing with customers – digitally or online during these times. The road is thus wide open for fintech. In a not so distant future, we can expect that fintech will be part of the mainstream, perhaps even becoming the primary mode of delivery for financial services, no longer requiring strategising and planning on how we could fully embrace it in conferences and dialogues like we will be doing today.

Before I conclude I would like to congratulate ISRA for their development of the I-FIKR App, which will be launched during the event. The App certainly fits well with the digitalisation of the Islamic finance knowledge of the Islamic finance industry. We hope to see it as another home-grown product that will contribute further toward the advancement of the Islamic finance Industry.

Finally, once again I would like to thank and commend ISRA for organising the Islamic Fintech Dialogue 2020. Events such as this provide us an opportunity to take a step away, allowing us the space to focus on key issues and challenges which I hope will inspire us to improve on our vision and strategies for innovative transformation in Islamic finance. Over the course of this 2-day event, with the array of speakers and moderators, I am confident this will be achieved. I urge you to be part of the conversation and engage in the dialogue. I pray that the event will be of great benefit to all participants.

Innovation and Regulation in the Australian Payments System

Philip Lowe – Governor: Address to the Australian Payments Network

Introduction

Thank you for the invitation to join you today. It is very good to see the tradition of AusPayNet’s annual summit continue, even if it is taking a different form this year.

As we all know, the world of payments has become an area of excitement: it brings together two things that people have a fascination with – money and technology. The pace of change is rapid and the payments landscape is complex and evolving quickly. New technologies are creating new ways of moving money around and new business models are emerging. There are also new players, including the big techs and the fintechs. And blockchain and distributed-ledger technologies are opening up new possibilities. This innovation is raising many issues for both the payments industry and for regulators.

This morning I would like to discuss some of these issues and their implications for the regulatory framework. I will then discuss some of the Payments System Board’s preliminary views from its Review of Retail Payments Regulation.

Innovation

The Payments System Board has a long standing interest in promoting innovation in the Australian payments system. Those of you who have followed our work over the years will recall that back in June 2012 the Board released a report titled ‘Strategic Review of Innovation in the Payments System’.

In promoting innovation we have employed a mix of strategies. We have used a combination of:

  1. suasion and pressure on industry participants to do better
  2. regulation to promote competition and access
  3. using our position to help overcome coordination problems, which can act as a barrier to innovation in a network with many participants
  4. helping the industry establish benchmarks that can be aspired to collectively.

I will leave it to others to judge the success of this mix of strategies. But from my vantage point, Australians enjoy an efficient and dynamic payments system. There are still gaps that need addressing, but by global standards we have done pretty well. Australians were early and rapid adopters of tap-and-go payments and increasingly are using digital wallets. We have a very good fast payments system, which after a slow start, is seeing continuing strong volume growth. And there is a roadmap for the development of new payment capabilities using this fast payments infrastructure. I would though like to draw your attention to two areas where we would like to see more progress.

The first is the move to electronic invoicing and the ability to link e-invoices to payments as a way to improve the efficiency of business processes. The second is improvements to the speed, cost and transparency of cross-border retail payments and international money transfers. We are looking forward to progress on both fronts.

Against the backdrop of this generally positive picture, the Payments System Board recognises that the structure of payment systems is changing. In some cases it is now better to think of a payments ecosystem, rather than a payments system. In this ecosystem, the payment chains can be longer and there are more entities involved and new technologies used. This more complex and dynamic environment is opening up new opportunities for innovation as well as new competition issues to consider.

One of the factors driving innovation is the increasing interest of technology-focused businesses in payments. These businesses include the fintechs and the large multinational technology companies, often known as the ‘big techs’. They are a source of innovation and are playing a role in the development of digital wallets. These wallets are being used more frequently and I expect this trend has a long way to go. Another trend is the increasing use of payments within an app. Big techs are playing important roles on both fronts.

This influence of the big techs is perhaps most evident in China, with Ant Group (owners of Alipay) and Tencent (WeChat Pay) having developed new payments infrastructure that has led to fundamental changes in how retail payments are made in China.

In Australia and many other countries, Google, Apple, Facebook and Amazon are increasingly incorporating payments functionality into their service offerings. Mobile wallets such as Apple Pay and Google Pay are the most prominent examples of this in Australia. In some other countries the big techs are also offering person-to-person transfers and consumer credit products. Facebook also announced its Libra project.

The Apple Pay and Google Pay wallets illustrate some of the new and complex issues that are arising. These wallets are clearly valued by consumers and they will reduce industry-wide fraud costs through the use of biometric authentication (e.g. fingerprint or facial recognition). The tokenisation of the customer’s card number is also a step forward. So these wallets are a good innovation. At the same time, though, they are raising new competition issues.

One of these relates to the restriction that Apple, unlike Google, places on access to the near-field communication (NFC) technology on its devices. Many argue that this restriction limits the ability of other wallet providers to compete on these devices and that this could increase costs. This issue has recently attracted the attention of policymakers in several countries. For example, in 2019 the German parliament passed a law requiring device manufacturers to provide third parties with access to technologies (such as NFC) that support payments services. And the European Commission announced in June that it would commence a formal antitrust investigation into Apple’s restriction of third-party NFC access on the iOS platform and in September announced that it will also consider legislation on third-party access. This issue has also been raised in submissions to our review of payments system regulation, and we are watching developments in Europe and elsewhere closely.

Another issue being raised by these wallets is the value of information and data, and again we observe Google and Apple taking different approaches. Google states that it may collect information on transactions made using Google Pay, which can be used as part of providing or marketing other Google services to users. In contrast, Apple states that it does not collect transaction information that can be tied back to an individual Apple Pay user. There are also different approaches to charging transaction fees. Apple charges a fee to issuers when a transaction is made with the Apple Wallet but a similar fee is not charged by Google when transactions are made with Google Pay. It is certainly possible that these different approaches to the use of data on the one hand and access and fees on the other are linked. So there are issues to consider here too.

Beyond the issues raised by digital wallets, there are other competition issues raised by the involvement of the big tech companies in payments.

These companies are mostly platform businesses that facilitate interactions between different types of users of their platform. They have very large user bases, benefiting from strong network effects that can make it hard for competitors. Data analysis is part of their DNA and they have become increasingly effective at commercialising the value of data they collect and analyse. Providing additional services, such as payments, also reduces the need for users to ‘leave’ the platform. So there are complex issues to be worked through here. One of these is the terms of access to the platform and whether the platform requires that payments be processed by the platform’s own payment system.

One specific issue that is raised by both digital wallets and the big techs is the nature of the protections that apply to any funds held within any new payment systems, and outside the formal banking sector. For confidence in the system and for the protection of individuals and businesses it is important that strong arrangements are in place.

In this regard, I welcome the Government’s announcement that it will accept the Council of Financial Regulators’ proposed reforms of regulatory arrangements for so-called stored-value facilities. Under the proposals, APRA and ASIC will be the primary regulators, with requirements tailored to the nature of the facility. It would be possible, for example, to ‘designate’ a provider of a stored-value facility as being subject to APRA prudential supervision on the basis of financial safety considerations. This could become relevant if the technology companies were to launch new payment and other products that held significant customer funds.

Internationally, this and related issues came to prominence following Facebook’s announcement that it was developing a global stablecoin (originally called Libra, but recently rebranded as Diem). Since the original announcement, the Libra Association (now the Diem Association) has also announced plans to launch some single-currency stablecoins intended for use in consumer digital wallets. In April, the Association applied to FINMA (the Swiss financial regulator) for a payment system licence.

This initiative has raised concerns from governments and regulators in many jurisdictions regarding a wide range of issues including consumer protection, financial stability, money laundering and privacy. The Swiss authorities have established a regulatory college to coordinate with other countries. The RBA is participating in this college on behalf of Australia’s Council of Financial Regulators. FINMA has indicated that Diem will be subject to the principle of ‘same risks, same rules’ – that is, if Diem poses bank-like risks it will be subject to bank-like regulatory requirements. It remains to be seen how this and other similar initiatives progress.

As I said at the outset, the world of payments is becoming more complex and raising new issues for industry participants and regulators to deal with. This means that it is timely to consider how the payments system should be regulated and the Payments System Board welcomes the Government’s review of the regulatory architecture.

The legislation governing the Reserve Bank’s regulatory responsibilities was put in place over 20 years ago. This legislation gives the Bank specific powers in relation to payment systems and participants in those systems. While the powers are quite broad, in practice the Bank has the ability to regulate only a fairly limited range of entities. As I mentioned earlier, these regulatory powers have been used in conjunction with our ability to persuade and to help solve coordination problems in networks. As part of the Government’s review it is worth considering what the right balance is here and whether the regulatory arrangements could be modified to better address the complexities of our modern payments ecosystem.

An update on the Review of Retail Payments Regulation

At the same time that we have been considering these broad issues, the Payments System Board has been conducting its periodic Review of Retail Payments Regulation in Australia. This review was temporarily put on hold during the pandemic but has now restarted. I would like to use this opportunity to provide you with a sense of our thinking on three important issues:

  1. interchange fee regulation
  2. dual-network debit cards and least-cost routing
  3. ‘buy now, pay later’ (BNPL) no-surcharge rules.

I want to stress that we have not yet reached any final conclusions and the Bank’s staff will be meeting with industry participants over the next few months to discuss these and other issues. If, at the conclusion of the review, we are to make changes to the standards it is our intention to consult on these by mid 2021.

Interchange fee regulation

The Board’s view is that interchange fees should generally be as low as possible, especially in mature payments systems. While these fees might arguably play a role in establishing new payment methods, once a payment system is well established these fees increase the cost of payments for merchants and they can distort payment choices. So the direction of change in these fees over the medium term should be down, and not up.

Having said that, at the current point in time the Board does not see a strong case for a significant revision of the interchange framework in Australia.

The current interchange standards have been in effect for only 3½ years and submissions to the review did not point to strong arguments for major changes. The standards appear to be working well and frequent regulatory change can carry costs. It is also relevant that the average level of interchange rates in Australia is quite low by international standards, particularly the 8 cents benchmark for debit card payments. Credit card interchange fees are also lower than in most countries. One exception is the lower credit card interchange fees in Europe. The Board is watching the European experience closely and expects that, over time, a stronger case will emerge for lower credit card interchange fees in Australia.

There is one aspect of the interchange regulations where the Board is considering a change as part of the review – that is the cap on the fees that can be applied to any particular category within a scheme’s schedule of debit card interchange fees. Currently a 20 basis point cap applies when a fee is expressed in percentage terms and a cap of 15 cents applies when the fee is expressed in terms of cents. The Board sees a case to lower this 15 cents cap.

This case has emerged as there has been an increasing tendency for interchange fees on transactions to be set at the 15 cents cap, particularly on transactions that are less at risk of being routed to another scheme. At the same time, the international schemes are setting much lower strategic rates for some merchants, particularly larger ones, in response to least-cost routing. This is resulting in large differences in interchange fees being paid on similar transactions, with unreasonably high interchange fees on some low-value transactions, especially at smaller merchants. For example, a 15 cent interchange fee on a $5 transaction is equivalent to an interchange rate of 300 basis points, which is far higher than would apply to that transaction if a credit card had been used. Over the coming months, Bank staff will be seeking further information from the industry on this issue as the Board considers a lower cap.

Dual-network debit cards and least-cost routing

The second issue is dual-network debit cards and least-cost routing.

The Board has long held the position that merchants should have the freedom and the capability to route debit card transactions through the lower-cost network. The Government and a wide range of stakeholders have a similar view. It is understandable why: this choice promotes competition and helps keep downward pressure on the cost of goods and services for consumers.

Over recent years, the Board has discussed the right balance between regulation and suasion to achieve this outcome. Its judgement has been that the best approach was for the industry itself to support least-cost routing, pushed along by pressure from the RBA. While progress has been slower than we would have liked, the slow progress by the major banks did create competitive openings for other players, which led to some innovation. The major banks now also all offer least-cost routing, with some making it the default offering for small and medium-sized businesses. So there has been significant progress. The Board is not convinced that a better outcome would have been achieved through regulation.

The concept of least-cost routing is most applicable when a physical card is used and where that card has two networks on it. One recent trend that we have observed is that some issuers have sought to move away from dual-network debit cards to issue single-network cards, with no eftpos functionality. This may be partly in response to financial incentives from the international schemes and possibly the additional costs to issuers from supporting two networks on a card.

Notwithstanding this trend, the Board’s view is that it is in the public interest for dual-network cards to continue and to be the main form of debit card issued in Australia. It is also important that acquirers and other payment providers offer or support least-cost routing and that the schemes do not act in a way that inappropriately discourages merchants from adopting least-cost routing.

The Board is again considering the best balance between regulation and suasion to achieve these outcomes. Consistent with its earlier approach, its preference is for the industry to deliver these outcomes without regulation. To help achieve this, the Board is considering setting out some formal expectations in this area. If these expectations are not met, the Board would then consider regulation.

To be clear, the Board sees a strong case for all larger issuers of debit cards to issue cards with two networks on them. At the same time, it recognises that there can be additional costs of supporting two networks, which can make it harder for new entrants and small institutions to be competitive. So it may not be appropriate to expect very small issuers to issue such cards. Over the months ahead, the Bank will be consulting with small authorised deposit-taking institutions and the schemes to get a clearer picture of the costs and their implications for determining any regulatory expectations.

The Board also expects that in the point-of-sale or ‘device-present’ environment all acquirers should provide merchants with the ability to implement least-cost routing for contactless transactions, possibly on an ‘opt-out’ basis.

In the online or ‘device-not-present’ environment, it is not yet clear how least-cost routing should operate and what expectations on its provision might be appropriate. In this environment, there is scope for consumers to make more active choices, there are various technical challenges to least-cost routing and there can be more providers in the payments chain. So the idea of how least-cost routing might apply in the online world will be explored by the Bank’s staff over coming months.

Buy now, pay later no-surcharge rules Payments

The third issue that I’d like to cover is the no-surcharge rules of buy now, pay later providers.

The Board’s long standing view is that the right of merchants to apply a surcharge promotes payments system competition and keeps downward pressure on payments costs for businesses. This is especially so when merchants consider that it is near essential to take a particular payment method for them to be competitive.

The Board also recognises that it is possible that no-surcharge rules can play a role in the development of new payment methods. While new payment methods can be developed without them, these rules can, under some circumstances, make it easier to build up a network and thereby promote innovation and entry.

The Board’s preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation. So consistent with its philosophy of only regulating when it is clear that doing so is in the public interest, the Board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules right now.

Even the largest BNPL providers still account for a small proportion of total consumer payments in Australia, notwithstanding their rapid growth. New business models are also emerging, including some that facilitate payments using virtual cards issued under the designated card schemes that are subject to the existing surcharging framework. In addition, the increasing array of BNPL providers is resulting in competitive pressure that could put downward pressure on merchant costs.

The Board expects that over time a public policy case is likely to emerge for the removal of the no-surcharge rules in at least some BNPL arrangements. Some of the BNPL operators are growing rapidly and becoming widely adopted by merchants, particularly in certain sectors. As part of the Bank’s ongoing consideration of this issue, Bank staff will be discussing with industry participants possible criteria or thresholds for determining when no-surcharge rules should no longer be allowed.

If the point is reached where the Board’s view is that the public interest would be served by the removal of a no-surcharge rule, the Board’s preference would be to reach a voluntary agreement with the relevant provider. This would be similar to the approach adopted with American Express and PayPal. In the event that this were not possible, the Bank would discuss with the Australian Government the best way to address the issue. More broadly, as I discussed above, the current Treasury review of the regulatory architecture provides an opportunity to look holistically at this issue and whether the existing legislation and regulatory provisions could be amended to better reflect our modern and dynamic payments ecosystems.

Conclusion

So that is a quick review of some of the issues that the Payments System Board and the RBA staff have been focusing on recently. It is clear that payments is an increasingly exciting area and that significant innovation is occurring. This presents opportunities to deliver improved services to end users of the payments system as well as raising new questions for policymakers. The Bank very much appreciates the ongoing engagement we have with the industry as we jointly work towards better outcomes for the Australian community.