Tag Archives: FinTech

Mastercard Launches New Start Path Cryptocurrency and Blockchain Program for Startup

From creating a marketplace for non-fungible tokens (NFTs) to building an air-gapped cold vault to enabling new sustainable digital assets, seven global crypto and digital assets startups join Mastercard’s award-winning Start Path program to access partnership opportunities, insights and tools to grow.

Mastercard announced today a new Start Path global startup engagement program dedicated to supporting fast-growing digital assets, blockchain and cryptocurrency companies. As a continuation of Mastercard’s digital assets work, seven startups have joined the program, including GK8, Domain Money, Mintable, SupraOraclesSTACS, Taurus, and Uphold, and together with Mastercard seek to expand and accelerate innovation around digital asset technology and make it safer and easier for people and institutions to buy, spend and hold cryptocurrencies and digital assets.

Among the new program participants is Mintable (Singapore), a non-fungible token (NFT) marketplace where users can create, buy and sell digital and physical assets backed by the blockchain such as digital collectibles, avant-garde artwork and even music. The Mintable platform is packed with novel features such as gasless minting and credit card purchasing that are designed to empower the everyday person to get involved with NFTs without any prior knowledge in crypto or coding. GK8 (Israel) is a self-managed end-to-end institutional crypto custody platform that offers a true air-gapped cold vault. This means that the platform is capable of creating, signing and sending secure blockchain transactions without receiving input from the internet, eliminating any potential cyberattack vectors. Taurus (Switzerland) delivers enterprise-grade infrastructure to manage any digital asset with one single platform, including crypto assets, digital currencies and tokenized assets covering issuance, custody, asset servicing and trading.

Other participating startups and fast-growing digital asset and blockchain companies have been selected to join the inaugural track of the Start Path program:

  • Domain Money (USA) looks to build a next generation investment platform, bridging the gap between digital assets and traditional finance for retail investors.
  • SupraOracles (Switzerland) is a powerful blockchain oracle that helps businesses bridge real-world data to both public and private chains, enabling interoperable smart contracts to automate, simplify and secure the future of financial markets.
  • STACS (Singapore) provides a blockchain infrastructure for the financial industry to unlock massive value and enable effective sustainable financing. Its clients and partners include global banks, national stock exchanges, and asset managers.
  • Uphold (USA) is a crypto-native, multi-asset digital money platform offering investment and payment services to consumers and businesses worldwide. Uphold’s unique ‘Anything-to-Anything’ trading experience enables customers to trade directly between asset classes with embedded payments facilitating a future where everyone has access to financial services.

Founders of the digital asset and blockchain companies participating in the new Start Path program aim to address a host of pain points including asset tokenization, data accuracy, digital security and seamless access between the traditional and digital economy. Each startup is focused on solving a unique industry challenge and, throughout the program, will leverage Mastercard’s expertise to support the continued growth and development of their solutions.

Jess Turner, executive vice president of New Digital Infrastructure and Fintech, commented: “Mastercard has been engaging with the digital currency ecosystem since 2015. As a leading technology player, we believe we can play a key role in digital assets, helping to shape the industry, and provide consumer protections and security. Part of our role is to forge the future of cryptocurrency, and we’re doing that by bridging mainstream financial principles with digital assets innovations.”

Digital Assets and Fintech Innovation

Supporting the startup ecosystem is a core part of Mastercard’s ethos, and more than 250 startups have participated in the Start Path program since 2014. With the expansion of Start Path to include fast-growing crypto, blockchain and digital assets startups, Mastercard is providing access to its latest tools and solutions to help these companies scale their innovations and cutting-edge technologies. These startups use the program to connect with our ecosystem of banks, merchants, partners and digital players across the globe to deliver new solutions.

About Mastercard (NYSE:MA):

Mastercard is a global technology company in the payments industry. Our mission is to connect and power an inclusive, digital economy that benefits everyone, everywhere by making transactions safe, simple, smart and accessible. Using secure data and networks, partnerships and passion, our innovations and solutions help individuals, financial institutions, governments and businesses realize their greatest potential. Our decency quotient, or DQ, drives our culture and everything we do inside and outside of our company. With connections across more than 210 countries and territories, we are building a sustainable world that unlocks priceless possibilities for all.

MAS Launches Global FinTech Hackcelerator for a Greener Financial Sector

The Monetary Authority of Singapore (MAS) announced the launch of the 6th edition of the Global FinTech Hackcelerator, with the theme “Harnessing Technology to Power Green Finance”. The competition, supported by Oliver Wyman, seeks to unlock the potential of FinTech in accelerating the development of green finance in Singapore and the region.

2.      FinTech firms and solution providers around the world are invited to submit innovative solutions to address over 50 problem statements that have been collected from financial institutions and green finance industry players. These problem statements focus on three key challenges: (i) Mobilising Capital; (ii) Monitoring Commitment; and (iii) Measuring Impact.

3.      Up to 15 finalists will be shortlisted for a virtual programme where they will be paired with a Corporate Champion [1] to develop customised prototypes on the API Exchange (APIX) [2] . Each finalist will also receive a S$20,000 cash stipend and be eligible for a fast-tracked application for the MAS Financial Sector Technology and Innovation Scheme Proof-of-Concept Grant of up to S$200,000.

4.      Finalists will pitch their solutions at the Demo Day held at this year’s Singapore FinTech Festival [3] . Up to three winners will be selected, with each receiving S$50,000 in prize money.

5.      Mr Sopnendu Mohanty, Chief FinTech Officer of MAS said, “Green FinTech can be an important enabler to accelerate Asia’s transition to a low carbon future. It can provide much needed innovative solutions, and develop the crucial technology stack, which can help promote green financial services, catalyse efficient allocation of green capital, and facilitate trust in the green data value chain. I encourage all innovators to make use of this platform and showcase their Green FinTech solutions to the world.”

6.      All FinTech firms and solution providers are encouraged to submit their applications for the MAS Global FinTech Hackcelerator here  by 11 June 2021.

***

  1. [1] Corporate Champions are teams from Singapore-based financial institutions or organisations that mentor finalists during the Hackcelerator, working with them to refine and contextualise the solution.
  1. [2] APIX (www.apixplatform.com ), a product of the ASEAN Financial Innovation Network, is a not-for-profit entity formed by the MAS, the International Finance Corporation and the ASEAN Bankers Association, with the objective of supporting financial innovation and inclusion around the world.
  1. [3] Singapore FinTech Festival is the world’s largest FinTech festival and a global platform for the FinTech community comprising FinTech players, technopreneurs, policy makers, financial industry leaders, investors including private equity players and venture capitalists and academics. It will be held on 8 to 12 November 2021.

DBS, J.P. Morgan and Temasek to establish platform to transform interbank value movements in a new digital era

Designed as an open platform to encourage broad participation by banks globally

Platform will leverage blockchain technology and digitise M11 commercial bank money to reduce current frictions and latency for cross-border payments, trade transactions and foreign exchange settlements

Acknowledging that the future of global payments is on the cusp of a fundamental shift, DBS, J.P. Morgan (NYSE: JPM) and Temasek today announced plans to develop an open industry platform to reimagine and accelerate value movements for payments, trade and foreign exchange settlement in a new digital era, through a newly-established technology company.

The company, Partior2, aims to disrupt the traditional cross-border payments ‘hub and spoke’ model, that has resulted in common pain points, including multiple validations on payment details by banks, which translate to costly and onerous post transaction exception handling and reconciliation activities. Partior recognises the need for more efficient digital clearing and settlement solutions across the banking industry, and targets to address these challenges through the use of blockchain solutions to enable next generation, programmable value transfer for participating banks and their clients in real-time across a common and open platform.

The Partior platform has also set its sights on developing wholesale payments rails based on digitised commercial bank money to enable “atomic” or instantaneous settlement of payments for various types of financial transactions. Such functionality would help banks overcome challenges presented by the current standard sequential method of processing global payments.

Piyush Gupta, Chief Executive Officer, DBS Bank, said: “The current hub and spoke arrangement in global payments often results in delays as confirmations from various intermediaries are needed before a settlement is treated as final. This in turn has a knock-on effect and creates inefficiencies in the final settlement of other assets. By harnessing the benefits of blockchain and smart contracts technology, the Partior platform will address current points of friction. The open platform will enable banks around the world to provide real-time cross-border multi-currency payments, trade finance, foreign exchange and DVP securities settlements on a world-class platform, with programmability, immutability, traceability built into its suite of services.”

Takis Georgakopoulos, Global Head of Wholesale Payments, J.P. Morgan, said: “Our newly formed business unit, Onyx by J.P. Morgan, is focused on providing clients with the best-in-class platforms as their business models and banking needs evolve over time. We believe a shared ledger infrastructure such as the Partior platform will change the way payments are cleared and settled, through this first-of-its-kind, wholesale payments rail based on digitised commercial bank money. After five years of being a partner in Project Ubin, we are thrilled by the launch of Partior as it marks yet another milestone for J.P. Morgan and the industry – blockchain-based wholesale payments infrastructure where information and value can change hands around the world in a 24/7, frictionless way. J.P. Morgan is committed to being a leader in this space as our clients transition towards multiple bank platforms, de-centralised networks and programmable money.”

Chia Song Hwee, Deputy CEO, Temasek, said: “We are pleased to work alongside DBS and J.P. Morgan to create a global platform that will have tangible impact on global payments. Partnerships such as this are important in galvanising fundamental changes. Finding the right approach to payments transformation using new technologies should be a priority as we take our existing infrastructure into the next stage of digitalisation and connectivity.

“We’re also heartened by the interest from other banks and partners, and look forward to welcoming them on board as this new platform builds out,” Mr Chia added.

Sopnendu Mohanty, Chief FinTech Officer, Monetary Authority of Singapore, said: “The launch of Partior is a global watershed moment for digital currencies, marking a move from pilots and experimentations towards commercialisation and live adoption. With its genesis from Project Ubin, a public-private partnership on blockchain and CBDC experimentation, Partior is a pioneering step towards providing foundational global infrastructure for transacting with digital currencies in a trusted environment, spurring a wide range of use-cases in the blockchain ecosystem.”

The operation of Partior by DBS, J.P. Morgan and Temasek and the completion of development, launch and availability of services on the proposed platform are subject to obtaining any required regulatory consents and approvals.

When complete, the platform aims to provide 24/7 infrastructure that will enable financial institutions and developers to co-create applications that support use cases such as FX Payment Versus Payment (PVP), Delivery Versus Payment (DVP) and Peer-to-Peer escrows to complement and value-add to global financial ecosystems.

To encourage broad participation across the banking industry, Partior will be actively engaging leading banks to join the platform to establish the scale required to benefit the industry.

The platform will start with a focus on facilitating flows primarily between Singapore-based banks in both USD and SGD, with the intent to expand service offerings to other markets and in various currencies. Partior’s platform will also be designed to complement ongoing Central Bank Digital Currencies (CBDCs) initiatives and use cases.

These efforts by DBS, J.P. Morgan and Temasek build on their past work as part of Project Ubin3, an industry initiative by the Monetary Authority of Singapore to explore the application of blockchain technology involving multi-currency payments and settlements.

Vitas Vasiliauskas: Introductory remarks – Cyprus Annual Banking Conference and FinTech EXPO

Introductory remarks by Mr Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, at the Cyprus Annual Banking Conference and FinTech EXPO, 15 January 2021.

Good morning, dear listeners, fellow Governors,

I would like to thank the Governors for their insights in this panel, and also the organisers of the conference for inviting me.

Discussing the role of banks in the time of COVID-19 is indeed vital. Banking is as important to the economy as the heart is to the human body.

And just like cardiovascular diseases, which are the leading cause of mortality in Europe, diseases of the banking sector often stand behind the deepest crises in our history. In 1930s, the Great Depression was significantly amplified by bank runs. In 2008, subprime mortgage loans extended by banks created the US housing bubble that brought down the entire global financial system. In Europe, a heavily bank-based system, the infamous sovereign-bank nexus resulted in a prolonged European sovereign debt crisis.

The COVID-19 crisis was not, of course, caused by the banking system. But it could have greatly amplified the shock if it was not resilient enough. Moreover, a weak banking system would diminish prospects of a sustained recovery.

This is why the role of banks is so critical in the current context. In this light, I would like to make three points in my brief intervention:

· First, we learnt our lessons from the previous crisis – and this contributed to banks’ resilience during the current one.

· Second, swift regulatory responses to such shocks as COVID-19 can further help the banking system support the shaken economy.

· And third, a truly sustainable long-term economic recovery after this crisis depends on solving equally long-term issues in the European banking system.

Let us begin with the resilience of banks which has so far prevented a health crisis from turning into a full-blown systemic financial crisis. The Basel III reforms made sure that the global banking system was significantly better capitalised than at the onset of the global financial crisis. The Common Equity Tier 1 (CET1) ratio in the EU banking sector – a key indicator of financial soundness – rose from 9% in 2009 to nearly 15% in the fourth quarter of 2019, before the COVID-19 crisis hit. With this amount of capital, banks can generally continue their lending to the economy even if truly adverse scenarios materialise, as shown by the ECB’s vulnerability analysis published in July 2020.

This shows that in the field of banking regulation, we did not waste the previous crisis and learnt our lessons well.

My second point relates to regulatory response. The relief package that the ECB Banking Supervision announced in March was designed to ensure that banks can keep lending to the contracting economy. For instance, banks were allowed to temporarily operate below the level of capital defined by the bank-specific Pillar 2 capital requirements, namely Pillar II guidance.

In Lithuania, macroprudential policy was a key domain of the regulatory response package. Prior to 2020, critics would say that our macroprudential set-up was perhaps too wide-ranging. But this crisis showed, I believe, that our policy stance was the right one.

First, it helped prevent a deterioration in lending standards and a build-up of systemic risk in the run up to the COVID-19 shock. And second, when the time came, we implemented counter-cyclical policy decisions in line with the intended functioning of the framework. For instance, in mid-March, the Bank of Lithuania fully released the counter-cyclical capital buffer from 1% to 0%.

Overall, the relaxation of various requirements has increased the lending potential of banks in Lithuania by €2 billion, or by a third, compared to 2019. Of course, we are talking about potential here, not the real world. But the real-world data has been encouraging, at least in terms of lending to households, which has broadly returned to the pre-pandemic levels.

Going forward, policymakers should not “waste a good crisis” this time as well, and take a fresh look at the existing macroprudential framework. We could even consider novel ways of applying macroprudential tools – such as the application of borrower-based measures during the cycle, e.g. relaxing the loan-to-value or debt-service-to-income requirements in times of crisis.

Finally, I would like to make a point on the long-term issues of the European banking sector. The first issue here is inadequate bank profitability. In this regard, there is a need for consolidation via mergers and acquisitions to make the European banking sector leaner. Completing the Banking Union by creating a European Deposit Insurance Scheme (EDIS) would open doors for true cross border consolidation in Europe.

The second issue is non-performing loans (NPLs) – a long-standing problem in the European banking sector. To tackle the potential rise in NPLs, the next round of government support should put more emphasis on solvency rather than liquidity support. In my opinion, the EU should return to the idea of establishing a European Solvency Support Instrument. There is also a great need of convergence of various insolvency frameworks across the Member States.

Tackling these issues would allow banks to keep lending for a sustained recovery.

New Gemini Credit Card with Crypto Rewards

Gemini, a crypto exchange and custodian, today announced that it will launch the Gemini Credit Card, a credit card with cryptocurrency rewards. This effort has been accelerated by the acquisition of Blockrize, a fintech startup that has been building a credit card with cryptocurrency rewards. In preparation for launch later this year, Gemini has opened the Gemini Card waitlist — providing Gemini customers, and those already on the Blockrize waitlist, with early access.

By combining Gemini’s simple, reliable, and safe platform with Blockrize’s rewards program, card holders will be able to seamlessly earn up to 3 percent back in bitcoin, or other cryptos, on every purchase they make with the Gemini Credit Card.

“The Gemini Credit Card will make it easier for any consumer to invest in bitcoin and other cryptos without changing their existing behavior, ” said Tyler Winklevoss, CEO of Gemini. “Rather than deciding how and when to buy crypto, customers can do so when making their everyday purchases. We’re excited to welcome the Blockrize team to Gemini and work together to continue to mainstream crypto.”

Those who join the waitlist, and the more than 10,000 people already on the Blockrize waitlist, will get early access. The Gemini Card will work like a traditional credit card. It will be available to U.S. residents in every state and will be widely accepted wherever major cards are accepted. Rewards will be automatically deposited into a cardholder’s Gemini account.

For Gemini users or others interested in signing up to the waitlist, please visit: https://gemini.com/credit-card/waitlist. To sign up for a Gemini account visit: https://exchange.gemini.com/register.

This is Gemini’s second acquisition, following its acquisition of Nifty Gateway in November of 2019. Gemini continues to look for companies that align with its values and mission to empower the individual through crypto.

About Gemini

Gemini Trust Company, LLC (Gemini) is a cryptocurrency exchange and custodian that allows customers to buy, sell, and store more than 30 cryptocurrencies like bitcoin, bitcoin cash, ether, litecoin, and Zcash. Gemini is a New York trust company that is subject to the capital reserve requirements, cybersecurity requirements, and banking compliance standards set forth by the New York State Department of Financial Services and the New York Banking Law. Gemini was founded in 2014 by twin brothers Cameron and Tyler Winklevoss to empower the individual through crypto.

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

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.

MAS Announces Successful Applicants of Licences to Operate New Digital Banks in Singapore

The Monetary Authority of Singapore (MAS) announced four successful digital bank applicants.
 
2     The applicants selected for the award of banking licences to operate digital banks are as follows:

 Digital Full Bank (DFB)

  • A consortium comprising Grab Holding Inc. and Singapore Telecommunications Ltd.
  • An entity wholly-owned by Sea Ltd.

Digital Wholesale Bank (DWB)

  • A consortium comprising  Greenland Financial Holdings Group Co. Ltd, Linklogis Hong Kong Ltd, and Beijing Co-operative Equity Investment Fund Management Co. Ltd.
  • An entity wholly-owned by Ant Group Co. Ltd.

The successful applicants must meet all relevant prudential requirements and licensing pre-conditions before MAS grants them their respective banking licences. MAS expects the new digital banks to commence operations from early 2022. 

3     MAS had previously announced that it would award banking licences for up to two DFBs and up to three DWBs. There were a total of 14 eligible applications. The applications were assessed on the following criteria:

  • value proposition of business model, incorporating innovative use of technology to serve customer needs and reach under-served segments;
  • ability to manage a prudent and sustainable digital banking business; and
  • growth prospects and other contributions to Singapore’s financial centre.

The assessment was done on a holistic basis, taking into account all relevant considerations for each criterion. MAS also took into consideration the eligible applicants’ reviews of the business plans and assumptions underpinning their financial projections arising from the impact of the COVID-19 pandemic [1] .

4     To select the successful applicants, MAS set stringent expectations across the assessment criteria. The two selected DFB applicants were clearly stronger than the other eligible DFB applicants. As for the DWBs, the two selected applicants met MAS’ expectations and were assessed to be demonstrably stronger across the criteria notwithstanding the general high quality of the eligible applicants. MAS has thus decided to award banking licences to the two DWBs. As the DWBs are introduced as a pilot, MAS will review whether to grant more of such licences in the future.

5     Mr Ravi Menon, Managing Director of MAS, said, “MAS applied a rigorous, merit-based process to select a strong slate of digital banks. We expect them to thrive alongside the incumbent banks and raise the industry’s bar in delivering quality financial services, particularly for currently underserved businesses and individuals. They will further strengthen Singapore’s financial sector for the digital economy of the future.”

 ***


Additional Information:

In June 2019, MAS announced the digital bank framework, which aims to enable non-bank players with strong value propositions and innovative digital business models to offer digital banking services. DFBs will be provide a wide range of financial services and take deposits from retail customers, while DWBs will focus on serving SMEs and other non-retail segments.

These new digital banks are in addition to any subsidiaries that Singapore-incorporated banking groups may already establish under MAS’ existing regulatory framework, including with joint venture partners, to operate new or alternative business models such as a digital-only bank.  

Details of the assessment criteria can be found on MAS’ website.

From the payments revolution to the reinvention of money

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Deutsche Bundesbank conference on the “Future of Payments in Europe”

Frankfurt am Main, 27 November 2020

Retail payments play a fundamental role in our daily lives and for the economy. Last year, adults in the euro area made two payments per day on average.[1] The universe of retail transactions[2] amounted to 213 billion payments – two million every five minutes – with an estimated total value of €164 trillion.[3]

As part of its mission to promote the smooth operation of the payment system, the Eurosystem has two main objectives in the area of retail payments. The first is to guarantee that people have access to efficient payment solutions that meet their preferences. The second is to ensure that transactions remain safe, underpinning confidence in our currency and the functioning of our economy.

Technological innovation means that the policy implications of these objectives are changing, and new opportunities and risks are emerging. Today I will present the Eurosystem’s response: a strategy for empowering Europeans with efficient, inclusive and secure payments in the digital age. And I will argue that the impending revolution in payments requires us to stand ready to reinvent sovereign money.

Convenience and safety in the digital age – Payments

Payments have evolved substantially over time, but the key determinants of their success have remained fundamentally unchanged. People want payments that offer convenience and safety at a low cost. Convenience requires payments to be easy to use, fast and widely accepted, while safety requires low risk from an economic, financial and societal perspective.

The digital transformation is raising the bar for convenience and safety. With the growth of e-commerce and connected lifestyles, people are increasingly demanding immediacy and seamless integration between payments and digital services. At the same time, they are increasingly concerned about privacy, cybersecurity and reliability.

This wide range of desirable features creates scope for innovative payment solutions. Currently, none of the existing solutions – cash, cards, credit transfers, direct debits and e-money – meet all the required features at once. People are forced to use several instruments at the same time. In-person transactions[4] are mostly conducted with cash and cards.[5] Remote purchases are dominated by cards and e-payments.[6] And bills are generally paid using direct debits and credit transfers.[7]

The coronavirus (COVID-19) shock has accelerated the trend towards digitalisation, leading to a surge in online transactions and contactless payments in shops. This trend is likely to persist once the pandemic is over.[8] So we must ask ourselves whether the available means of payment adequately meet the needs of consumers in the digital age.

Cash offers a secure and inclusive way of making in-person payments, but it is not well suited for payments in a digital context, such as in e-commerce. So it is no surprise that it is being used less.[9] Payment cards, on the other hand,facilitate digital, contactless payments. But they are not accepted everywhere. And the Europe-wide acceptance of cards issued under national card schemes currently relies on agreements with international card schemes. As a result, people mostly use international schemes for cross-border card payments, and the European market for card payments is dominated by non-European schemes.

Generally, Europe is increasingly relying on foreign providers, with a high degree of market concentration in some segments, such as card transactions and online payments.[10]

We should not let this reliance turn into dependence. Dependence on foreign providers and excessive market concentration would harm competition, limiting the choice for consumers and exposing them to non-competitive pricing. It could reduce the resilience of the payment system and weaken the ability of European authorities to exercise controls.

We must ensure that the payment market remains open to competition, including from European suppliers and technology.

The influx of technology firms

Fintech companies have sparked the latest wave of innovation, accelerating the evolution of the payment system.[11] Many of them have adopted data-driven business models, where payment services are provided free of charge in exchange for personal data. Numerous banks are expanding their range of digital services by entering into agreements with fintechs; in some cases, integration is achieved when a bank acquires a fintech firm.

The global tech giants – the so-called big techs – are aiming for a revolution in the payments landscape, and represent a threat to traditional intermediation.[12] These firms can use data-driven models on an entirely new scale by leveraging their large customer base, real-time data and control of crucial infrastructures for commerce and economic activity – from online marketplaces to social media and mobile technologies. They can use these advantages, their financial strength and their global footprint to provide new payment solutions and expand in both domestic and cross-border transactions. This would offer them an even stronger base to further expand the range of their financial activities, including lending, as their superior ability to collect and analyse large volumes of data gives them an information advantage.

If not properly regulated, big techs may pose considerable risks from an economic and social perspective and they may restrict, rather than expand, consumer choice. They can aggravate the risk of personal information being misused for commercial or other purposes, jeopardising privacy and competition. And they can make the European payment market dependent on technologies designed and governed elsewhere, exacerbating its vulnerability to external disruption such as cyberattacks.

The big techs may also contribute to a rapid take-up, both domestically and across borders, of so-called stablecoins.[13] As I have argued previously[14], stablecoins raise concerns with regard to consumer protection and financial stability. In fact, the issuer of a stablecoin cannot guarantee the certainty of the value of the payment instrument it offers to consumers. Such a guarantee can only be provided by the central bank.

Moreover, unlike bank deposits, stablecoins do not benefit from deposit guarantee schemes, their holders cannot rely on the degree of scrutiny that is now the norm in banking supervision, and the issuers do not have access to central bank standing facilities. As a result, stablecoin users are likely to bear higher credit, market and liquidity risks, and the stablecoins themselves are vulnerable to runs[15], with potentially systemic implications[16].

These risks could be mitigated if the stablecoin issuer were able to invest its reserve assets[17] in the form of risk-free deposits at the central bank, as this would eliminate the investment risks that ultimately fall on the shoulders of stablecoin holders.[18]

This would not be acceptable, however, as it would be tantamount to outsourcing the provision of central bank money. It could endanger monetary sovereignty if, as a result, private money – the stablecoin – were to largely displace sovereign money as a means of payment. Money would then be reduced to a “club good” offered in return for the payment of a fee or membership of a platform.[19]

We should safeguard the role of sovereign money, a public good that central banks have been managing for centuries in the public interest and that should be available to all citizens to satisfy their need for safety.

Monetary sovereignty could also be threatened if foreign central bank digital currencies became widely used in the euro area, with implications for international monetary spillovers.[20]

These risks are not imminent. We must nonetheless be alert to possible non-linear developments that could endanger financial stability and monetary and economic sovereignty. As we aim to enhance the efficiency of European payments, we therefore need to be prepared to rethink the nature and the role of sovereign money.

The Eurosystem policy response

The Eurosystem is implementing a comprehensive policy to ensure that citizens’ payment needs are met, while safeguarding the integrity of the payment system and financial stability. Our policy is based on interconnected elements addressing the entire payment value chain.

First, we have enhanced our retail payments strategy, in order to foster competitive and innovative payments with a strong European presence. We are actively promoting pan-European initiatives that offer secure, cheap and widely accepted payment solutions.[21]

We are supporting access to bank accounts by non-bank providers, so that they can expand the range of payment initiation services they offer. Yesterday the Euro Retail Payments Board, chaired by the ECB, launched a work stream to facilitate this access. We are working to make the European e-identity and e-signature frameworks better suited for payments and the financial sector more broadly.

Our retail payments strategy also builds on the promotion of instant payments, which make funds immediately available to recipients. We have created a solid basis for instant payments, with commonly agreed rules and powerful infrastructures, including the TARGET Instant Payment Settlement (TIPS) service, operated by the Eurosystem. Thanks to the measures we have taken in recent months, all euro instant payment providers and infrastructures will have access to TIPS by the end of 2021.

Second, we are adapting our regulatory and oversight framework to the fast pace of financial and technological innovation. We have reviewed our Regulation on oversight requirements for systemically important payment systems[22], introducing a more forward-looking approach to identify payment systems that are systemically important. And today we are launching a public consultation on the new regulation, which will then become operational by mid-2021.

We are also completing the public consultation on our new framework for electronic payment instruments, schemes and arrangements, the so-called PISA framework. PISA extends our oversight[23] to digital payment tokens[24], including stablecoins, and to payment arrangements providing functionalities to end users of electronic payment instruments[25]. As a result, technology providers can become subject to oversight.

As part of our comprehensive policy, we are working to safeguard the role of sovereign money in the digital era: we want to be ready to introduce a digital euro, if needed.

A digital euro would combine the efficiency of a digital payment instrument with the safety of central bank money. It would complement cash, not replace it. Together, these two types of money would be available to all, offering greater choice and access to simple, costless ways of paying.

We have started a public consultation to seek feedback from people across Europe and gain a better understanding of their needs. It will be completed in January, and the results will be published once they have been analysed.

A digital euro would need to be carefully designed, in order to enhance privacy in digital payments[26], respect the rules on countering illegal activities and avoid interference with central bank policies, first and foremost monetary policy and financial stability.

In particular, a digital euro should be a means of payment, not a form of investment that competes with other financial instruments. This would require limiting the holdings of individual users[27] and mean that, unlike stablecoin issuers, the issuer of the digital euro – the ECB – would not aim to acquire deposits.

A digital euro would support the modernisation of the financial sector and the broader economy. It would be designed to be interoperable with private payment solutions and would thus represent the “raw material” that supervised intermediaries could use to offer pan-European, front-end payment solutions.

A digital euro would also generate synergies with other elements of our strategy, facilitating the digitalisation of information exchange in payments through e-invoices, e-receipts, e-identity and e-signature. And in making it easier for intermediaries to provide added value and advanced technological features at lower cost, it would give rise to products that could compete with those of the big techs, thereby benefiting end users.

The ECB and the national central banks have started preliminary experimentation through four work streams. First, we will test the compatibility between a digital euro and existing central bank settlement services (such as TIPS).[28] Second, we will explore the interconnection between decentralised technologies, such as distributed ledgers, and centralised systems. Third, we will investigate the use of payment-dedicated blockchains with electronic identity. And fourth, we will assess the functionalities of hardware devices that could enable offline transactions, guaranteeing privacy.[29]

We will take the necessary time to explore all aspects of different options: whether they are technically feasible, whether they comply with the principles and policy objectives of the Eurosystem, and whether they satisfy the needs of prospective users.

Conclusion

Let me conclude. The digital transformation is triggering a revolution in the financial sector, which will bring innovation but also risks. In particular, big techs and stablecoins could disrupt the European financial system. And while they could offer convenient and efficient payment solutions, they also risk endangering competition, privacy, financial stability and even monetary sovereignty.

Our policies provide a forceful policy reaction to the digital shock. We want to create the conditions for a resilient, innovative, diverse and competitive payments landscape that can better serve the evolving needs of European people and businesses. We are promoting safe, pan-European instant payments.

What is at stake is nothing short of the future of money. As private money goes digital, sovereign money also needs to be reinvented. This requires central bank money to remain available under all circumstances – in the form of cash, of course, but also potentially as a digital euro.

We want to enable people to choose their preferred way of paying without having to compromise on their expectations of fast, secure, inclusive and seamless payments. This is our aim today, and it will remain our aim in the future.