By Aleksi Grym, Head of Digitalisation, Bank of Finland.
What for you are the benefits of attending a conference like the ‘Payments Europe Summit’ and what have attendees learnt from your session?
Talking to colleagues at events like this is an invaluable way to gain additional insights to recent developments and to better understand the direction in which the industry is moving. Payments is an industry which is probably evolving more dynamically and more disruptively than any other in the financial industry. Changes are taking places on the front-end, as new consumer apps and ways to pay are launched to the market, as well as on the back-end, as payment systems are becoming real-time and interconnected through APIs.
My session looked at the impact that BigTech companies are having in this space. During the last decade, they have grown enormously in size, and have become an integral part of every industry and household. When such a large and influential company enters the payments market, it will inevitably change the landscape.
How should risk professionals prepare for disruption across the industry as BigTechs enter payment infrastructure?
It is important to understand the motivations and strategies of the BigTech companies. When they enter the payments industry, they are doing so because it complements their wider strategy. It is also important to understand how the BigTech companies are different from each other. When we talk about BigTechs, we easily group them together and treat them as if they are one entity. In reality, their businesses, strategies, and approaches to payments have significant differences, and therefore the impact they are likely to have can vary widely.
What concerns lie with BigTechs creating a currency backed by main currencies?
It is one thing to talk about market entry into the payments industry, it is a completely different proposition to launch a private currency. From a macroeconomic and policy perspective, the former is desirable, because competition leads to innovation and lower cost services. The latter risks financial instability and eroding public trust in the financial system. Financial services are regulated for a reason. Proper oversight is a necessity so that risks and benefits are balanced for society as a whole.
What challenges are presented by peer to peer payments, and how can we combat them?
Mobile devices are ideal for making small value user-to-user payments, but with more and more services and solutions on the market, consumers may find it difficult to know which app they can trust, and which provider is safe and reliable. The learning curve in the market is currently steep, and over time the number of providers will likely level out and winners will emerge. There are economies of scale and network effects at play in this industry, and this will force some of the current service providers to exit the market. Regulators need to ensure this doesn’t cause problems for consumers.
What challenges do you see ahead for AML in the evolving payments landscape?
As payments are increasingly moving online and into digital channels, this also enables better implementation of AML and other crime-fighting strategies. It is important to understand that currently, a large part of the transaction costs in payments are due to compliance and other non-technical requirements. But I’m a technology optimist at heart, and believe innovative technology will also help in reducing compliance costs and in bringing safer and more user-friendly payment solutions to both businesses and consumers.