When Regtech meets Payments

Last week I represented The Banking Scene at 5th NPF and Regtech Leaders Forum, a boutique conference in the middle of Brussels, with about 75 participants. The Banking Scene was a media partner at this Forum.

The topics and speakers were great: diverse and straight to the point. An international audience gathered, open for interaction and networking.

It as the perfect way to get back up on the horse after 1 month of holiday. Peter Oakes was the ideal moderator to submerge the audience in the latest trends in payments and Regtech.

Here you have a few plucks of what has been discussed to provide you some food for thought.

Financial inclusion remains a huge opportunity in Europe

The EU still has 58 million citizens without a bank account. I never dwelled on it that this is not only a third world problem.

It will not be a surprise that the biggest gap can be found in Eastern Europe (top-3: Romania, Bulgaria and Hungary). The numbers showed that only about 60% of adults have a bank account in Romania. Thus: 40% without a bank account… 7.2 million adult Romanian citizens that do not have access to bank services…

Although this was just mentioned in the margins of an overall presentation, I thought it is worth noting, as it is a huge opportunity for payment innovations. 40% of Romanian consumers need to be served by alternative payment service providers… and cash.

These may not be the most recent numbers, but I know what region I would bet on for a mobile wallet solution! It is actually surprising to find a study by Deloitte that estimates the Fintech market size of Romania only a 119 million euros.

Regulation: yes, fragmented regulation: no

Everyone agreed regulation is required. No one will be surprised to hear that the guarantee of trust is one of the key arguments in this discussion.

Unfortunately Europe got in a situation with so much regulation that they almost need regulation to regulate regulation…

… or something like that. Dear regulator, the forum would like to provide you 2 advises:

• Perhaps you should be less ambitious sometimes. Take the exemption of SCA as an example. Why didn’t you look for the right percentage to complete following sentence: “Banks can do anything as long as fraud levels remain below x%.” Don’t you think you would achieve the same result compared to what you put in PSD2 now?
• Talk to each other to avoid different opinions in different countries. It creates a lot of confusion and it does not strengthen the idea of a Single European Payments Area.

The fragmentation does have its advantages though. It creates a level playing field for countries to start competing on a supervisory level. Countries try to attract Fintechs and banks (back office work) by simply offering a leaner and faster service from regulator and supervisor.

Lithuania is a good example of this. Lithuania is a country with only 2–3 big banks, which is insufficient for a proper competitive banking landscape. With Marius Jurgilas (Board Member at Bank of Lithuania), this country had a great representative on stage. They claim to have a very short approval process for e-money licences with one condition: the new business should contribute to the local economy. Once licenced, the new entity should have activities in Lithuania to increase competition or at least to improve the employment rate of the country.

In banks we trust!

This is a message I have dropped several times before on LinkedIn and Twitter. Trust is THE differentiator between incumbent banks and new players. Aleksi Grym (Head of Digitalisation, Bank of Finland) strengthened this message by saying:

“Trust is the basis of financial services. Reputation is really important and DLT (Distributed Ledger Technology) will not kill trust in banks, it will simply intensify it.”

This is a bold message, given the many believers out there that claim blockchain and crypto will erase banks in the future.

Estelle Brack (Chief Economist, Natixis Payment Solutions) had a similar message. On both days she talked about the collaboration between Fintech and banks.

Back in the ’50s banks started investing in mainframes. Today banks lost the pioneering role in financial technology. Collaboration is key: banks need Fintechs to speed up innovation and technological change, but Fintechs need banks at least as much… because of trust.

Trust is what brought incumbent banks to many customers today and what keeps these customers loyal. Customers are not (yet) willing to end this relationship to switch to an unbundled model of many Fintechs that are excellent in one specific service.

Basically, if Fintechs wish high volume increases on a short term, they need to collaborate with banks. Estelle Brack: “Fintechs come to banks for customers and the confidence of consumers in the brand.”

The rise of Regtech

One of the main topics was Regtech. This is an industry that is seeing an enormous evolution, driven by the huge amount of new regulations in the sector. Increasingly more bright people see the opportunity Regtech can bring to the industry. New technologies help incumbents to save costs on regulation or to turn regulation into a revenue stream. Needless to say why this is such a hot topic.

One of the debates related to Regtech was its impact is on employment: will it make human intervention redundant in the future when it comes to regulation?

Although this is true, most people did agree that Regtech will not replace the human capital. Technology will clearly take over some of the jobs, mainly the repetitive ones. When it comes to interpreting, people will stay in the lead for quite some time. Even IBM Watson is not (yet?) sufficiently developed for interpreting complex matters.

Regtech is about transforming workforce, not about dismissing them. Technology will make it possible for the existing workforce to spend more time on the more intellectual jobs.

Here you go, my key take-aways of the conference.