Money 20/20 EU: Will Europe prevail in the new dawn of payments?

A palpable buzz, wide eyes of newcomers, and attendees acclimatising to the excitement of their first international conference since the pandemic hit, all set the tone for day one of Money 20/20 Europe.

Underscoring the fundamental market shifts and trends which are characterising financial services (Covid-19 induced or otherwise), speakers walked attendees through a raft of sessions which all seemed to circle back to an overarching theme: what is the trajectory for the financial service industry, and how can we leverage this to get what we truly need from financial institutions?

Digital assets and CBDCs dominated the sessions, with speakers also canvassing the changing role of regulation, partnerships, and where institutions should focus attention to make sure their technology strategy is not only solving current needs, but working to serve the ultimate end-user.

Here are our highlights from day one of Money 20/20 Europe:

Building a better world through financial technology

Getting straight to business, moderator Odunayo Eweniyi, co-founder and COO, PiggyVest, welcomed panellists to the session: ‘If we were writing a Paris Agreement for the financial services industry, what would we put in it?’

Launching first into the role of banks in bringing more people into the financial services ecosystem through education, Wim Mijs, CEO, European Banking Federation, stated that banks have a pivotal role to play in financial education.

“In developed countries, you’ll see that people sometimes have to make complicated financial choices and lack the education or knowledge to do so. Banks play a role not by taking over the education system, but by helping the education system through the creation of tools which can be used in everyday classrooms.”

Further to this is the importance of banking the unbanked, because “there is no doubt that people need to have the ability to access the financial system if they want to be part of society.”

Pushing the conversation further, Eweniyi asked whether fintech - and specifically crypto - can help with this goal. Managing director of Coinbase’s European operations, Marcus Hughes, argued that across fintech and cryptocurrency, there is a place for many types of products and services in the ecosystem. He added that what remains interesting about crypto is that “it can empower access to financial services to people who would otherwise never have the possibility to get a bank account - that's through simply downloading an app onto their smartphone, to be able to buy and sell.”

“If we can democratise finance and improve financial literacy, and remove hurdles (such as KYC requirements in countries without the tech infrastructure) this presents a huge opportunity.”

Zooming in on the technical hurdles that can hamper financial inclusion, Mijs and Hughes noted that challenges with outdated infrastructure, lack of access to devices themselves and reduced internet connectivity in certain markets are underlying concerns - which unfortunately precede any conversation about financial literacy.

Hughes argues that there is a huge opportunity market for companies that want to develop products for these emerging countries: “Even if it’s self-serving, it’s a massive opportunity with massive populations and the race is on. Easy to use interfaces are absolutely critical, alongside making it easy to access, simplifying processes and reducing the amount of content that needs to be loaded (catering to poor internet speeds).”

Baseline ethical principles around a ‘Paris Agreement for financial services’ were also proposed by panellists, with consensus reached around the need for transparency above all else. This is tied closely to the need for clear and obvious consent around data exchange for services.

The point was furthered by Marion Laboure, senior economist at Deutsche Bank and professor of economics at Harvard who emphasised the role of regulation in ensuring accountability.

With the democratisation of finance comes much greater uptake of new financial products and services, and while this is proving to be highly advantageous to many, it also underscores the need for greater consumer protection. Laboure commented: “We definitely need regulation in places where we are seeing more and more people investing in risky assets such as cryptocurrency, as we need to make sure that people understand what they are doing, and that there is a robust framework available to protect investment.”

Bespoke CBDCs and the call for public & private sector collaboration

With an eye keenly focused on the horizon, Caroline Emch, director of government affairs, American Express, launched into the day’s second session on ‘The Core’ stage, prompting panellists to answer the session’s headline: ‘How should CBDCs be designed and what function should they perform to become a trusted medium for payments?’

Inge van Dijk, director, payments and market infrastructure, De Nederlandsche Bank, believes that there are currently lots of things that can be solved through CBDCs. The central bank is investigating a retail CBDC in order to remain in sync with the Dutch population which is using less and less cash. While this shift toward digital is gaining momentum, she noted that while the emergence of CBDCs means we’re on the brink of something new, it is essential that we ensure that we know how stay in control.

While the central bank has worked extensively with the private sector, van Dijk furthered that the private sector - by nature - holds different motivations to the public sector, and it is the responsibility of central banks to “make sure that we are looking out for the citizens of Europe to ensure everyone is included.”
Continuing on this thread, Emch probed Anne-Catherine Bohnert, deputy head, digital currency & innovation department, Banque de France, about the potential CBDCs hold for financial inclusion.

Bohnert stated that this depends on the retail CBDC versus wholesale CBDC premise- for retail, it can be viewed an alternative to cash: “As citizens are now using cash less often, central banks need to provide an alternative to central bank money, and as demand is increasing for digital payments, we think it’s important to provide this alternative. This would work to foster financial inclusion.”

When it comes to wholesale CBDC proposition, Bohnert furthered that the potential for improvement within interbank and cross border payments is clear - particularly when it comes to cost reduction and the speeding up of settlement times.

While these advantages sound highly attractive at face value, the experimentation and testing phases are likely to be complex and time consuming. Yet, explaining that The Netherlands is already a highly digital market, van Dijk said that when it came to experimenting with a CBDC, their efforts found that technically-speaking, everything they sought to achieve is possible.

On top of this, the central bank (in addition to several other European central banks) found that the combination of centralised and decentralised structures presents a compelling scenario. “I think we’re more advanced there than we were five or ten years ago,” she added.

Though a captivating proposition, Emch raised the question around the need or potential need for international standards to be agreed upon by central banks to ensure that trust is protected in these new infrastructures.

Björn Segendorff, senior advisor, Sveriges Riksbank, argued that when it comes to testing and potential adoption of CBDCs, every central bank has unique motivations: “This means that there isn’t really a one-size-fits-all approach.”

“There will be differences in technology and division of labour between the private sector and the public sector. But taking a step back, a high-level picture is emerging around the consensus that central banks want to cooperate with the private sector.”

Who will come out on top in the ‘new money value chain’

Moderator Reinhard Höll, Partner, McKinsey, encouraged panellists to look into the crystal ball for the session titled ‘What should the new money value chain look like?’

Addressing Höll’s first query - “what is the future of money?” Nicolas Kozakiewicz, innovation executive advisor, Worldline, believes that the future of payments will be anywhere, anytime, for anything: “tomorrow, money and payments will be real time, seamless, programmable and fully integrated.”

Offering perspective from a DLT provider, Marjan Delatinne, managing director-payments, SETL, stated that the advent of CBDCs is shifting the policy discussion around the operating system, and when this conversation turns to tokenisation, we’re really talking about how to shift and improve the backbone of the payments system.

“I think moving the current backbone or legacy systems into the internet of value without considering the regulatory framework is not going to work.” This is evidenced, for instance, in the lack of breakthrough the crypto space has achieved despite its strong innovation.

Delatinne continued that within this ecosystem, “technology is just a means. The main question is around how we move the regulated context into new technology.”

The structure of what payments systems truly need was underscored by Martina Weimert, CEO, EPI Interim Company SE, who argued that certain “shortcuts” are being discussed in the wider debate that don’t reflect the reality of what’s needed in order to establish these infrastructures.

“A payment solution today needs rules, liabilities, processes - especially if you want it brought into the commerce space.” It isn’t as simple as just creating a new form of currency and then assuming new products are instantly available to connect.
Weimert furthered that when it comes to ‘super-apps’, she doesn’t see these type of platforms coming to fruition across Europe in the way WeChat and AliPay have taken hold in China.

“For us, I see extended services - more value-added services and use-cases. But these very specific uses (eg social media) are not what we are going to see.” Rather than seeing these large, highly integrated, ‘super-apps’, she predicts that we will have apps evolve which are increasingly blurred around payments - simply because we already have behavioural trends in place which set the trajectory for this development.

When it comes to driving change in the CBDC space, Kozakiewicz said the power in this dynamic lies in the hands of those who decide. In this ecosystem, that decision lies ultimately with the users. Put simply, he stated that “you can’t push a rope.”

While he agreed that yes, new entrants are being watched closely by regulators, given that “regulators can’t even make them pay taxes” they don’t really have the teeth to shape the story.

Weimert countered that many central banks are under the impression that they need to step in, but they don’t really know what role they should play in this new environment. “Should they just be active on the infrastructure side? Should they become payment solution providers - Is that the role of a central bank? Is it just to step in when the market failure? Or is it to create the conditions that the markets so forces can succeed? It's almost philosophical.”

Agreeing with Delatinne, Charles McManus, CEO, ClearBank, noted that given payment schemes, central banks, and governments, need to have tools for monetary and fiscal policy (especially the case in the Western world), the emergence of digital currencies is undoubtedly concerning for them.

McManus believes that CBDCs have the ability to work within and in support of these policy considerations. Additionally, McManus believes CBDCs can work toward improving ongoing issues with fraud thanks to its closed-loop, blockchain-based nature.

Closing the session with a brief question to the panel, Höll asked who is set to benefit most from this infrastructural evolution; Gijs Boudewijn, general manager at the Dutch Payments Association and McManus were in agreement that Tech will be the winner from this evolution. Kozakiewicz saw it as a universal win with the proliferation of new features and benefits - many that we can’t even foresee. Delatinne believes banks will not only stick around, but those that transform their business platform will triumph.

Weimert, ending the session, argued that the ultimate winner will be the consumer: “More choice, more solutions, the options are endless. Taking a step back, those which are winning are the big techs…I think it’s a question of market conditions and being proactive, but let’s not forget that there were times when payment innovation was coming from Europe - where was the chip invested? Who adopted contactless payments first? That was Europe. We have the engineers and the capacity, so it’s up to us to be the winners or the losers.”

Learning to appreciate the unexpected

Exploring the panel’s most memorable ‘unexpected partnerships’ to kick-start the session ‘How can we discover unexpected partnerships?’, panellists listed Apple and Goldman Sachs’ first partnership, the SBI and Ripple partnership (setting a strong precedent within the crypto space), and perhaps the most unexpected example - George Clooney’s partnership with DNB bank, as their personal favourite ‘unexpected’ partnerships.

Moderator Colin Payne, VP global lead, NextGen FS, Capgemini Invent, observed that it’s the unexpected which can lead to fantastic partnerships, and pointed to the Facebook & Ray Ban partnership to illustrate the importance of shared cultural ambition and vision when building strong partnerships.

Arun Tharmarajah, head of Europe, Wise, agreed, arguing that it’s vital for firms to go back to the basic question of ‘why partner’ if they are truly going to confirm a shared vision.

Sendi Young, managing director, Europe, Ripple - added that the power dynamic within the relationship is relevant to this process. The way in which big tech made its foray into financial services is a strong example. Big tech found that the greatest value is partnering and bringing in new players has been the best journey. Strength in both camps means that both players can come to the table and build something bigger and better.

Siri G Borsum, global VP finance vertical eco developments and partnerships, Huawei Consumer Business Group, commented financial services has always been “extremely slow”. With the sudden arrival of technology, data and insights, players believe they need technology for technology’s sake - without looking deeper to their true needs first.

“Above all else we need financial health. We can help people understand how to invest, save, pay their taxes - we have that ability and that’s how we should partner. It may not be a revenue driver to begin with, but it will be a loyalty driver.”

Creating the right environment: Starts with people. Diversity, vision, and then ultimate freedom is what will help nurture success.

While Borsum believes in the importance and support of failure when it comes to healthy partnerships (like raising a teenager), Young noted that “partnership is a more like marriage. You have to start with a shared vision, build on trust, and continue nurturing it.”

Referencing a real-life example of a partnership challenge that was difficult to resolve, Young explained that once the trust is broken there is very little that can be done to repair the relationship.

Tharmarajah added: “Failure is ok, but make sure you fail quickly - there’s nothing worse than failing over a long period of time.” Having a triage process at the outset is therefore essential to making sure failure happens fast - this is often tied to company cultures.

Probing whether customer ownership can be a contentious element in partnerships, when Payne asked panellists about how parties can decide who owns the customer, Borsum explained succinctly that “it’s extremely important to remember that the customer just doesn’t care.”

Young qualified the point: “Customers may not care about brands, but they do care that they can trust them. The importance lies in aligning who is responsible for what within the partnership. The most successful, innovative companies solve a specific problem very well. The ultimate partnership therefore brings parties together to create something better.”

Tharmarajah believes that while customers don’t care who they’re using while the experience is smooth, they definitely do look for accountability and the responsible partner when things go wrong.

In his final remarks, Payne asked the trio to provide one factor that is essential for successful partnerships:
Tharmarajah: “Culture fit. Just because it’s a big bank, doesn’t mean the culture is going to be bad. People are people, treat them as individuals.”
Borsum: “Be transparent with your needs and objectives.”
Young: “Keep an eye out for what’s going on the world to bring-in interesting partners.”