10 December 2020: Two-thirds of central banks believe they could or should explore direct collaboration with the private sector in designing and managing payment system architectures as digital currencies look set to transform financial services, according to a landmark report published by OMFIF today.
The pace of change in global payments is unprecedented. The desire for speed, convenience, safety and affordability in conducting digital transactions has been turbocharged by the need to preserve public health and reduce cash dependence during the Covid-19 pandemic. One central bank survey respondent reported that 1.6m individuals gained access to their country’s formal banking system during the first half of 2020, while mobile banking transactions rose 192% during the same period.
Philip Middleton, chairman of OMFIF’s Digital Monetary
Regulators understand that they need to keep pace with these innovations to protect consumers. According to the OMFIF survey of central banks:
- 75% of respondents find payment systems governance a key function of the state, with 56% also seeing a greater future role for public-private partnerships in payments.
- 94% of respondents identify setting revised regulatory or technical standards as an essential responsibility of the state in the future payment industry.
- 82% of respondents select cybersecurity as a key regulatory concern in the proliferation of new payment technologies.
- 71% of respondents highlight that digital payment infrastructure should have measures that safeguard consumer privacy while balancing financial integrity and transparency requirements.
- Only 35% see industry fragmentation as a pressing regulatory concern.
The report looks in detail at the next evolution of payments. It examines how the advent of cryptocurrencies and distributed ledger technologies has spurred a wave of research and exploration by governments and central banks. The report showcases the potential for new paths forward by investigating the changing payments landscape through a regulatory lens. It also explores innovative developments underway in the ecosystem of traditional payment providers, technology companies and more recent entrants to the sector.
Apart from the roll-out of retail payment systems that offer near-instantaneous domestic clearing and settlement, there is potential for changes in how central banks can promote better speed, security and access to payments.
Consideration of central bank digital currency implementation and the notion of digital sovereign fiat currency that can be virtually transferred at low cost and speed are sparking further changes that could transform how transactions are executed. As both private and public sector innovations in payments develop, there is a need for regulatory modernisation in governing and evaluating the implications of novel payment infrastructures and instruments.
Bhavin Patel, senior economist and head of fintech research at OMFIF, said: ‘Although private money and means of payments, such as stablecoins, have seemingly arisen to compete with the traditional dominance of sovereign fiat currency, the future of the payment industry is likely to be more collaborative, as hybrid digital payment infrastructures open up greater avenues for interoperability between private payment players and the monetary innovations from central banks and governments.’
Institute, said: ‘2020 has witnessed a dizzying acceleration of the development of a complex digital economy and of the sophisticated digital payment systems that must accompany it. This offers the exciting prospect of cheaper, more efficient, and more secure transactions on a global scale, and the possibility of extending financial inclusion to millions of citizens. But it also will bring the likelihood of multiple private and fiat currencies with profound implications for regulation and supervision, cross-border interoperability, and important questions about the balance of co-operation and competition between public and private sectors. This timely report explores these and other issues which will reshape the financial services industry with insight and lucidity.’
Technology is bringing new entrants to the payments space, as technology companies inject greater innovation, co-operation and competition alongside established payment providers.