Opening remarks by Petra Hielkema
Fintech Meets the Regulator IV
29 November 2019
Good morning, ladies and gentlemen!
Welcome to “Fintech meets the Regulator”. De Nederlandsche Bank has now hosted this event for the past four years. So you could say it is becoming something of a tradition. A valuable tradition. Because for the past four years fintechs and Dutch regulators have had the opportunity to meet each other here. To engage in dialogue. And to come to a better understanding about our challenges, our opportunities, our needs, and our aims.
As well as DNB, we also have with us today representatives from the Dutch Authority for the Financial Markets, the Dutch Competition Authority, and the Data Protection Authority. I would like to extend a special welcome to all this morning’s speakers.
As you know, Fintechs come in many different shapes and sizes. They can be startups, but also banks or bigtechs. But what they all have in common is that they combine financial services and products with innovative technology. The result is often an optimal user experience.
Payments is the area of the financial sector where innovation and change occur most rapidly. This is due to the entry of new players, new technologies and changing consumer demands. PSD2 is maturing and the preparation for “open banking” is in full swing.
This requires a clear vision and priorities from DNB. We have defined three priorities for the period 2018 to 2021: Stimulating innovation, promoting a robust electronic payment infrastructure, and working on a well-functioning cash payment chain.
Dialogue with the sector – with you – is crucial. As regulators, we are faced with the challenge of ensuring that our approach fits in well with the new landscape. Cooperation between regulators is also becoming increasingly important. What would you expect us to do in the coming years to make sure the playing field is properly organised?
Since last year’s Fintech Meets the Regulator meeting, there have been several important developments. I will clarify some of these, focusing on legislation and innovations. Finally, I will go through this morning’s program with you.
Developments in legislation
Let’s start with one of the most important aspects: Developments in legislation. On 19 February this year, PSD2, as implemented into Dutch national law, came into force. Since then, DNB has been able to grant licenses under PSD2 to parties wishing to offer account information and payment initiation services. Of course, we cannot issue these licenses unless they comply with all applicable supervisory requirements. We like innovation, but we also have a responsibility as a regulator.
The fintechs Dyme from Amsterdam, Bizcuit from Veenendaal and MoneyMonk from Utrecht are just some of the parties we have granted licenses to under PSD2. Dyme offers a savings app for consumers. Bizcuit offers entrepreneurs an app to support their administrative and financial activities. And MoneyMonk offers entrepreneurs an online all-in-one solution for project management and accounting.
At the end of last year, the European Banking Authority, the EBA, published rules on the conditions that Account Servicing Payment Service Providers – in most cases: banks – must meet in order to be exempted from the fallback facility under PSD2. This fallback facility – which works via screen scraping together with identification – can be used by third parties under PSD2 if the special interface set up by the bank does not work properly. The EBA has explained in its rules what “working properly” means in this context. Over the past few months, we have been busy assessing the exemption requests we received from banks.
Most European banks have built their special interfaces, or APIs, in line with the Berlin Group NextGenPSD2 standard. But there is a lot of variation in how this has been implemented. There is still much to be gained in terms of further standardisation. Also, for example, with regard to interface standards that offer more functionalities than the minimum required under PSD2. This is an important next step towards “open banking”.
Since this 14 September this year, the EBA rules on strong client authentication and common and secure open communication standards apply. At least, to a large extent. This is because the EBA announced in mid-October that it would postpone the deadline for the application of strong customer authentication (SCA) for card payments in e-commerce until the end of 2020. Be it under strict conditions.
The reason for postponing the deadline is that many market players in Europe were not yet ready for applying SCA for online payments, despite the fact that the SCA requirements were already known 18 months earlier. In the Netherlands, this issue only affects part of online credit card payments, but some Dutch payments service providers are also offering their services in other Member States where this issue occurs more often.
Parties requesting postponement have to submit a plan that shows how they will apply the SCA requirements as soon as possible. The migration must be completed by December 2020 at the latest. That means: “No more kicking the can down the road”. In the Netherlands, DNB is the competent authority that assesses the migration plan.
Now I would like to reflect on a number of innovative developments that have gained momentum since our last Fintech Meets the Regulator meeting.
Last summer, instant payments were successfully implemented in the Netherlands. It is estimated that there will be over 1 billion instant payments every year. It has become “the new normal” for payments in our country. Unfortunately, this is not yet the case in many other European countries. The Eurosystem and the European Commission encourage the development of a new pan-European payment solution for use at the Point-of-Interaction. This should be based on the technical infrastructure for instant payments. This new pan-European payment solution is intended for payments made at physical Points-of-Sale and in e- and m-commerce, but also for P2P-payments.
Such a pan-European payment solution could stimulate competition and at the same time increase Europe’s independence in payments. It would mean, however, that instant payments must become the new normal throughout Europe. Just as they are in the Netherlands. In addition, the instant payments infrastructure should have full reach across SEPA. This is however not yet the case, so we hope to see progress here soon.
The success of such a pan-European payment solution also depends on whether it offers sufficient additional benefits to market parties compared to the current situation. By market parties I mean consumers, both physical and online retailers and payment service providers.
The European payment market is increasingly seeing the entry of bigtechs, with their large customer bases and access to data. Some are building on existing payment infrastructure and working together with existing providers. For example, Apple Pay, which is also rapidly gaining in popularity in our country.
Other bigtechs focus on innovative payment services that run on their own new infrastructure. Take for example Facebook’s plans to issue its own global stablecoin, the Libra. A global stablecoin has the potential to increase the accessibility of financial services and improve the efficiency of international payment transactions.
At the same time, major risks may emerge regarding financial stability, money laundering and terrorist financing, tax evasion, privacy, competition and consumer protection. We believe that the rise of stablecoins requires an integrated and proactive approach. If new regulation is needed, it should be developed internationally.
This brings us to the question of whether central banks should issue their own digital currency – Central Bank Digital Currency, or “CBDC”. CBDC can complement or partially take over the role of cash.
Within the eurozone, the ECB will have to decide whether central banks should issue their own CBDCs. The pros and cons will have to be very carefully considered. At DNB we are cooperating with our international peers in this area. We are also conducting research to feed the debate within the ECB. We expect to publish our first results in early 2020.
Before I finish, I’d like to go over this morning’s program with you.
Jacco Hakfoort of the ACM will start by explaining ACM’s experiences with bigtech and PSD2. He will also discuss the current ACM study into the influence of bigtech on the Dutch payments market. This study was prompted by a request from the Dutch parliament to the Minister of Finance.
Some say data is the new gold. However, privacy in the payment system is also very important. Recent DNB research shows that the vast majority of Dutch consumers do not intend to share their payment data to use new services. But whether that will really be the case, only the future will tell.
In February, DNB and the Dutch Data Protection Authority signed a cooperation protocol for effective to effectively and efficiently supervise PSD2 compliance. Walter Cruccu from the Data Protection Authority will discuss the first lessons learned about PSD2.
After that, Petra Stojanovic and Luc Schamhart from Google will explain what the tech giant has in store for the payments market. We will end the first part of the morning with a Q&A session. Then you will also have the opportunity to ask the speakers any questions you might have.
After the coffee break, DNB supervisor Roger Wijnands will share some experiences of the PSD2 licensing process. And then we will hear from one of the parties to which we recently granted a license. I am looking forward to hearing all about the experiences of Jorgen Horstink of MoneyMonk!
Then we have Peter Cohen of Worldpay and representing the VBIN; in Dutch “Verenigde Betaalinstellingen Nederland” and in English “United Payment Institutions Netherlands”. He will discuss a practical view on remote card payments and the PSD2’s SCA requirements. After that, David de Boer of the AFM sheds some light on supervising the conduct of payment service providers. That will be followed by another interactive Q&A session.
Then we will have a panel discussion about the future of payments. The members of the panel will be Max Geerling of the Dutch Payments Association, Don Ginsel of HollandFintech and Lex Franken of Innopay. The discussion will be moderated by Michiel Bijlsma, head of the Payments Policy department.
Don Ginsel of HollandFintech will close this fourth Fintech Meets the Regulator-meeting. But you don’t have to leave on an empty stomach, because lunch will be ready and waiting for you just outside. If you have missed anything today, or would like to elaborate on a topic discussed today, you can meet one of us during lunch, or earlier during the coffee break.
I am counting on open and active discussions, and I hope that all of us – both you, the fintech sector, and we, the supervisors – will again learn a great deal from each other.
I wish you all an interesting and successful morning!