Making waves with EY – the PayTechs edition

Introduction

Diana Halder

Welcome to Making Waves and Payments, the PayTechs Edition, an EY podcast that takes you on a journey through the fascinating world of payments. I'm your host Diana Halder, EY Canada's payments practice leader, and I am thrilled to have you join us. In each episode we'll navigate through the latest trends, innovations and challenges that are shaping the way we pay.

Diana Halder

As we chat with experts from around the world who will share with us their perspectives, and maybe a prediction or two. With that, let's meet our guests. How about we start with you Alla?

Alla Gancz

Hi, my name is Alla Gancz and I'm the UK Payments Leader at EY.

Pati Partelow

So my name is Patty Partlow and I am the US Payments Competency Leader at EY.

Tom Bull

Hi there. I'm Tom Bull, I am EY head of FinTech growth for the UK.

Diana Halder

So why PayTech? What was the reason, the genesis, the inspiration behind Paytech?

Alla Gancz

Thanks Diana. I think it's an exciting time to be in payments as we are seeing a boost of innovation and a range of new propositions coming to market. And what we wanted to do is really pause and reflect on the innovation driven by new fintechs and non-bank players who are really coming to market with some innovative and disruptive propositions.

Alla Gancz

We wanted to understand the scale and impact of these new propositions on the payments industry as a whole. And what we concluded is that PayTechs represent a very significant number of the FinTech world, around 25%, and that number can be much higher in different regions. For example, it's closer to 50% in Asia, there are 2,400 paytechs globally valued at over $2 trillion.

Alla Gancz

Payments fundamentally is at the heart of digital economy, valued at $240 trillion. And what we're seeing right now is some significant and fundamental structural shifts across the industry. And what we wanted to do is really connect the dots, understand all the moving parts, and help our clients to navigate the next phase of innovation and disruption.

Pati Partelow

Hi, Paddy Partlow, the US Payments Competency Leader. I know it's a lot to swallow. To me, PayTechs see the opportunities in the market. They go after the gaps that are there. And, you know, I really, I've said for a long time, you know, incumbents like the bigger banks, they can either learn from the PayTechs, they can partner with the PayTechs, even buy the PayTechs.

Pati Partelow

But, yeah, I think it was smart to really focus there.

Diana Halder

Brilliant. So okay, so now we understand, you know, the reason the genesis behind the PayTech report and the fact that it is a global team, a global EY team coming together to bring these seven themes to light. So for our listeners, I just want to really quickly touch on the seven themes that we're talking about, but feel free to download our report anytime at ey.com. First and foremost, we have real-time payments, which is one of the seven themes.

Diana Halder

And then the next one we have is cross-border payments. Now we position real-time and cross-border as your enablers, the infrastructure upon which the other payment or the other themes are built upon and more. The next theme is open banking — buy now, pay later (BNPL) — is the following. Digital wallets, super apps, embedded payments and digital currencies, CBDCs. So across these seven themes, question for our next speaker: which one do you think is the most disruptive and why?

Tom Bull

That's an easy one for me. It's open banking. I'm Tom Bull, I'm the fintech lead and in terms of our growth proposition in the UK., I spent a lot of time in the last few years really looking at open banking. It's an area where the UK took an early lead and at its heart it's really opening up data.

Tom Bull

It's opening up payment capability to customers and putting executable ownership of those capabilities in the hands of customers rather than having them kind of locked up in the channels of banks. And I think that's an incredibly powerful proposition because it opens up a whole range of use cases if you give customers access to that data. And it's kind of a game changer in terms of the participants in that ecosystem as we start to see non-banks PayTechs and FinTechs playing a part in being able to access and operate those services with customers.

Diana Halder

So could I ask, you know, what is an example of a use case that has come up as a result of customers taking ownership?

Tom Bull

In the early days in the UK, we saw a lot of aggregated type propositions, so for the first time customers could see all of their financial data in one place, you know, be that either in their own bank’s app or in a FinTech app. And there were a number of standalone aggregator propositions, but more recently a lot of the focus has really shifted into the payment space because banking has the capability to initiate payments, either single one-off payments, future data payments, or we can talk a bit more later about the exciting developments around variable recurring payments.

Tom Bull

And that's where a lot of the focus currently lies around opening up access to those kind of payments, building new journeys and really accelerating adoption of faster payments in the UK through the use of open banking as a payment initiation mechanism.

Diana Halder

So question for Alla, when I think of real time payments and open banking and the fact that we are, you know, giving customers the ability to move money out of their accounts immediately or even a request to pay capability where a merchant or a non-individual is pulling money from my account, how is that a good thing? You know, when I think about taking money out of my deposit account, I don't think what if I don't have the necessary funds?

Diana Halder

What if I want to use my credit? What if I'm really obsessed with loyalty points on my credit card? So how is real-time payments in some of the use cases that Tom was talking about open banking a good thing for consumers?

Alla Gancz

Great question. On one hand, we have a very much credit card culture in the UK market where significant volumes of payment flows sit on the credit card rails. However, we're moving into the world of connected commerce where merchants and consumers are being connected directly and much more effectively. Therefore, account to account payments allow us that speed, transparency, but also the cost savings.

Alla Gancz

Merchants are looking for lower, a lower cost and more effective payment methods. Therefore exploring, we're seeing an accelerated adoption of real-time payments and many merchants are exploring new payment methods, such as pay by bank or a counter account. However, it's very important to think through a couple of areas that will be critical to enable the adoption of real-time payments.

Alla Gancz

Number one, consumer protection. Number two, fraud. Because we're seeing the rise of APP scams on the back of a counter account payments, authorized push payments, chargebacks, refunds, etc. Everything that's part of the current credit card model will need to come through onto real-time rails.

Pati Partelow

The thing that I'd love to add on to what you said is I also think that, you know, there is still the credit card, you know, points junkies. But if I look at my kids, right, they're much more of a debit card user society like my daughter couldn't understand: Mom, I thought you paid my credit card bill when she was in college.

Pati Partelow

I said I did, but you continue to use it like she had no concept of this, you know, revolving credit. I think those debit card users are like the perfect users for an account to account. Like for me, I would be so afraid to give someone my account information, but my kids have no problem with it.

Diana Halder

Interesting. So, I mean, I hear real time and open banking bringing a lot of value to the businesses, the merchants. But I'm still not hearing the incentives that are on the consumer side, right? And yes, the younger generation, they prefer to use debit cards. They prefer to do pay-by-bank type transactions. But yet they're also one of the biggest users of buy now, pay later, which is a credit facility.

Diana Halder

So help me reconcile that, Pati.

Pati Partelow

Well, and I think it's the combination of those together, right? Like, I've never said that buy now, pay later is the end all, be all. I think it's a choice of payment. And so, you know, if I am my daughter, say she's you know, she's just starting out in the world. She might want to buy something really expensive, but she doesn't necessarily want to take out a line of credit.

Pati Partelow

So she'll put her other payments on her debit card and then maybe make that bigger purchase using buy now, pay later, which just allows her to extend that over a few payments, but a few installment payments, but never really having to commit to a full-on credit line.

Diana Halder

So I did see an article recently on how consumers need incentives to start using real-time payments, right? So on top of having the proper protection, there's the education that they need to appreciate, but they need to have the incentives. And so when I think about, not the trick, the technique that the merchants used to get them to use, buy now, pay later, it was an incentive.

Diana Halder

It was, hey, don't worry about interest payments. We got you paid over for. Call it a day. Granted, that's not what's happening right now, but we'll unpeel that onion later. But when I think about, again, real-time payments, you need a checking account or some sort of DDA that sits behind the scenes. There has to be an incentive beyond it's cheap for the merchant.

Diana Halder

So Alla you've got your hand up, no one can see that, but she has her hand up.

Alla Gancz

I think the consumer adoption will be driven by a couple of factors, which is simplicity, convenience, speed. The consumers have to see the value of those real-time payments. And I think if we can make it as simple as possible, as convenient as possible, as, for example, as we move into embedded payments, where your payment is embedded into your journey and you don't have to make that choice.

Alla Gancz

So I think that will help us to drive that adoption. And I think it’s overall customer experience and user experience becomes more important.

Diana Halder

So this is all open banking's fault.

Tom Bull

I think often and it isn't necessarily a shift between a card rail and a pay-by-bank option as well. What we've certainly seen in the UK is historically a lot of kind of bank app- or browser-initiated faster payment push, which involved a lot of manual keying by the customer of sort codes, account numbers, amounts, etc.

Tom Bull

And what pay-by-bank has been really powerful in doing is making that a whole lot easier for the customer. So, often merchants are presenting that at the top of the checkout. If it's something that they find convenient and they think their customers will and customers are finding them with kind of three or four clicks on a mobile app, you know, using a kind of biometric process on their banking app they're very familiar with.

Tom Bull

And the payments are actually much kind of easier and simpler than a lot of what they've experienced historically with the account to account flow. So when it comes to things like tax payments in the UK, there's been a real takeoff in using open banking payments to deliver those. Historically, you had to kind of, you know, scribble down on a piece of paper, a bunch of details about the amount of tax you had to pay, the tax authority’s details.

Tom Bull

Now you just present it by with a QR code at the point of paying your taxes, which initiates the open banking payment flow. We've seen at this time around £8 billion worth of tax payments go over that journey. So, you know, despite having only been launched recently, it's been a really rapid takeoff in that approach.

Pati Partelow

And if you look in the US, I know you talk about wanting a cheaper way to accept payments like the fuel industry. They would tell you number-one cost on their balance sheet is fuel. Number two is payments acceptance. They've got all their now apps and they will give cents off per gallon.

Diana Halder

That's the incentive I'm looking for. So it's not just the convenience of the experience and the security, knowing that this method that I'm using is secure and I do have protections in place in the event of a dispute. But there's also some incentive that the merchant is encouraging me, because ultimately those cents off to get me to use a cheaper rail versus credit card is what's going to be a win-win on both sides.

Alla Gancz

The merchant has to give you a choice. The merchants have to offer choice. And we're seeing that choice increasing, especially in the ecommerce world. You've got your cards, you have BNPL option. Now you will have pay by bank or counter account option. So we do need to educate consumers.

Pati Partelow

And it’s so funny you say that because people have said to me, well, my merchants aren't asking for it, right? And I'm like, well, that's because their customers aren't asking for it, and it's because they might not be aware yet that that's even an option.

Diana Halder

Theme education. Yes. Alla, you touched briefly on embedded payments and how that is a mechanism for convenience, but something you said to me kind of sent my spide-y senses tingling is the choice is taken away. So what do you mean by no choice? Or maybe not as proactive of a choice for embedded payments?

Alla Gancz

We're moving into the world of faster, cheaper and safer payments, but also payments are becoming more invisible, where we are embedding payments within a specific customer journey so that you don't have to come out, go into your bank, initiate a payment method outside of your journey. So now it's becoming much more invisible and therefore embedded. But it has to be very much in line with your expectations.

Alla Gancz

You make the choice behind the scenes, so you embed your payment methods within that customer journey based on your personal preferences, whether it's a card or whether it's a counter account payment. But we will look, we will talk about the vertical solutions that of course, that we develop a specific industry, whether it's automotive, health care or retail.

Diana Halder

It's a really smart tactic where you have these PayTechs, FinTechs going and understanding the consumer experience of the merchant experience and inserting themselves into that area. So let's talk a little bit about, again, going back to the theme of embedded payments, and it's becoming invisible, right? And so when you start to make payments invisible, do you think that there is an impact, and looking to you, Tom, to financial literacy?

Diana Halder

If I am not, not that I need to touch the money, but if I'm not being if I'm not conscious of how to budget and the money in and money out, and it turns into a bit of a game where it's invisible. What's happening to financial literacy?

Tom Bull

Yes, it's kind of an interesting kind of question, isn't it? And I kind of think no one wakes up in the morning thinking, oh, I want to make a payment. You know, we kind of just want to get stuff done. And and in a sense, then, the easier, the more intuitive is, you know, kind of the better.

Tom Bull

We just, you know, we just want to get our jobs done. But that invisibility clearly does present some challenges as well. And when things are offered at the point of need in a very packaged way, experience tells us that doesn't always deliver the best value for the customer because, you know, it's disincentivize shopping around, it can reduce choice.

Tom Bull

Often we find that in modern marketplace and ecosystem economies. Thankfully, we have participants in those ecosystems who have got the customers interests heart because they you know, they're operating at the marketplace level and they want their marketplace to be, you know, a good marketplace and therefore delivering good value. I think the more invisible we make payments as well as, you know, clearly it can take away that sense of kind of really thinking about the payments, weighing it up in terms of budgeting, etc., with, you know, contactless cards.

Tom Bull

It almost feels a bit like a magic wand, isn't it? You know, we just kind of tap it on the terminal here, tap it on the terminal there. But it's good to see those things like the personal financial management apps coming into play, budgeting apps that are kind of counterbalancing that to a degree and helping people keep track.

Tom Bull

And it's worth noting on the UK implementation of the open banking payment, unlike a card payment, the customer does actually see their balance before ticking authorize. And it's quite possible as well that those open banking players would deliver a view that shows that payment against the, you know, against this budget category before being authorized. So the technology brings some new capability.

Tom Bull

But of course, I agree, you know, brings some some risks as well.

Pati Partelow

When you said that, it made me think, I don't know if anybody spends time on social media, but nowadays you can go on Instagram and you know, you're drinking wine. Next thing you know, next morning, like you're like, this is being shipped and you're like, oh my god, what did I buy? Because it's so easy. I'm not saying that ever happens to me, but the easier it is to get to your point, the decision becomes like it's fleeting.

Pati Partelow

I love the idea of showing the balance and really thinking about it ahead of time.

Diana Halder

Showing the balance because they don't have a choice. They're like, I'm used to taking the money out of your checking account, so I need to show you what you had. But when they start to, one of my theories is that, and I think we're starting to see this in India with their version of real time payments, is that it's not just the checking account, that's the funding instrument.

Diana Halder

They're also incorporating points. So I can use a bit of points. They could use a bit of cash, multi-funded, off it goes down the rail. But then now credit, right? Whether it is credit that is instantly adjudicated and issued or a credit card, so the funding instrument behind that real-time rail transaction is starting to grow.

Diana Halder

Which leads me to think: is there going to be a convergence of the different payment types on to one rail and what role do you think it could be? It's a full layup, I appreciate that. Go ahead Alla.

Alla Gancz

I think we're seeing convergence of lending and payments. So when you talk about BNPL, clearly we are making instant decision around lending at the point of sale. We are also seeing convergence of low-value and high-value payment methods because they're moving on the same rails and we are providing real-time instant payments for small and large transactions so that's inevitably the future.

Alla Gancz

I think from a perspective of a customer, they should be agnostic where the payments are going through. It's just the speed of the transaction. And I remember a great story of an APP in Australia where they processed a AU$20 billion transaction. They were monitoring it end to end, but it went on the same rail where the low-value payments are going through.

Alla Gancz

So in the UK we still have separate systems which is, you know, faster payments and then our TGS for high-value transactions. But in the long run we're going to move towards a more simplified, unified market infrastructure.

Diana Halder

100%. And same thing in Canada. We have three different we will have the third one come online. But my gut tells me that it's going to converge onto the real-time payment rail.

Alla Gancz

And the problem we have today is the complexity of payment systems integration. The banks and the PSPs have to integrate and run 8 to 10+ payment systems, and that represents huge complexity on the backend and the cost of running.

Pati Partelow

And you won't need payment hubs if ever there's because now it's just like, what's the job to be done, right? Which rail do I use?

Diana Halder

What's the use case, what’s the experience.

Alla Gancz

For embedded payments, I was going to mention is the in-car payments. So if you think about ultimate, the embedded experience, when we say invisible or frictionless, that means you're in your car, you filled your car with fuel, you don't have to come out and pay at the till. That's a very good visual example of the embedded payment.

Alla Gancz

You're in your vehicle, let's put the gas in and you made a payment within your car. That's kind of the ultimate.

Pati Partelow

Like almost a whole podcast discussion around EV charging and payments and all the different players in that ecosystem. It's crazy.

Diana Halder

That leads me to our second-last theme. We haven't touched all of them. We have two more left. It's super apps. When I think of super apps, I think of what the the apps that are coming out of China, right? I'm talking about they were doing things we are just starting to scratch the surface of, what, five, seven years ago.

Diana Halder

And so when it comes to the super apps, what do you think is going to be, the who do you think maybe is the better question, is the first mover here in the West. Any takers?

Tom Bull

I kind of think it's a really interesting and instructive case study. Look at those Asian super apps. But I also think that there are limits to its usefulness in a kind of Western context where privacy laws are very different, the digital economy is very different. And we've also already got, you know, kind of deep capability and kind of very established players.

Tom Bull

And, you know, in a number of areas there is, you know, taxi services or leisure bookings, etc. I mean, for sure what seems incredibly appealing is that level of convenience, also very integrated, you know, built into the app, extremely customer-centric. And, you know, you see the appeal of that. But I think in all reality, I think what we're likely to see more of is a is a more of a kind of a financial services super app where we see, you know, some of the wallets or some of the banks move towards a model where they really wrap a rich set of financial services around the customer highly personalized, you know, very kind of tuned into the context the customer's in at that time, etc. But maybe it becomes a little bit more limited in that sense and, and that more kind of financially orientated. But, you know, love to see what you guys think.

Pati Partelow

The one that I think has been trying to do something is really Uber, right? Whether it's, you know, started with just my normal ride and then it became you know, they were trying to get into freight for a while. They've got eats it's, you know, they're thinking about their asset and trying to figure out different ways. And in some of it, I think now I think they're even trying travel.

Pati Partelow

You know, it'll be interesting to see what sticks and whether they have the right to win in. You know. Do you really think about your daily relationship with Uber? I think they try to become that that critical, but I know they try.

Alla Gancz

One of the key themes that I could see is the importance of value beyond payment. So payment is very much the key enabler of your experience on the app, on the platform. But I think there is so much focus on what happens before and after the payment and all the value-add services. I think we're seeing the rise of digital wallets.

Alla Gancz

They're becoming much more omnichannel, they're providing more services within that, within the app or within the wallet. And ultimately, we're going to see a lot more innovation and disruption around, and creativity as well, around the value beyond payment.

Diana Halder

I think one of the things I liked about the super apps, again, going back to the China experience, and we're starting to see elements of that here in the West, is that they understand the consumer experience. And so when I buy, am I buying? Am I going online and doing research? No, not really. Not anymore. I'm buying because, you know, maybe my friend recommended it or it's appearing in my feed.

Pati Partelow

And then on top of that, for me, because I don't think I ever go to stores. If for some reason I get it and I don't love it, like how easy is it to return it and what can you, app, do for me to help me be able to find my order, initiate a return, give me a label.

Alla Gancz

And many merchants are now in sourcing payments operations into their business model because they realize that payments is the last mile. You know, it's that checkout experience. It's going to drive your sales, it's going to drive your revenues. Payments is becoming so critical to enabling your business growth that they're insourcing and they want to own it. But also they realize that they can generate revenues.

Alla Gancz

It's a profitable business.

Diana Halder

And that's new, payments being profitable. I remember where I started my career at a bank. We were considered, and I was working in the payments department, we were considered a call center, but now it's profitable. It lubricates the economy. It's across multiple industries. It's not just financial services, it’s beyond that. And in the example that we've been talking about, these are examples of companies that are entering this space.

Pati Partelow

Everybody, actually it's really funny, because I've been we've been in payments for a long time and now it's become super popular, right. And you and I no longer are just talking to payment service providers. I'm talking to merchants, I'm talking to corporates. And you know, sometimes we're trying to help a company. You know, maybe they're a multi-level marketing,

Pati Partelow

you know, company and they want to create a dot com and, you know, but their distributors don't qualify to be a merchant, right? So they're becoming the merchant of record, they're hosting them. Everybody wins because it's easier for the consumer to purchase those goods. But then that brand company that MLM is getting a cut of that. So now all of a sudden they've got an additional revenue stream.

Diana Halder

Alright. So the last force that we haven't talked about and I'll be honest with you, I'm not necessarily a believer. I haven't drunk the Kool-Aid on digital currencies and CBDCs, so help me as a naysayer understand, you know, why is this trend occurring and why should I care about it?

Alla Gancz

Yes, it's a fascinating topic. And as we look ahead into the future, it's really important to understand the potential of digital currencies and the blockchain technology overall. Let me explain it in very simple terms. So I think what we're seeing is an emerging ecosystem of new forms of digital money, of digital currencies. Okay? On one hand, we have seen cryptocurrencies emerging on the back of public blockchain and on the back of that, we've seen central banks investing time and effort to explore the concept of digital currencies. As a result, we have 110 central banks developing, experimenting, and testing and piloting, deploying solutions. We have a Bank of England consultations going in the UK. We have ECB running consultation in Europe around digital euro. It's all happening.

Alla Gancz

It's very much close to home. So ultimately we are going to see an ecosystem of CBDCs, stablecoins cryptocurrencies, but also tokenized commercial by bank money emerging. And that will enable the instant settlement on the back of DLT technology and ultimately a low-cost payment PDP or DVP, which is payment versus payment or delivery versus payment. It will transform the current clearing and settlement in a big way.

Alla Gancz

So I think the potential is huge. We have a long journey ahead of us as an industry and this is where public and private sector collaboration is key to develop it because we are looking for a regulated alternative, we are not able to apply the current cryptocurrencies and stablecoins for payments because they're not regulated. So for example, we need to have proper KYC, email or digital identity in place so that we know the source of funds for those cryptocurrencies.

Alla Gancz

But we need to be very much aware of this trend. We need to be part of this trend and to make sure that we understand the role of commercial banks in this new ecosystem.

Diana Halder

So Tom, what are your thoughts on this?

Tom Bull

I think it's such a big topic. I mean, technology, in a way, is it's going to create so many new possibilities and capabilities, you know, be that API powered payments propositions or be that privately issued stablecoins that have evolved in the digital assets landscape. And I kind of think the public policy actors, you know, want to have and need to have a response to that.

Tom Bull

You know, if customers are using privately issued stablecoins in the defi economy and in some ways they're finding those instruments more flexible, more powerful, more useful for certain use cases than kind of traditional forms of electronic money. Why shouldn't the central banks and other authorities kind of look at those technologies and think, well, there's some really useful stuff there and there might be an important role for us to play in offering a kind of government-backed version of those instruments that enable some of some of the similar use cases.

Tom Bull

So I think it's kind of hard to ignore the instruments that technology has enabled. And I think it's right that the public policy actors look at those and kind of come up with public-led responses.

Diana Halder

Interesting. So what I'm hearing from you is that it's not a fear of moving on. This is not what propagated the regulators to get involved, the central banks to get involved. But the recognition that there some really compelling, frictionless use cases that are coming online in currencies that they don't regulate and are able to apply monetary policies against.

Diana Halder

And so that's really the driver behind CBDCs.

Tom Bull

And layer on to that the decline in cash so that traditional bearer instrument that the public authorities offered to customers as a, you know, fallback option if payment systems failed, you know, an alternative to commercial bank deposits, you know, has become less and less applicable, as you know, use of cash has declined. I think it's also right that as public authorities look at what digital alternatives to that there might be that enable some of the similar benefits and bring about some of the similar public goods.

Diana Halder

When you talk about decline of cash in the economy. So how are we treating the folks that still use cash? Are we leaving people behind? Are we leaving countries and certain citizens behind as we move towards this digital-first, cashless economy?

Tom Bull

Yeah, I think there's a huge risk of that. And I mean, it's purely anecdotal, but when I go to the supermarket to get my shopping, you know, there's certain areas of the store where you can pay with cash and that and there's an enormous queue at all times of day because there are clearly people kind of stuck in that cash economy.

Tom Bull

And they’re in it for a whole number of reasons, you know, which can be quite complex around financial literacy and education. And, you know, the fact that some folks find it, you know, simply a lot easier to kind of manage their finances if they get the cash out at the start of the week, and then they know that's what they have to spend for the week.

Tom Bull

But it can also be linked to the way they're paid, you know, whether they have access to a digital means of making payments. You know, in the UK we've seen significant initiatives led by folks like UK Finance around enabling access to cash. And in the short term thinking, well, you know, it's going to be more helpful and beneficial to those folks in the cash economy to enable them to continue to access cash and to use those kind of money management mechanisms they used to

Tom Bull

than it will be to try and, you know, really quickly educate them in electronic payments and kind of shift them into the electronic sector. And I think that's a really pragmatic approach. I mean, for sure, in the medium and longer term, I'm sure we will continue to see that move away from cash and more and more people using electronic payments.

Tom Bull

But I think in the short term, it's right that we have the means in place to help enable people who are in that cash economy to continue to live their financial lives and use those instruments that they used to using.

Diana Halder

So it's striking that fine balance between, you know, innovating and moving towards a cashless society, but putting controls in place and being thoughtful about the unintended consequences of this, of going digital first and cashless while balancing and recognizing that still a meaningful amount of our society that are cashed, that still use cash and need to for various reasons, and we can't leave them behind.

Tom Bull

100%. And I think in I mean, in the environmental sense, we often use the term “just transition.” And I think it's good language and I think it's similarly right that we should deliver that kind of just transition to people in the in the cash economy.

Pati Partelow

So when I think about payments and where it's going, I think it the pace continues to accelerate. You know, there's different rails and different technology that end up competing with each other during this race that'll eventually, I think, mash together and we'll see the best of the best. And I know before we said merchants really didn't have choice today, especially with embedded payments.

Pati Partelow

But I think what I'm seeing from the corporate side is these companies having to invest in the right talent, having to understand payments, and because it's being embedded in their customer journeys, they're really going to have to have a bigger say, right, because it's really going to affect their customers’ happiness with their brand. And so I think over time that group or that stakeholder group will become more important.

Diana Halder

The banks are recognizing, oh, wait a minute and the regulators are recognizing, wait a minute, almost like a bit of FOMO. They jumped in and said, we need to get involved. The economist in me thinks, well, if we have these alternate currencies, then how powerful is monetary policy going to be? And so, did that cause the central banks to get involved? Because that's their biggest lever when it comes to managing the economy.

Diana Halder

They needed to participate in it, to understand it, to potentially regulate it, and then create that alternative. Is it a little too far into the future? Is it a 5-, 10-year journey when we start to see it really coming online?

Alla Gancz

I think we're talking about a decade, so we're talking about a 10-year horizon in the UK. So when we talk, when we, the Bank of England in the UK are thinking about we are going to make a decision on digital pound within 10 years. By 2020, 2030, we are going to have more certainty around it. I think that it's not why, but it's when, when it's going to come to life. We are going to see a digital euro coming to life perhaps in Europe. And it's becoming a bit of a geopolitical consideration because we're seeing the emergence of CBDCs in Asia, for example, and then connectivity between different regions, which is Elmbridge, for example.

Alla Gancz

And it's really important that we stay at the forefront of innovation and investing into DLT technology and regulated DLT technology and leveraging the power of blockchain, which offers you tokenization, programmability, smart contracts. It's really important. So I would say a decade.

Pati Partelow

I hear you and I think maybe that's what we might see on a consumer-facing product. But I think that there could be an earlier adaptation because we're seeing it right now as we think about cross-border payments, right? And having to settle in different currencies. Well, if I if I use a digital currency as my proxy, then I can settle as needed.

Pati Partelow

And, you know, we were talking about mashups before and convergences. I see this race happening, right, where you've got your real-time payments or faster payment rails, right, first new innovative rail in you know 50 years or whatever happening. But they're all domestic and they need to connect. Right? And then you've got, you know, a bunch of banks thinking about how do we simplify, you know, the settlement across the different banks in the different currencies and, you know, do you take a DLT technology, employ it in a way that's more what I would call permissioned, right.

Diana Halder

So to play devil's advocate here, how is that what you've described to me sounds like Swift 2.0, right where we're moving to blockchain tech, right? We have the network trusted networks. They have their corresponding bank network that they've set up. And instead of using local fiat, I'm now using local CBDC.

Alla Gancz

It's a very good question. So I think 90% of money in circulation is owned by commercial banks. So I think commercial banks have a very significant role to play and I think the wholesale use case is a very powerful example in how they can bring value. But ultimately it's about providing low-cost, effective payment solutions and enabling better speed transparency access, which is very much top of mind for a Bank of International Settlements, for example, Financial Stability Board, especially for cross-border transactions.

Alla Gancz

So I would say the regulated liability network, which is a new concept that we exploring in different regions, represents that opportunity to allow different types of digital currencies to interoperate and transact on the same network within regulated environment, okay. And that allows you, we’re assuming, a shared ledger or shared ledger where you can create instant atomic settlement.

Diana Halder

So that actually leads us to probably a separate conversation on blockchain and distributed ledger technology.

Alla Gancz

It's about ultimately driving or powering that digital economy and facilitating money movement more effectively, but it's connecting merchants and consumers or corporates together.

Diana Halder

Without leaving people behind, though. That's my concern, is that yes, we're creating efficiencies but at the cost of what? And one of the principles of design thinking is what are the unintended consequences, not just the efficiencies that we bring, but the inefficiencies that we introduce without being aware of it. So that's where I think I agree. Yes, it is the backbone behind the digital economy, but my concern is, how are we also thinking about the consequences that we're introducing.

Pati Partelow

So I totally agree with what you're saying. And I think two things. One is I think, you know, if we want to be inclusive, then it can't be banks and just banks, right? Because not everybody has a relationship with a bank. And I think that's where our PayTechs really come into play. The other thing that you bring up is, well, yeah, you create this capability, you create all this data.

Pati Partelow

How do you protect it? Right? How do you really ensure that, you know, the person behind that digital transaction is really that person? And I think especially during the pandemic, we rushed to digital so much because we were locked in our homes and then we're seeing all these consequences every day.

Alla Gancz

I think there are good payments and bad payments, and I think it's really important to accelerate good payments and facilitate good payments and stop and prevent bad payments. And this is around fraud, fin crime, you know, literacy and all that. So I think we probably need to be aware of both happy and unhappy path. I am sincerely, genuinely excited about the innovation driven by PayTech and all the new propositions that they're coming up with.

Tom Bull

What we're seeing in open banking in particular, it's kind of not enough just to offer up, you know, a set of APIs that drive, you know, data and payments. You know, the ecosystem has to evolve beyond that, set some rules of the road and some frameworks to operate with it. And so we've seen in markets like the UK, you know, operational guidelines that kind of enforce standards of API service availability, response times, you've seen customer experience guidelines that set out what are the journeys, the disclaimers, the authorization paths.

Tom Bull

You know, we've seen the security profiling use of that kind of financial grade API from the Open Data Institute. So those kinds of frameworks have been so integral to helping an ecosystem develop because they kind of set enough of the controls, enough the parameters the ecosystem participants feel they're in a a robust and reliable kind of ecosystem that they want to invest with it.

Diana Halder

Do you think our government is savvy enough to understand the innovation that's happening? So as we innovate so aggressively and so quickly, how do we work with our elected parties to put the necessary controls in place? Or is it up to the private sector to take care of us?

Tom Bull

I think the policy wheels got to go faster, and in some instances I've found it remarkably slow in a way around things like, you know, public blockchains have been around for, well, more than a decade now where we're really in many markets just getting around to regulating and, you know, the cryptoasset landscape. I think as technology speeds up, the policy really has to speed up.

Alla Gancz

And in the UK, for example, we have an FMI sandbox to encourage the development of new financial market infrastructures. We also have financial conduct authority. So the head of payments is now running and owns digital currencies. So they're responsible for policy and supervision of Stablecoins, which is again the convergence. We are now looking at traditional and new payment methods.

Alla Gancz

I would also call out that there are regions and markets where governments are further ahead, and I would use Asia as an example. In Singapore we're seeing a lot more focus on innovation and governments are very much clear on their innovation agenda and they're pushing the boundaries, they’re experimenting with DLT. Project Partior, for example, Bank of International Settlements has an important role to play in terms of cross-border payments and really unlocking that and enhancing them further.

Alla Gancz

So I think it's really, but ultimately the collaboration between public and private sector is critical because we'll bring them along.

Diana Halder

So in closing, guys, where do we see payments going and what excites you most about it?

Tom Bull

I'm excited in where are the ecosystems that create and foster innovation and what are the underpinnings of that in terms of demand generation, investment, you know, the flow of talent, the progressive policy, you know, has been for the last few years that, you know, it's really been in the FinTech and PayTech market that that's taken off.

Tom Bull

But, you know, I hope we'll start seeing more and more of that, you know, come from the big players as well in the banks. And the banks start to innovate because they are able to create some of those ecosystem dynamics for themselves as well.

Pati Partelow

I think my short answer would be I think payments are accelerating and they will continue to accelerate, and we've got some innovation that's competing with each other, right? Like you think about real-time payments and we're talking about cross-border, thinking about CBDCs, So, you know, is there a point where there's a mashup? Right. And, you know, there's pieces that from each that kind of come together as it evolves and then, you know, Tom, to your point about banks and PayTechs, I think, you know, the reason why banks may seem slow is because banks are thoughtful, they're conservative.

Pati Partelow

Yes. And regulated. Right. But I feel like a lot of them are they've built their brand on trust. And I think, you know, we continue to have the push and pull between the two. And I hope it continues because I think PayTechs keep banks on their toes. And then banks really kind of educate Paytechs.

Diana Halder

Keep them grounded. Yes, lovely.

Alla Gancz

I think the pace of change and innovation will accelerate in payments. On one hand, we're going to see some significant structural shifts and share shifts from one payment method to another. But ultimately, I think payments will drive economic benefit to the whole digital economy. And I think that's very, very exciting as we develop new payment methods, as we improve our clearing settlement infrastructure, I think we're going to really power the digital economy in the long term and that's exciting.

Diana Halder

As for me, you know, you guys have effectively touched on it as well. Like you talked about the economy, the one ecosystem, talked about the digital economy. We talked about taking the best from the other methods and bringing them together. And that to me is the convergence of the different payment types and rails and infrastructure and processes and ops and tech on to the one and my money is on real-time payments, but I'm biased.

Diana Halder

So with that, thank you for joining us and have a great rest of your day.