Jon Nicolaisen: Digital challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the Financial Industry’s Digital Services Conference, Oslo, 9 June 2016. *  *  *  Introduction Technology advances rapidly, giving rise to opportunities and challenges. Norges Bank will actively promote efficient solutions for payments and financial transactions. I presume that the participants at this conference have the same goal, so we have common interests in this area. The Norwegian banking industry was among the first to adopt digital solutions. The giro systems were integrated and a common debit card system was put into place. The first internet bank giro was available already 20 years ago. Internet giro payments and BankAxept card payments in shops are cheap, efficient and widely used. Payment system costs in Norway have been considerably lower than in most other countries for a long time. Common solutions do not impede competition. Banks and other operators have their own customer interfaces, services and prices. But underlying that are a common infrastructure and common standards. This provides economies of scale and accessible solutions for customers, regardless of where they hold an account. Cooperation has rendered the payment system efficient and robust. New operators and new technology are now entering the payment market. This can, in principle, strengthen competition and improve efficiency. But it is important that the competition is rooted in a robust and cost-efficient common infrastructure.
The benefits of FinTech applications in this field for financial stability may include: (i) increased market efficiency, in particular for Real Time Gross Settlement (RTGS) among large financial institutions, (ii) enhanced risk measurement of each bank and a more transparent financial system, (iii) lower trade costs, robustness against cyber-attacks, and less need for collateral, (iv) a stronger wealth-channel for monetary policy if more agents access financial assets and loans. Similarly, crowdfunding and P2P reduce systemic risk since they do not involve money creation through the conventional multiplier/maturity transformation mechanism of banks. While this may significantly limit the scale at which operations can develop, they can be an affordable alternative for businesses that are not covered by conventional financial institutions. FinTech market support tools can also contribute to financial stability to the extent that they can mobilize a larger volume of information to better assess credit risk and to mitigate it through smart contracts, guarantees and collateral. 10  Central Bank of Chile 29 June, 2017  Slide 14  Risks ▪ New systems may have unknown weaknesses that are not apparent in the trials—“flash crashes” ▪ Pressures for users of automated payments and transfers systems— “smart contracts” ▪ Cryptocurrencies poses a number of challenges to financial systems and central banks alike ▪ Perhaps the greatest risk of FinTech is that of cybersecurity  Risks [SLIDE 14] FinTech developments also pose a number of risks for financial stability and monetary policy.