Traditional and Evolving Functions of the Financial System: Payments as a Utility

0:00 thank you to timothy massive for those remarks to kick us off today next up is the panel traditional and 0:06 evolving functions of the financial system payments as a utility moderated by our own michael barr 0:13 live q a is available for this session so please submit any questions through the engagement hub for registered 0:19 attendees under the day 2 live stream hello everyone welcome to our next panel on payment 0:27 systems as a utility it's my great honor to be able to lead this discussion moderate this discussion with 0:33 distinguished guests again i'm michael barr the dean of the gerald r ford school of public policy at 0:40 the university of michigan my panelists today include andrea dunlop 0:46 who's the managing director of payments for the access group chair of the emergent payments 0:51 association advisory board and a member of european women in payments network 0:56 we have tillman erbach managing partner for flourish ventures a formerly partner at omidyar 1:03 network where he built the global financial inclusion team and the former ceo of seagap the 1:08 consultative group to assist the poor and we have musa etopa jimmo director of 1:15 the payment systems management department for the central bank of nigeria an experienced leader in public and private 1:21 sector issues in banking in in engineering and in software i'm 1:28 really delighted to have all three of you today for this discussion on payment systems you know for some 1:34 people payment systems may seem like a dry issue but i think it's really actually not 1:40 it's one of the most exciting issues i think in finance today and more importantly it's a key to 1:48 consumer autonomy to access to the financial system it's really the 1:55 backbone of the system and in many ways it is 2:01 helping us to find in each society who's in the system and who's not in the 2:06 system who is part of the financial 2:12 system and who who is denied access so payments are really really quite critical and i'm thrilled that we have andrea 2:18 tillman and musa here to help us work through these issues uh 2:23 i might start with just a question for each of you uh we're in the middle of a global 2:29 pandemic many countries around the world 2:34 use the payment system in their own countries to try and get government benefit payments 2:42 to individuals affected by the pandemic and i'm wondering what you've seen that 2:48 has worked and what has not worked and what does that tell us about 2:53 the state of the payment systems in those countries that you want to talk about and we don't 2:58 we don't have to be comprehensive but just to get a look and maybe i'll start tillman with 3:04 you and then i'll ask musa to answer and finally andrea 3:09 yeah thank you michael and uh colleagues for having me today great great pleasure 3:16 absolutely right so a large number of governments around the world uh initiated relief programs be it for 3:24 families or for small businesses the world bank is putting together a paper i i just saw 3:31 and they mentioned some 80 efforts distinct efforts large-scale efforts around the world 3:37 and i think it's fair to say that in those places where there was 3:42 a modern public digital infrastructure and that includes payments but it goes 3:47 beyond payments to include identity data availability etc it's fair to say 3:53 that those countries who had that type of infrastructure could do a better job 3:58 so india for example in april in a time span of 4:03 some 10 days reached more than 100 million people at the margin of society in the informal 4:10 economy and they reached them with relief payments with a click of a button because india has the fame is in your 4:17 stack public digital infrastructure identity payment switch etc we can talk more about that other places 4:25 were not so lucky and the the u.s where i am right now and where i live and i 4:31 think the previous speaker in the conference actually alluded to that as well i caught the tail 4:36 and in the u.s it took three to three months for individual checks to go out 4:43 and uh some people are still waiting and we send checks to folks who had deceased uh uh and 4:51 and others that were not eligible so yes the the the infrastructure there was 4:57 in place at the time has made a big difference in government ability to respond 5:03 appropriately to the crisis thank you tillman uh musa 5:13 you need to unmute okay can you hear me yes yeah thank you 5:20 thank you very much for for the question um for us in nigeria 5:25 we've um the government had actually embarked on several initiatives that leveraged on the payment system um 5:32 before this time before they covered there was this program that the government runs called the conditional cash transfer 5:38 where they pay you know our monthly allowances to the poor and what they basically leverage on is 5:44 to use the mobile money to deliver those financial services um when the pandemic came it was very 5:51 obvious you know that the only means by which payment can actually be delivered to people was to 5:56 use electronic means payment cash nobody wanted to touch cash as a matter of fact nobody actually wanted to 6:02 touch even physical you know our payment devices so everybody was doing transfer 6:08 and so one of the requirements you know that was that that we needed to have for those in 6:13 the rural communities or those that were badly affected was for them to have bank accounts unfortunately the 6:20 infrastructure for enrolling and getting everyone into the financial services is in that ability which is why as a 6:27 country we embark on a financial inclusion strategy we've been on this strategy for a long time 6:33 trying to see how we can get more than 80 percent of nigerians into the banking sector 6:39 so the payment system basically provides the underlying framework through which you know economic agents can actually 6:46 transact in nigeria and a major use case during the kobe was this palliative and the relief you 6:53 know our form that was to be distributed to those that qualify to have that now one of the major 6:59 challenges that we face within the payment system in getting these things sorted out was the issue of telecommunication 7:05 infrastructure people in rural communities do not have access the kind of digital access we 7:11 have within the cities and so having a vast network of agent outlets 7:16 and making sure that our payments and communication infrastructure is very pervasive and resilient is one 7:22 of the major you know deterrent to our gaming system here the other one is identity problem 7:28 everyone in nigeria needs to be uniquely identified so that we can actually be sure that when payments are being made it is 7:34 being sent to the right resident and so we embark on a national program 7:39 of you know registering all nigerians and issuing the national identity number that is also one of the projects 7:47 that we have also embarked on by the time we resolve the issue of identity and solve some of the common 7:53 infrastructure problems i think nigeria will be you know very strong in terms of 7:59 making premium system the underlying infrastructure for delivering financial services in nigeria 8:06 thank you mr uh andrea yeah actually i just wanted to touch on something said because i wholeheartedly agree with 8:13 him digital id is absolutely key um for inclusion um and actually and and not also 8:21 people's perception of this in emerging markets actually you know quite frankly michael in our own market in the u.s and uk which we're 8:28 considered a very mature market it would help our market significantly 8:34 um if digital id was in place but to go back to your question because i'm diverting and i don't want to waylay 8:40 this whole um this whole conference but you know we have quite a mature and payment infrastructure in the uk i 8:46 think it's fair to say there were a couple of issues that i think really come to mind 8:52 that's occurred and and still ongoing now during coving um one was um the ability 8:59 for um for businesses particular small businesses to gain access to the government loans 9:04 um you know you know and i'm guessing it's no different probably in the us um you know that has been a challenging 9:10 process many businesses struggling to get access to the money i think on the consumer side i think 9:17 that's been less the case but i think what kovit has highlighted um to myself and many people in the payments industry 9:25 is probably how many more vulnerable um people that we had in the uk that we 9:32 didn't fully appreciate there's been a massive drive in many markets to a cashless society and when 9:40 it you know we have a significant amount of people that you know may have bank accounts but 9:46 withdraw cash and like to spend in cash for a number of reasons and we had a lot of vulnerable elderly 9:53 people that were um you know segregated and isolating that home and that peru 10:00 challenging on actually how do they go out and get their their food pay for their bills um and there 10:07 were some interesting innovations that came off that you know there were companion cards created by stalin bank and to give to 10:14 other people that you could load funds onto that those um you know you know more 10:20 vulnerable people could still um enable other people to go and buy goods for but one of the aspects that's really 10:26 challenging around all of this is it still comes back people being literate around 10:32 i.t technology understanding how to load these cards how to manage these 10:37 products online and believe it or not we still have a massive gap in the uk around this and we also have a 10:45 digital gap um and and and no dissimilar to nigeria um i think we still have i think 10:52 it's about 25 23 something like that that struggled to get access to broadband 10:58 here in the uk which when you're in lockdown kind of compounds some of these challenges um 11:04 you know that we saw and made people that were already vulnerable probably even more vulnerable 11:10 um through this process so i i think there's a lot of lessons now for us in the uk 11:15 it's how do we go forward um with our our payments infrastructure and our systems in the future and start 11:23 to take into account all of society not just a certain percentage of society which i think is 11:29 what's happened here in the uk unfortunately uh thanks andrea that's uh really 11:35 helpful uh we're gonna dig a little uh deeper into the question of 11:40 um who ought to run the payment system whether that's the private sector the 11:46 public sector multiple private sector entities and the like maybe musa you could start 11:52 us out how does the central bank of nigeria think about the question 11:58 what kinds of aspects of the payment system should be run by the central bank itself what 12:06 should be regulated by the central bank how do you think about these questions 12:11 well um for me i think running the payment infrastructure 12:17 should actually be private you know uh driven it shouldn't it shouldn't be run by the central bank it 12:23 should not be run by any regulatory you know authority as a regulator we're supposed to provide 12:31 the guidelines the directives the environment that makes you know all the participants to try very well to work symbiotically 12:38 and so to be an arbiter you then need to take your hand off running any specific you know 12:44 payment infrastructure and that's basically because the kind of configuration we have in nigeria the central bank doesn't run any 12:50 payment infrastructure aside the rtgs the real-time growth settlement system 12:56 apart from that every other payment infrastructure is being run by banks and by private entities and fintechs 13:02 central bank doesn't impose not an operator is a regulator and that's the kind of configuration we have in nigeria 13:08 that makes you know competition very smooth and symbolic 13:13 so nigeria the bank to bank network for real-time settlement is run by the 13:18 central bank of nigeria but all the other movements infrastructure is run by the private sector 13:24 yes the iot has been run uh by central bank because that's where the net settlement 13:29 you know ends up the banks all connect central bank to settle the applications after transactions have been cleared 13:36 and so we maintain the heritages every other payment infrastructure is being operated by the the operators 13:42 the banks the payment service providers and the fintechs and musa what's the competitive 13:48 landscape for the private sector is there real competition for payment services or the 13:54 different providers operating in different sectors of the payment system 13:59 well um basically what we have done is to segment uh our payment system into different 14:06 compartments and so what we did is to you know get them different kinds of authorization so for example switching 14:13 switching is very very important because it connects all the banks together and all the other payments you know providers we have specific clients for 14:20 entities who can switch and we give the guidelines upon which those switching services can be provided and so we also have 14:26 some agent banking you know activities that are regulated we also have card issuance and acquiring 14:33 that are also segmented into different authorization categories what the central bank basically does is 14:39 to provide the framework and everything framework that makes all this entity to connect and interoperate and so 14:47 i would say largely it is private sector driven with the regulator only immediately to make sure that there is you know 14:53 proper conduct within the ecosystem thanks um tillman how do you think about 15:00 these questions i would probably take two lenses and the first one is 15:06 a bit first principles if you will i think you would want to think through a 15:12 financial system and say what is underlying what is 15:17 public good in nature and probably should be government provided and both musa and 15:22 andrea mentioned identity as as as a key element and i would think 15:29 in many countries that should be a public good it is related to both the the civil 15:35 registry etc um then comes the question of what is 15:41 a utility in nature i probably would argue that payments in particular retail payments 15:46 have a utility characteristic uh they have network externalities so frankly they might be natural 15:53 monopolies and then you can think about what should where where should we 15:59 have public sector public good utility type characteristics and where do we 16:04 want the private sector to compete and i think an ideal system would be one 16:10 where there is the lowest possible systems cost no duplication and where the private 16:18 sector competes at the application layer so that's my first lens sort of a principle lens 16:24 and i'm an economist by training as you probably can hear from that answer i would then pragmatically use a second 16:30 lens which is to say what is there in the country already what to build or nobody starts from scratch 16:36 when it comes to these type of things and and when it comes to specifically uh 16:43 retail payments or the payment utility it could be run by a consortium a non-profit consortium 16:51 of private sector players it could be run by a public player if it is run by the 16:57 private sector it should be probably regulated as a utility interoperability 17:03 should be mandated the type of things that that moosa already alluded to and i i suspect that the 17:10 majority of countries actually have some such a approach and certainly the higher 17:15 performing ones from a cost and and and real-time settlement 17:20 perspective so when when i looked at these things the netherlands canada and the emerging in the highly 17:28 advanced economies were all run as sort of consortium of private sector 17:33 players under public regulation in emerging markets as conceivably a bigger role for government or even the 17:40 central bank bank to run more of the operations because they have the capacity to do so 17:46 but the answer really depends on the country and its starting point 17:51 thanks tillman uh andrea how do you think about this question yes i mean you know in in uk and europe 17:58 um you know i think we've been really fortunate with some of the regulation that's opened up the market and the aim 18:04 of that regulation was to enable more um more pushing into the market um 18:09 because i guess you know to tillman's point um there could be a 18:15 monopoly aspect around how the market has has operated previously um i think now with 18:22 um open banking and the rise of open banking um i really see some you know really 18:28 exciting times ahead and i think the benefit of this off the back of this is ultimately going to be for the 18:34 consumer so i think you know with um the new technology that's come in and 18:40 with a lot of the fintechs and also actually many of the banks as well a lot of the banks have upped their 18:45 gain um with all the new regulations come in that there's much consumer lens on payments products so 18:52 the whole experience that consumers have um you know can be um you know much more 19:00 customized than i think how we were operating previously um in more of a card payment world i 19:07 think open banking opens up so much more possibilities and i think this is really exciting for 19:12 um uk europe australia now um i think they went in january um you're seeing other markets embark on 19:19 the same um journey that we've all been on so um yeah i i i think there are 19:24 exciting times ahead in this space but there's no lack of competition um you know i think in in the uk market 19:30 or the european market they're pretty thriving um over here in this space 19:36 andrea for our listeners who don't know about the uk's open banking initiative do you mind just describing the basic structure it's so 19:43 different from what we have in the united states and and in many other countries yeah exactly 19:49 the model yeah so basically when you look at the the original end-to-end model of card 19:56 payments you'd have the um the consumer the issuer 20:01 the card schemes the merchant acquirer a gateway 20:07 before you get to the end bank account and um the advantage of open banking is it 20:12 rides on in the us ach rails um you know we would call it faster payments over here 20:19 and it really enables um um payment company payment initiation 20:25 companies to um initiate payments straight out of a consumer's bank account to pay um the pay the payer payee 20:34 um it's a very simple process um without all the layers in between um it removes a lot of the friction so 20:40 if you have um a good example be like an invoicing model um the payments can be embedded into the 20:47 invoice pull straight directly from your bank account straight to the person you're trying to pay in and it does it 20:53 all in real time the advantage for businesses that makes this really really attractive is it can be 20:58 instant liquidity to them so they're getting paid quickly and as we all know many companies are really struggling on um getting 21:06 bills paid um in a timely manner that's a massive issue and has been for a long time 21:11 um instant payment and then on top of that actually there isn't a lot of the level of 21:19 chargeback and fraud aspects um that we see traditionally in card payments so 21:24 there's a lot of benefits to that from using these rails and then the biggest benefit of all 21:29 to businesses to merchants is really the cost um the cost is significantly lower 21:37 for utilizing these rails you know on more um you know mid to high value 21:44 payments and for lower payments you could still say um a card makes sense but for as the values start 21:51 rising um open banking just makes much more sense for some of these so i think we see a lot of 21:58 disintermediation um will come in the future around these rails you know definitely 22:06 um thanks andrea um tillman i know you've done a lot of thinking about the 22:12 evolution of the payment system around the world over time i'm wondering if you could help our 22:19 audience understand or give a perspective on that evolution where have we been and where do you 22:24 think we're going in in payment systems 22:30 yeah you know i think one one observation that might resonate with with all of you is 22:36 is the following at some it's at some level technology new technologies when they 22:44 arrive they hit a system in a market structure and industry structure in its current form and and 22:53 and and we have seen massive explosion of innovation and it really 22:58 from from maybe relevant for today's discussion on the payment retail payment side 23:04 started with a 2g feature phone and mpesa famously 23:09 in in east africa because the 2g feature phone had this 23:14 unutilized channel for unstructured data the ussd channel and folks realized well we can transfer 23:22 value over that and and and that took off uh because it was relative widespread 23:27 the white space and the regulator in kenya was willing to let that experimentation happen 23:35 now that was helped by the fact that safaricom as the telco operator had a dominant market share 23:41 so there was no interoperability issue it kept prices higher in neighboring tanzania there are four 23:47 operators and when interoperability kicked in right fees for consumers or for senders and receivers became much 23:54 lower then came the 3g and smartphone revolution if you will and it was really 24:00 picked up in particular by the chinese ecosystems um they used the 24:06 the new technology but they still built the world garden uh on financial alipay on one side with 24:12 a billion users by now wechat on the other side it's a duopoly if you 24:18 will and there's a real opportunity now to leapfrog all of that and and put these principles 24:25 in place that we discussed earlier if there is an interoperable architecture from a payment system 24:31 perspective and if there is open data from from a from an access to data 24:36 perspective the the the dimension that andrea covered a modern payment 24:41 in modern system can be faster cheaper less risky for everybody and emerging 24:47 markets have a real chance to leapfrog into that in the us we are stuck 24:53 uh for much of our day-to-day payments with with the old card networks and cards 24:59 based use and that costs for the credit card still 2.2 percent or some such thing on average and for the debit card 25:05 1.2 on average of transaction the cost could be much much much lower than that and and 25:12 india and others are proving that where the cost for transaction is cents 25:18 on the thousand dollars as opposed to percents right as we observe it still in many 25:24 other places um excellent uh excellent point tillman 25:30 um mu says as you see this competitive landscape in nigeria develop how did the 25:36 central bank go about thinking about whether to 25:41 regulate non-banks and how to regulate non-banks in that space 25:47 yeah um i think you know regulating entities within the payment system have 25:52 always been a major concern for all you know regulators and in our own case 25:57 you know the incursion of the fintechs into the premier space actually pulls a great challenge for central bank 26:03 we're trying to balance you know allowing innovation to drive and managing the risk that this 26:09 innovators brings to pair and so um the approach that we have taken is to allow innovation 26:15 to come out first and then we try to do you know put the breaks in between by 26:20 putting regulations and guidelines on what to do and so some of the actions that we have taken recently 26:25 basically to promote fintech was to launch the regulatory sandbox in which case you 26:32 know we allow the fintechs to come and play around with the ideas and see whether they work in order to drive you know the financial inclusion 26:38 in the country and in order to facilitate you know payment services so that is one of the actions that we 26:44 have taken uh just like andre said we're in nigeria we're also pursuing the concept of open banking where in our 26:51 own case uh we've actually ramped up on instant payment instant payment is not something new in nigeria 26:58 it actually happens instantly now what we're trying to do now is to allow the new entities the small companies the 27:05 financial technology companies that are coming up to also now participate fully by playing the middleman 27:11 in a row so that's why we are also trying to drive you know open banking concepts and all 27:18 that but beyond that uh we have a regime in nigeria where you know our payment system directives 27:24 and guidelines usually don't just happen within the central banks what we do is to have ecosystem 27:30 arrangement ecosystem discussion and find out what exactly works for nigeria 27:36 payment system is not um it's very privacy it's worldwide but what we're trying to do is to 27:41 dominate you can find out what happens and what works for nigeria and that's why 27:46 in coming up with our regulations we always invite and involve all the major stakeholders 27:51 including other regulatory agencies for example agencies directly telecommunications industry 27:57 agencies that ensure you know the depositors fund in the bank they are all brought together for us to reason 28:03 and find out you know the balances between all these regulatory agencies and come up with the policy 28:09 that makes the financial system you know works so for us we allow innovation to come up and then 28:16 we follow it up with regulation that makes market conduct very easily 28:22 um thanks musa that's um uh that's really helpful um andrea how are the europeans thinking 28:29 about this question of the regulatory perimeter for payments 28:36 you know what what is um what's covered by uh by the regulatory infrastructure 28:42 what's left out have people tried uh sandbox approaches like the one that muso is describing in 28:50 nigeria what do you think has been successful and not successful in that space in 28:55 europe yes i mean yeah we we also have a sandbox and i think um i think it's been very successful i 29:02 think we're really fortunate um in our market that we've got quite a progressive um regulator i think that's really 29:09 helped the non-bank market really develop really well um i'm not saying it's not we're not 29:16 without our challenges but what i do think has happened probably in the last five years is the 29:22 regulatory approach has really has really changed so um it's not just the the supervisory 29:28 style it's a much more open and engaged regulator that works um with companies around 29:35 supervision um and and has a very much more of a consultive approach um to the non-bank sector so you know i 29:43 mean there'll always be issues because inherently you can't um open up um 29:48 the sector and there won't be unintended consequences of course there are um but i think what what's great is 29:55 that our regulator actually does work with us and i think that's the case pretty much um across most the countries 30:02 in europe which is why i think it's been pretty much thriving across europe in this state the non-banks but what i would say as 30:08 well though is that i think the non-banks that have come in and added particular um specialism and 30:16 very niche products and within financial services i do think that has upped the game for 30:22 the banks and i i personally feel in the probably last 18 months 30:27 um i think the um banks have moved much stronger and more forward with much 30:33 more of a consumer-led approach um which i think historically have been lacking so i think there's been a 30:39 benefit on both sides you know we all partner with the banks and you know i you know i i run a regulated entity 30:45 myself um you know you partner with the banks and you collaborate with them 30:50 um but equally i think there's benefits on both sides um as to the different types of services 30:56 that we bring it's much more complementary than maybe people think 31:02 thanks andrea tillman i wanted to return to the one of the issues you posed about uh competition 31:10 if we have network externalities and payment systems and they tend towards a natural monopoly 31:16 what is the what are the kind of minimum requirements necessary to have a functioning payment system 31:22 with real meaningful competition for providing payment services 31:30 yeah i mean i i mean the starting point is is the one that you are describing 31:37 uh which is right there are network externalities if i can easily 31:45 pay somebody else and there are more folks out there right there's a utility coming to that 31:50 and frankly that that phenomenon is is accelerated now uh with um with the situation that 31:58 we are living in right covet and economic lockdown has is changing 32:03 the ways we try to make a living the way we shop the way we socialize we do conferences 32:09 like this online and so new platforms 32:16 that are important in our lives are gaining relevance and that's why regulators are 32:23 struggling with this notion of how to deal with these new platforms for example 32:28 and and by the way i have a great sympathy for regulators regulators are concerned about the stability 32:34 of the system the integrity of the system uh they want to consume protect 32:39 consumers and they want an inclusive system and they have to balance all these type of things and when it comes 32:44 to payment systems i would go back to the first principle of saying they ought to be interoperable they 32:52 ought to be real time it should be push any account to any account 32:58 um so you should probably regulate by well design by these principles and 33:04 then regulate activities like to like activities as opposed to different institutions 33:11 being regulated differently because of their legal status i realize i remain a bit at the sort of 33:17 abstract level but i do think that's your starting point and then each country and each 33:22 regulator has to think through what does that mean for our context 33:29 and then the private sector can build on that once there is certainty around these 33:34 things the private sector will come in and we'll figure out better better solutions that ultimately 33:41 ultimately benefit all people our our our regulatory setup though does 33:47 need a refresh right a lot of these things in in mature countries like the us were written in the 90s 33:54 often in reaction to crises before the iphone was invented and and so they just don't take 34:00 into account these new opportunities and possibilities that we have and the new risks that also have arisen 34:08 so we do need a refresh there thanks tillman um i have one or two 34:14 additional questions for the panel and i'm in a moment i'm going to turn to the audience questions 34:19 musa you touched on this very briefly in your opening remark but i wonder if you could say a little 34:25 bit more about how you think about the last mile problem that last moment between the the payment 34:33 system and a merchant or between peers and peers is there a merchant access problem that 34:39 you have found or have you figured out how to solve are there last mile issues that you've had to overcome 34:45 in nigeria that would be helpful for others to hear about yeah um it's something that is still 34:53 ongoing uh quite ongoing and there are several approaches to it from regulator 34:58 and then from the operator including even the government support to resolving those last-minute problems 35:04 now one of the ways by which you know we we're approaching this is to deploy massive you know asian 35:11 athletes uh to make sure that you know we keep financial touch points closer 35:17 to the uh on the bank and then on the side and all that now how do we get this done 35:24 we can't run a payment system without very efficient and communication infrastructure 35:29 that is very important because that's the only way people get connected to the internet or at least 35:34 connected onto the network so what we've done as a regulator was to come up with 35:39 a licensing regime that allows telecommunication companies in nigeria to take 35:45 a kind of authorization called super agent where they can actually deploy and 35:50 leverage on the existing footprint that they have in rural communities you know to provide 35:56 financial touchpoints so they could actually turn their customer you know athletes wherever they already 36:03 have signals masks and all that they can actually convert them to financial touch points and so we are approaching it to make 36:09 sure that we have you know uh provide digital access to the nooks and crannies of nigeria 36:15 on the other hand um building agent outlets is also very expensive uh especially when you 36:21 move towards the rural communities because you need to uh you know solve the problem of power 36:28 you need to solve the problem of security and all of that and so it becomes very expensive to actually deploy agent outlets in those 36:35 nuts and crannies and so what with this the the central bank and the committee of banks called the 36:42 bankers committee had done was to provide a pull-up fund that these 36:47 agents and super agents can actually use to build these agent outlets at a very cheap cost so we also support 36:54 the super agents with with financial support so that they can go into the winter land and build the 37:00 agent outfit so why the telecommunication companies are building you know networks laying fibers and providing digital 37:07 access across the country the central bank and the bankers committees are providing fund that is 37:12 needed to build these you know merchant outlets cash and cash out outlets in the rural 37:18 communities that's basically what we're trying to do i'm hoping that by the end of this year we are targeting to have 37:24 a you know well over half a million agent outlets in nigeria that will enable you know uh 37:31 on the bank to have financial touch points and musa are you providing direct cash 37:37 liquidity to the super agents or is that through the banks 37:45 each issue by agent will apply through expand to access that form 37:51 um great let me um let me turn to some uh some audience questions and then i'll have a few final questions at the end um 37:59 andrea let me ask you um there's a question from the audience the progress of fintech companies is often 38:06 constrained by their need to partner with a bank that has access to central bank payment systems 38:12 should central banks expand payment access to fintech companies so it is true um many fintechs are 38:19 constrained by this and do need to use banking partners but a couple of years ago in the uk 38:24 um between the regulator and the bank of england we did actually open up access to central bank so we have a 38:31 number of fintechs now that are connected into the bank of england and carry out direct clearing um 38:39 and i think that has started to have a a really good impact in the uk 38:45 on the services that can be offered outside of kind of you know the core main banks what i 38:50 would say is that i think that this isn't necessarily an easy step for a central bank to take 38:56 i think that for central banks to start to open up to um fintechs um to a wider system 39:04 can um you know could open up some additional risks that maybe weren't 39:09 considered in the beginning so i think there's a i think this is the challenge for central banks and the future for them 39:15 is just looking at um how do they how do they move forward how do they move with the expectations 39:22 of of the market um how do they keep pace with technology when they're trying to maintain 39:28 a you know a very stable system supporting our core infrastructure so i think this is a really tough one for 39:33 them and in the uk you're probably aware of this anyway um we are going through um a program of 39:40 work to upgrade our real-time system so that actually it's fit for tomorrow 39:46 but this isn't something that can be done overnight and i think this is the challenges that fintechs expect everything to happen tomorrow and 39:53 are terribly impatient um and when you embark on a programme with someone like the bank of england to 39:59 be on boarded into the central bank this isn't a two-week project it's not a couple of agile sprints and you're in 40:05 there's a lengthy process so you know you're probably looking at probably a 12-month process you know it could even 40:12 be more but with the bank on the verge of this massive technology uplift you know to provide 40:19 services for the future i do think there'll probably be a knock-on impact to fintechs in the uk while we go through 40:26 this transition so we've got the first few in which is great and we can see what the future start to look like 40:32 but um you know we've still got a way to go to get our national infrastructure where we needed to 40:38 to really adapt to the future and i guess that's the challenge for central banks all around the world right now 40:43 is how do they open up you know how do they develop their tech and future proof it for the future and 40:49 then how do they manage the additional risks of bringing these players into the central infrastructure 40:56 thanks andrea um tillman uh maybe you could take this one there's a question from the audience 41:02 why is improving cross-border payments such a difficult problem are the challenges primarily technical 41:08 legal or financial 41:14 if you look at different corridors remittances corridors cross-border 41:19 we again i'm on the retail side of things 41:24 things have changed quite dramatically right so if you have environments where in both country a 41:32 and country b there's clarity around the know your customer requirements 41:40 if everybody has essentially digital access either via account or wallet etc then 41:48 cross-border transfers can be very uh easy relatively cheap and fast and this 41:54 is happening and and you don't need blockchain and bitcoin or any some such thing for that 42:00 right you just need to modernize your your the age-old system 42:06 that is in place and for busy corridors that has happened 42:12 my sense is this will accelerate quite rapidly the big cost in in in 42:18 domestic international remittances is still cash in cash out right you need 42:23 somebody to take the money in and then the last mile somebody needs to be able to take it out musa spoke about that 42:30 as countries on both sides do away with that need because the 42:36 entire retail payment system digitizes there could also be a 42:41 an easy way to connect um as long as there is reciprocity in regulation 42:47 and and and and approaches this is happening and will happen and 42:52 will accelerate tillman do you think that the evolution 42:58 of that system will disintermediate the corresponding banking system or 43:04 use that system it will it's a bit speculative obviously 43:11 it would certainly take out a couple of layers right i mean if you go all the way back how did this start it started hundreds 43:18 of years ago right when when you needed trusted intermediate banks and you were 43:24 merchant in italy and you had your merchant banker who connected you and who had some connections to new york 43:30 and that banker in new york had some connections to pick your pick your place right there 43:36 was this layer of correspondent banks because they needed to create the trust that trade could happen 43:45 what have you right it was a trust-based system that required 43:50 this type of correspondent banking layers you can take out a lot of that 43:55 when things are real-time digital and and settlement is happening pretty 44:01 much instantaneously right there's less trust needed if you will there is no settlement risk 44:07 it will become cheaper for everybody and yes we can take out intermediate layers 44:13 musa this question might be to you how should central bankers think about 44:19 the scope of a regulatory sandbox are all financial activities appropriate 44:24 for a sandbox if they're limited enough in the number of people that they reach that's the audience question well 44:33 this is a very tricky one i think we can have one answer to all uh 44:39 the various implementations by the various central banks the objective of the regulatory sandbox 44:46 basically is to encourage innovation and those innovations should meet economic needs and all that so i think 44:53 the limits you know to what can be uh uh played out within the regulatory sandbox 44:58 depends on the economic objective that you know the central bank or the government is trying to solve or the 45:04 kind of innovation that they are looking for in our own case for example financial inclusion is very dear to our 45:09 hearts and we see how we can lower the industry costs to sell so we are looking at creative solutions that 45:15 can actually lower cost of studies we're looking at creative solutions that can be used you know to provide services 45:23 to areas where you don't have strong connectivity so offline payment for example is something that would be welcome as an 45:29 innovation to be played between the regulations so as a central bank what we've done is 45:34 to limit you know the qualification criteria to objectives that actually meet the economic need of nigeria 45:40 the one that promotes innovation areas that have not been touched those are the kind of things you know 45:46 and boundaries that are set including the fact that um since we're going to run this in 45:52 cohorts uh we can only take as much as our capacity can take so we can 45:57 basically you know take on everyone that applies you know anytime we open a cohort but basically i 46:03 think the limiting factor should be the under the underlying objective 46:10 or solving any particular problem that the country street 46:15 thanks musa that's um that's really helpful i do think that you know the there's so much nuance that's needed 46:21 depending on the particular government structure and private sector structure in each country that's 46:26 absolutely critical to to sorting through what makes sense in that context 46:32 um the next the next question from the audience is what role should central 46:37 banks play in promoting the advancement of open banking and maybe i'll ask tillman and andrea 46:44 maybe tillman if you could talk a little bit about the india stack experience and andrea you could talk a little bit 46:50 about the uk experience that'll give the audience a flavor for different approaches to 46:55 to this problem so the india stack and the language 47:01 comes from the technology world the the india stack really at its basis has the unique identity 47:09 biometric unique identity 10 fingerprints two iris scans 47:15 and that as we discussed earlier is a is a public good the government provided it 47:22 then very importantly right financial regulators obviously had to make sure that the use of this 47:27 identity it's called order uh that that actually is permissible or is good 47:33 enough if you will for kyc and other purposes if the financial regulators didn't 47:39 recognize either as sufficient then it would not work so that's the second 47:45 element of the stack if you will is an entire notion of regulations 47:50 around the use of the identity including for consent and doing away with the 47:56 requirement for wet signatures these type of things these are all the little things that can take inefficiencies out of the 48:03 system and then on top of that there is the payment layer uh and we talked about that a bit it's 48:10 the national payment corporation of india which is jointly owned by a dozen plus banks 48:18 in in the country and the central bank is the reserve bank of india is very much part of these deliberations and it 48:25 essentially nudged the system towards adopting an open architecture type 48:31 approach to payments and and that led to this ability of any account to any account there was 48:38 an insistence that at the at the beginning of a transaction and at the receiving end 48:43 ought to be a regulated account um that is properly kyc etc 48:50 but all sorts of efforts were made to make that easier and and the notion of then the data 48:57 layer who owns what data is a consumer or as a small business 49:03 to whom can who to whom can you provide access as far as your data is concerned 49:09 that's the next important element i think this is the data layer is actually something that we often forget 49:15 in particular in emerging in the emerging market context there's at least a billion consumers who don't have a 49:21 fico score any such equivalent the vast majority of small businesses 49:26 operate in emerging markets operate under some notion or in some to some degree of informality 49:33 but the underlying lies are digitizing either in the supply chain or in the in the distribution chain so 49:40 there's more and more data available that allows for example for credit 49:45 underwriting that banks traditionally could not have done so the data layer 49:51 and driving uh driving accessibility and contro and pro and 49:57 giving users control over their data that's a very very important piece to unlock the economic upside and that can 50:04 be done by the regulator but it can also done by private sector initiatives around 50:10 api infrastructures and the voluntary if you will cooperation if everybody 50:16 realizes wow the pie could become bigger if we all open up then there is a 50:21 win-win situation conceivably um tillman that that's that's right i 50:28 wonder whether i haven't looked at the economics of this but whether the if you really do an open api is the pi 50:36 the pi is bigger for society but is it bigger for the incumbents is a different question 50:41 that is true somebody's efficiency gain is somebody else's revenue loss and that's why we need the nudge and as 50:48 society and as regulators i see moosa smiling we should absolutely give that notch 50:56 i mean i i had one piece in in for the u.s michael that people might not know so i mentioned 51:02 earlier that the average credit card transaction cost 2.2 percent relatively little goes 51:08 to the networks most goes to the issuing banks uh two percent and then the issuing bank 51:14 credit card gives half of us half of that two percent back to all of us in forms of 51:20 cash back or it used to be miles remember those days debit card or a transaction for 1.2 51:28 cash obviously has no cost for the merchant or less cost for the merchant merchants don't discriminate anymore 51:35 they used to right you used to go to a gas station get a better price if you use cash that's gone everybody pays the same 51:42 price which de facto means that relatively lower income households because they 51:49 disproportionately use cash or debit card actually subsidize my credit card 51:54 rewards that's just not okay the federal reserve bank in boston has estimated 52:00 uh the the value of that annual subsidy if you will it runs in 52:06 the thousands of dollar per per family in the us excellent point tillman we're um uh 52:14 we're getting close to the hour let me let andrea if you want to say more about you talked a little bit about uk open 52:19 banking before are there other aspects that you want to highlight in terms of the central bank's role in in pushing 52:25 that um the only thing i would add to that is that actually we um ours was a little bit more um 52:31 government-led so i think to tillman's point um you know um there needs to be a i 52:37 think a mandate from the top to really open this up amongst the big bang interestingly we created a 52:43 separate entity which is called the obiee um which has really led open banking for the last few years 52:49 and um they're actually overseen by the competition's market authority i don't know if that structure is 52:55 occurring anywhere else in the world but i find that quite an interesting structure that we chose to 53:01 go down that path rather than putting it directly under a regulator and everyone is very engaged the 53:06 regulators are obviously part of discussion and everything else but it is interesting that it is the the 53:12 cma that really oversees this so and i think that's about you know ensuring that we're driving 53:18 that competition in the market and ensuring that actually open banking actually stands a chance of being a 53:23 success here in the uk musa you were uh as tillman said smiling 53:30 before about the nudge how much of a nudge did you need to give to the nigerian private sector to 53:36 move forward on um issues like interoperability and open banking 53:43 well um i think we for us like just like i said the 53:49 the payment system here is driven likely you know by the private sector there are 53:54 individual companies that run this kind of thing what we try to do is to create an environment where it is the win-win 54:01 and so we we are working towards establishing 54:09 uh as we speak we basically to some degree regulate or put a cap on pricing 54:16 you know simply because we have a financial inclusion agenda so we try to you know put a seal on how much you can 54:22 charge the consumers because if truly we are promoting financial inclusion of which one of the major 54:27 deterrent is high cost of financial services then we need to put a skill on that but we are trying to promote 54:33 interchange and with interchange it means it will just basically the acquirer and 54:39 the issuers trying to promote you know uh efficiency the payment system and so what the merchant actually 54:45 charges the customer oh sorry what the person charges the customer or what they acquire charges the matching 54:51 it has nothing to do with regulation it is not priced it is not fixed it is basically you know 54:57 through the bargaining power and by that i think investors will actually see the opportunity 55:03 you know to gets a very high return on their investment and because competition will basically 55:09 you know drive price down and which improve services you get more numbers 55:15 into the system so for us it's going to be a local market where we allow the private sector institutions to basically determine what 55:21 price is good you know for their system and to also drive forward you know for the services that they 55:27 provide thank you um i might ask each of you 55:34 to say if you had to pick one game changer a technological development 55:41 or a policy framework that's a real game changer in terms of advancing financial 55:47 inclusion through the payment system what would it be and maybe i'll i'll start 55:53 with andrea and then musa and tillman oh do you mean a current one or a future 55:59 one either either way what something that you think is right on the cusp of making a big difference or one that you 56:05 anticipate in the future uh would be a game changer yeah i mean the game changer for me is digital id 56:12 100 that's the game changer for financial inclusion i'm afraid for all of our countries thanks andrea musa 56:21 and i think i think it goes for everyone you know a feminist digital identity is 56:27 very key trying to know every single individual and using that as an authorization is 56:33 very key and that's the major challenge that we face now so a major policy directive 56:38 focuses on you know digital identification in nigeria that's great 56:44 uh tillman probably depends very much on the country 56:49 um in the us right now i i think we could make a big difference 56:56 on the retail payment side if we just make sure the underlying infrastructure was open 24 7 57:03 365 which is not the case for the fed wire 57:09 we could also mandate immediate funds availability so people don't have to wait so there's 57:15 statutory authority in the us to make a real difference very very pragmatic 57:22 immediately doable if you step back at the systemic level i very much 57:27 sympathize with andre's point around digital identity as as a foundational element and and i 57:35 think the one thing that we do have to all wrestle with is this phenomenon of finance 57:43 starting with payments but quickly going to the other dimensions of finance on the retail side 57:49 being embedded in the big tech platforms they have the customers they have the data they have the brand 57:56 they have uh uh the connectivity by definition 58:01 uh india just allowed whatsapp to start embed payments into the app 400 million 58:07 indians use it on a daily basis that could take off very very quickly and it raises all sorts of promises 58:14 on the inclusion side and it raises all sorts of new issues on the competition new risk side 58:21 and so we have to wrestle with that thanks tillman uh we are going to have a discussion 58:28 later today and tomorrow around uh the role of facebook and libra and 58:33 okay good big tech platforms as part of our conversations i think it is uh 58:38 raises critically interesting questions uh we are um basically at the hour let me just um 58:45 thank each of you for your insightful contributions to our discussion and really learned a 58:53 lot from our conversation i know our audience did as well our audience thank you for joining us if 59:00 we didn't get to your particular question today hopefully you'll hear more about it throughout the course of the conference 59:07 so uh those of you who are watching uh please join me in thanking my wonderful panel 59:13 thank you take care everybody