Tech and financial service industries are starting to merge. Are we already in the digital currency era?

While Fintech and Big Tech firms make incursions into the financial services sector, data is becoming the real commodity in a world of hyper-connections and open banking. Cryptocurrencies appear on the horizon and credit card companies are morphing into tech firms. Meanwhile banks are incorporating open banking into their services, and central banks are preparing for the emergence of central bank digital currencies.

CET spoke to Central and Eastern European industry players, government officials and central bank governors about future trends in cashless payment, fintech and financial services at the Central European Digital Finance Summit, jointly organized by Mastercard and the American Chambers of Commerce of Hungary and Slovenia.

International Monetary Fund (IMF) Ukraine Deputy Managing Director Vladyslav Rashkovan said “Banking is necessary, banks are not,”  – quoting Bill Gates – in his presentation on major future trends at the CE Digital Finance Summit on Tuesday, 12th October.

Key industry shifts and challenges for the financial services market were on the agenda at the online conference. Debates unfolded on the scope of new services, globalism versus national sovereignty, regulatory environments, and how new trends will shape our futures, amongst the high-profile decision makers, fintech experts, MasterCard executives, high-ranking government officials and CEE central bank officials in attendance.

“There is a great need for close cooperation between the public and private sectors and for building trust, at a time when rapid and radical changes are taking place in almost every walk of ​​life, disrupting old structures,” Endre Eölyüs, Mastercard director in Hungary and Slovenia, said.

Financial stability based on big market players

The Coronavirus epidemic further accelerated already dynamic changes in the way people bank, as many switched from cash to contactless payment methods – initially out of necessity, then for reasons of comfort and security. Significantly, banks are more and more receptive to open banking in order to compete with fintech firms, as a result of technological innovations and digital payments. Moreover, banks have even joined forces with fintech start-ups in order to leverage innovative technologies, aided by favourable EU regulations.

“The strength and resilience of the large and traditional financial market players – not just banks but also the main credit card companies – should not be underestimated,” Hungarian Secretary of State for Finance Gábor Gion said, adding that “their experience and stable backgrounds are key to the security and reliability of financial services – and therefore national financial markets.”

Mastercard is no longer just a card company, but a technology company too, Katarina Kakalikova, Mastercard director of enterprise development said. Kakalikova also underlined the importance of working with government actors.

While traditional banks have embraced open banking and application programming interfaces (APIs) as inevitable trends, Mastercard has opened up its network to cryptocurrencies – albeit only as an investment tool, and not a currency, for now. Mikael Svensson, Mastercard public policy vice president, underlined that if a cryptocurrency meets the required criteria for transparency, consumer protection and compliance, Mastercard gives customers the opportunity to trade in it, and cited Bitcoin as an example.

Digital currency – no need to be earliest adopter

Artificial intelligence, digitization and hyperconnectivity are also leaving their mark on the way central banks and governments operate. Central bank digital currency (CBDC), a key innovation, was one of the most discussed topics at the conference. However, central banks are generally exercising the caution exemplified by the words of Lajos Bartha, the Hungarian National Bank executive director of financial infrastructures and banking operations. “We are closely monitoring the changes, but do not want to be among the first to introduce CBDC,” he told the conference.

Central banks in the region are already testing CBDC, and their concern is not its technical feasibility, but how to properly regulate its usage. CEE’s central banks plan to strike a balance between consumer data protection, the rights of the sovereign states and the unconstrained environment needed for innovation and free competition. This likewise applies to cross-border instant payments, open banking and the financial services offered by big tech companies. On this challenge, Péter Csányi, OTP Bank deputy director, welcomed the establishment of the Hungarian National Bank’s “Regulatory Sandbox”, which facilitates fintech test-runs without any risk to financial stability.