Backgrounder on the CE Digital Payments Summit 2022 conference

Cybersecurity, data-driven finance and the digital euro – on what principles will the future digital payment ecosystem be based?

Data sharing, digital central bank money and the fight against increasing cybercrime were among the central issues regarding transformation of the digital payment market, according to speakers at the CE Digital Payments Summit conference organized by Mastercard.

The clear message emerging from their industry debate was that the digitization of our everyday finances involves customer focus, a high degree of innovation and increasing competition, transparency and the most uniform regulation possible. The process of forming the digital payment market ecosystem involves both changes in technology and in attitude, one in which the interests of the customers take precedence above all else.

Innovation is the custodian of competition and vice versa, and there is no technological development either without competition in the field of digital payments. It increases the markets’ complexity. However, the system-wide transformation taking place in the payment markets involves much more than a technological transformation. It’s about changing attitudes, changing business models, changing the functions of incumbent market players, and the appearance of new players. A new ecosystem is emerging in the wake of digitization, one which regulatory and business spheres must respond to. However, it is crucial that during this transformation the focus remains on protecting clients and their interests.

The CE Digital Payments Summit conference, a platform for open finance, cybersecurity, cryptocurrencies and blockchain, tackled the emerging digital payment ecosystem’s most compelling issues, drawing the region’s innovative market players, experts and regulators from the digital payment market. Over the course of the industry discussion, common denominators included the omnipotence of client interests, transparency requirements, and creation of an environment with the highest possible level of security. The coordinated educational initiatives of financial sector players are essential to this. This is of equal, paramount importance to the fields of data-based finance, security and blockchain.

An open, data-based economy

Data protection and monetization are the hottest issues for Open Finance, which comprises financial services based on freely accessible data. 

“There is no question that all actors need access to data in order to create products and services with higher added value, but at the same time there is a need for business models that intrigue decades-old market players into making the data they own available,” said Harald Waiglein, executive director of Austria’s Ministry of Finance, responsible for economic regulation, financial markets and customs affairs. 

In spite of common regulation, the EU’s open banking market is currently fragmented, mandating a unified regulation for defining a framework which represents the interests of the people and guarantees data security, but entrusts the applicable technologies to the market, thus promoting competition and development of innovative solutions.

Cybercriminals eye billions of transactions

“Billions of transactions must be carried out safely and reliably within the digital payment ecosystem,” said Steven Brown, Mastercard Europe’s cybersecurity expert. 

One of the world’s leading digital payments providers, Mastercard works with several companies to deliver a cyber defense solution of some sort with the primary goal of increasing the ecosystem’s resilience. This is necessary because research shows that the financial sector receives three times as many attacks in cyberspace as any other industry. 

Mastercard’s expert contends that not only must individual transactions be made maximally secure; necessary trust must also be established across the entire spectrum of communication between the client and their financial service provider. Moreover, cyber security culture itself must be developed for both the client and the service providers, thereby making the ecosystem resilient. 

According to Gabriella Biró, representing the National Bank of Hungary, in addition to the importance of education, universal regulation also plays a major role in increasing security. Meanwhile, Mastercard expert Máté Nemes, opined that while it’s necessary to learn to recognize threats, the technologies used do not need to be prescribed in this area either, regardless of whether they are intelligent, automated or flexible protection technologies: requirements must be set, but the solutions should not be set in stone – European Commission expert Boris Augustinov concurred with that assessment.

Cryptocurrencies and the digital euro

Blockchain technology can revolutionize the digital payment ecosystem and, according to some, even the entire financial sector. The EU’s landmark regulation on the crypto assets market, MiCA, will soon enter into force, an important step in fostering the legitimacy of cryptocurrencies and trust in them. In addition, the design and testing of the digital version of the euro is proceeding at full speed, hurdling beyond the question of whether or not it will exist to what it will be like when it does. One thing is certain: it will be a challenge for all players in the financial sector, because its application  requires a completely different approach than what the present-day banking system employs.

“This will primarily be decided by the European Central Bank, but the introduction must be preceded by serious regulatory work,” said Christian Rau, Mastercard’s vice president responsible for new technologies. According to him, reliability, strong customer protection, full legal compliance and protection against fraud as well as price stability are important when a new generation market player offers a crypto asset to its customers. Mastercard, he said, also takes this into account when it decides which crypto assets it allows into its network.

According to estimates, global crypto adopters currently hold $2.7 trillion in crypto assets (equivalent to India’s GDP in 2019), which are still exposed to special risks. “Thirteen years after the birth of the blockchain, it’s in everyone’s interests that the development of regulations begins,” said Kornél Kalocsai, head of the Hungarian Blockchain Association. He believes the next big regulatory issue involves the paying and collection of tax on crypto assets.