Forecasting the future of payments innovation

Ahead of MoneyLIVE Nordic Banking, we’ve been catching up Aleksi Grym, Head of the Fintech division at the Bank of Finland to get his thoughts on the future of payments innovation. As a member of the Eurosystem’s digital euro project steering group, there’s no one better placed than Aleksi to give us the payments lowdown!

Assessing the innovation sweet spots

From digital currencies and wallets to generative AI and A2A, which areas of payments innovation hold the most influence and why? According to Aleksi, “it’s not the [payment methods] that are most hyped, but rather the ones we already take for granted, to some extent”.

NFC (near-field communication) contactless payments, for example, provide a huge scope for payments innovation, whether it’s exploring an ever-expanding world of wearables, or enabling iPhones to act as tap-to-pay terminals. Ranking alongside NFC payments as Aleksi’s top three influential areas for innovation, are real-time payments and P2P mobile payment apps. On the real-time payments front, we’re now almost a year on from the European Commission’s legislative proposal, which aimed to ensure that citizens holding bank accounts in the European Economic Area can make instant payments in Euros. It seems it’s time to consider how we can move on from this legislative mindset and consider the potential for real-time payments to provide a launchpad for innovation.

In terms of apps, we’re starting to see payments move beyond dedicated payment apps such as PayPal and Venmo, and into our social media platforms, with Twitter payments garnering the attention of the US. According to Aleksi, NFC, real-time and P2P payments  “are the real game changers, rather than digital currencies or AI”.

Spotlight on CBDCs

CBDCs across the globe are often heralded as a means to increasing financial inclusion, enabling access to digital payments for the unbanked, and providing offline digital banking for communities with unstable or inconsistent internet access. But “for a country like Finland where financial inclusion is already very high”, says Aleksi, “the main benefits from a CBDC would be added resilience and increased competition.” For Finland the most important means to increasing payments innovation and competition is access to alternative payment rails: a CBDC would add one more. Moreover, from a resiliency perspective, the introduction of the digital euro, as a European solution, would make EU countries “less dependent on payment infrastructures operated by companies outside our region”.

While we might talk about CBDCs as if they are a brand-new idea, Aleksi reminds us that in 1993, the Bank of Finland launched its Avant project – in some ways an early attempt to create what we now consider to be a CBDC. “In many ways we are repeating history”, says Aleksi. “Electronic cash was already invented in the 1990s and we have e-money institutions and prepaid cards as a result.” In the discussion around CBDCs, it almost seems like we’re re-inventing e-money. “One key lesson is that we should not overestimate the demand for this type of payment instrument. There were grandiose visions for e-money a couple of decades ago, but it has remained a marginal product category. CBDCs will probably go through a similar cycle.”.

Tomorrow’s payments ecosystem: rethinking the role of banks

As we enter a new phase of payments innovation where transactions are moving increasingly online, through an ever-expanding network of rails, we need reconsider the role of banks in the future payments landscape. How should banks be preparing for a new instant and digital world, and what skillsets and technologies should the industry be investing in? According to Aleksi, “banks will remain key players in the payment market, but payment demands are shifting”, the emergence of real-time payments having had a major impact on how payments are processed. Aleksi explains that while batch processing of payments has previously been the norm, there is now “a parallel paradigm which requires end-to-end processing”, with different use cases requiring different types of processing. As a result, “banks need to invest in more versatile infrastructures, which is not only costly but also difficult in terms of skill sets and capabilities required.

How can banks achieve this level of versatility and flexibility – and fast? Join us at MoneyLIVE Nordic Banking on the 23rd and 24th October this year to hear the answers to these questions and more.