Processing payments in a world where ‘going Dutch’ now means going digital

Issue 96 | 15 February 2021

Welcome to issue 96 of Payments:Unpacked, get to grips with the UK’s retail payments landscape with Mike Chambers - exclusive payment insights, hot topic briefings and fundamentals unpacked.

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Chip and PIN? Remember that?

The folks at Consult Hyperion were in a romantic mood this weekend and penned the following verse:

Roses are red
Violets are blue
I lost my card
But my phone will do

Over the anniversary weekend Consult Hyperion recalled that their romance with smart cards started many years ago.

Dave Birch fondly reflected that it is fifteen years on Sunday that chip and PIN went live in the UK and remembers St. Valentine’s Day 2006 as if it was yesterday!

Read Dave’s Valentine’s Day inspired reflections on the fifteenth anniversary of Chip and PIN’s introduction in the UK: Chip & PIN? Remember that?

A game-changer for Open Banking

James Barker at Bud is encouraging the Fintech community to work together to ensure a strong representation in the latest FCA consultation which could revolutionise Open Banking.

The latest consultation paper from the FCA contained a proposal to scrap the 90-day re-authentication limit on Open Banking connections. This would be a game-changer for the sector and Fintech’s should come together to ensure a strong representation in the process.

James Barker, Bud

The FCA have released a consultation paper that proposed raising the contactless limit from £45 to £100 per transaction and from £120 to £200 per day cumulatively, a proposal that was widely covered in the media and broadly welcomed by Fintech’s.

James argues that the publicity around the headline proposal has drawn the spotlight away from other equally fundamental proposed changes.

James suggests that the FCA consultation is an Open Banking game changer, explores nuances in the proposals and considers challenges that need to be addressed - concluding “…whatever you do, don’t be silent”.

More: A game-changer for Open Banking.

Connected: £100 contactless limit would be a fraud risk, says Starling Bank.

Processing payments in a world where ‘going Dutch’ now means going digital

Pieter van der Does at Ayden carries a fake coin on his keyring. It’s not a prop that the Dutch digital payments tycoon uses to riff on Gresham’s Law and how bad money drives out the good.

No, his counterfeit serves a much more practical purpose. “I use it for carts in the supermarket. I live in a cashless society. My children don’t pay for anything with cash. Everybody uses their phone or bank card.

For an insight into one of those giant financial companies you haven’t heard of but increasingly rely on read the (paywall) The Times article: Processing payments in a world where ‘going Dutch’ now means going digital.

The best way to predict the future is to create it: Abraham Lincoln

Burkhard Balz from the Deutsche Bundesbank finished a speech this week with the words of Abraham Lincoln: “The best way to predict the future is to create it” but it is what he said about CBDC’s and the future of money that is far more interesting!

In his speech to central bankers on the future of Money Balz asked four questions: 

  1. Do we need other forms of money beside the ones we already have?

  2. Do we need other forms of central bank money? 

  3. Should banks’ deposits with the central bank be tokenised? 

  4. Should banknotes become digital?

Citing the tremendous efforts undertaken by central banks around the word to assess the potential and opportunities presented by CBDC’ Balz stated that:

More than 60% of central banks are engaged in practical experimental work.

With such headway being made by central banks over the past twelve months the Bank of International Settlements predict that central banks representing a fifth of the worlds population will use a general purpose CBDC in the next three years. To counter this prediction Balz also states that the roll out of CBDC’s seem some way off.

In summary Balz states:

CBDC is a game changer – with potential benefits, but also with a number of challenges.

The speech concluded with the words:

In a nutshell, payments are – and always will – be a backbone of the economy. The digital economy has already changed the payment landscape quite significantly and will continue to do so in future. It is the responsibility of the central bank to create trust in its currency and to ensure that payments remain competitive, innovative and safe. We also have to ensure that central bank money will be offered in a way that is compatible with the digital economy.

More: The best way to predict the future is to create it.

More: This article first appeared in the CBDC Times newsletter which unpacks Central Bank Digital Currencies (CBDCs) in manageable chunks - subscribe at: CBDC Times.

€3000 threshold for consumer digital euro holdings?

The European Central bank is toying with the idea of imposing a €3000 limit on consumer CBDC accounts to discourage users from transferring all their cash from commercial banks to the central bank.

The European Commission and European Central Bank are currently working together to investigate the policy, legal and technical questions emerging from a possible introduction of a digital euro.

Having just closed a public consultation on the subject, the ECB is considering whether to start a digital euro project towards the middle of the year as it looks to answer design and technical questions ahead of any decision to actually issue the CBDC.

One of the most thorny issues concerts the impact on commercial banks of a competing digital euro account from the central bank, raising the prospect of a loss of deposits as consumers switch their cash holdings to the CBDC account.

We might only allow digital euro holdings up to a certain threshold, or make them unattractive above this amount by charging interest. For example, the threshold could be around €3,000, which would be far more than the cash requirements of most people today. But this is still under discussion.

ECB board Fabio Panetta.

The ECB is looking with interest at the Chinese pilot trials of a digital yuan, which are currently focussed around the the megacity of Shenzhen.

Fabio Panetta also stated that:

Trialling the digital euro in different cities would probably be a wise move.

More: €3000 threshold for consumer digital euro holdings?

In brief

And finally

Anne Boden at Starling Bank shares her views on cryptocurrency in your current account:

Read, subscribe and share

The Payments:Unpacked newsletter from Mike Chambers at Northey Point explores a wide range of the UK’s payment news including: Open Banking, Request to Pay, Direct Debit, Confirmation of Payee, Bacs, CHAPS, Faster Payments, LINK, cash, cards, cheques and Central Bank Digital Currencies (CBDCs) and unpacks the eco-system that supports the operation of these systemically important payment systems.

The newsletter is an independent and informed insight into the UK’s payments landscape – exclusive payment insights, hot topic briefings and fundamentals unpacked.

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Mike