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Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape David Ballaschk, Deutsche Bundesbank 01/06/2017 NACHA Payments.

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Presentation on theme: "Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape David Ballaschk, Deutsche Bundesbank 01/06/2017 NACHA Payments."— Presentation transcript:

1 Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape David Ballaschk, Deutsche Bundesbank 01/06/2017 NACHA Payments Innovation Alliance Meeting

2 Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape
David Ballaschk, Deutsche Bundesbank 06/01/2017

3 Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape
Introduction Instant Payments – A Eurosystem Perspective PSD II: Open access to payments accounts required Distributed Ledger Technology David Ballaschk, Deutsche Bundesbank 06/01/2017

4 The motivation behind supporting Instant Payments
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape The motivation behind supporting Instant Payments Real-time as a consumer expectation Instant Payments as facilitator for innovation Looming competition from non-banks Cost reduction for PSPs Risk Mitigation „The need for speed“ erwähnen Kostenreduzierung für Banken durch weniger Cash und Schecks Risiken, die reduziert werden (liquidity risk für Zahler – Lieferantenbeispiel), Credit risk David Ballaschk, Deutsche Bundesbank 06/01/2017

5 Electronic Retail Payments System
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape ERPB – Definition of Instant Payments Electronic Retail Payments System 24/7/365 Availability Instant Clearing Deferred or real-time Settlement Immediate availability for the Beneficiary David Ballaschk, Deutsche Bundesbank 06/01/2017

6 The TIPS-initiative of the Eurosystem
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape The TIPS-initiative of the Eurosystem Same participation criteria as for TARGET2 Instant payments settlement in Central Bank Money 24/7/365 operating hours Operated on a full cost-recovery basis Supports participants to comply with the SCT Inst scheme Multi-currency technical capability David Ballaschk, Deutsche Bundesbank 06/01/2017

7 Settlement Infrastructure in the Eurosystem
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Settlement Infrastructure in the Eurosystem TARGET2 TIPS Support for Instant Payments Through Instant Settlement Access to RTGS Services PSPs Support for Instant Payments Through Clearing Settlement backed by CeBM ASI 6 ACHs Funding / Defunding Individual Instant Payment Instructions David Ballaschk, Deutsche Bundesbank 06/01/2017

8 Striking a balance – The role of the regulator
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Striking a balance – The role of the regulator Principles Level playing field Innovation Security Same risk = same regulation Monitoring and assessment of market development („tipping point“) Risk oriented evolution of the regulatory and supervisory framework Conclusions Example PSD2 Additional providers included in regulatory regime Payment initiation service providers (PIPS) Account information services providers (AISP) Provisions for delivering these services Provisions for access to accounts (X2A) communication standards David Ballaschk, Deutsche Bundesbank 06/01/2017

9 PSD II: Open access to payments accounts required
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape PSD II: Open access to payments accounts required Transparency Security of payments Promote sustainable competition Establish legal certainty for TPPs and PSPs David Ballaschk, Deutsche Bundesbank 06/01/2017

10 Secure Communication: Access to Accounts
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Secure Communication: Access to Accounts TPP-Access (with customer consent) Access for registered Account Information Services Payment Initiation Services Issuers of Payment Instruments (e.g. payment cards) Strong Customer Authentication Higher security standards for the initiation of payments – esp. for online payments (2-Factor-Authentication Customer Account Status Quo Implementation into national law by 01/13/2018 Regulatory Technical Standards (RTS) currently in the legislative process David Ballaschk, Deutsche Bundesbank 06/01/2017

11 Securing safe payments through Strong Customer Authentication
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Securing safe payments through Strong Customer Authentication Use of at least two of the following three elements At least one element must be: Independent Non-reusable Safe from being stolen via an internet connection Possession Examples: Token Smart Card (Smart-)Phone Inherence Fingerprint Iris-Scan Typing behaviour Knowledge Password Code PIN SCA means authentication based on the use of two or more elements categorised as knowledge (i.e. something only the user knows), possession (i.e. something only the user possesses), and inherence (i.e. something the user is). These elements must be independent so that breach of one element does not compromise the reliability of the others. The SCA as a whole must be designed in such a way as to protect the confidentiality of the authentication data. The EBA agreed with the majority of respondents to the Consultation Paper that, in order to ensure technology neutrality and allow for the development of user-friendly, accessible and innovative means of payment, it should not define the authentication elements further. Rather, the draft RTS provides that the elements should contain security features such as (in the case of knowledge) the use of non-repeatable characters and (in the case of possession), algorithm specifications. The use of knowledge elements must be subject to mitigation measures in order to prevent their disclosure to unauthorised parties, while the use of possession elements must be subject to measures designed to prevent replication of the elements. The security features required for the inherence element are worth examining in more detail. The security features of the inherence element The EBA has set a particularly high bar for use of authentication elements categorised as inherence. While devices and software provided to the payer to read inherence elements must possess securities features (such as algorithm specifications or biometric sensors), these features must also: (a) guarantee a "sufficiently low likelihood of an unauthorised third party being authenticated as the legitimate payment service user"; and (b) guarantee "resistance against unauthorised use of the elements" through access to the relevant device and software. There is currently no guidance on the meaning of "sufficiently low likelihood", or "resistance". The requirement to "guarantee" security levels is also vague: for example, what level of "resistance" must be guaranteed, and what would be the consequences of a breach of this guarantee? We expect that the burden of proof of compliance would fall so heavily on the PSP that a breach would be considered to be tantamount to a failure to apply SCA (for which PSD2 allocates liability), but confirmation of this analysis would be welcome. David Ballaschk, Deutsche Bundesbank 06/01/2017

12 Blockchain – Where do we stand?
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Blockchain – Where do we stand? David Ballaschk, Deutsche Bundesbank 06/01/2017

13 Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape
Expectations and views 54 % expect, blockchain will have relevant influences on the business models in 5 years. Only 24 % state that blockchain is currently strategically important (for their institution). Processing consortium loans KYC (Compliance) Solvency information Smart contracts Bond settlement Implementation of transparency rules Stocks/derivates settlement Crypto currencies Real-time-transfers Source: PwC-Survey: Blockchain in Financial Services, Cofinpro David Ballaschk, Deutsche Bundesbank 06/01/2017

14 The Blockchain Universe
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape The Blockchain Universe David Ballaschk, Deutsche Bundesbank 06/01/2017

15 Cost components of international payments
Instant Payments, FinTech and Blockchain – Challenges ahead in the European Payments Landscape Cross-border payments as a use case Cost components of international payments 1 Innovative payment provider with bridging function between national payments systems example: Transferwise, earthport More competition Reduced fees 2 Better service level and using of technical tools Examples: Swift gpi Ripple (bilateral message exchange) Tracking of payments (cost reduction) Transparency of charges Same-day settlement Source: McKinsey „Global Payments 2016“ 3 Use of cryptotechnology examples: Nostro-/Vostro-Reconciliation (SWIFT PoC) DLT Settlement Plattform (Ripple) Cost saving potential Real-time-settlement David Ballaschk, Deutsche Bundesbank 06/01/2017 15

16 Thank you for your attention!
David Ballaschk Deutsche Bundesbank Wilhelm-Epstein-Straße 14 60431 Frankfurt am Main David Ballaschk, Deutsche Bundesbank 06/01/2017

17 Annex – Structure of the ERPB
Chair (ECB) Supply side (European associations) Demand side 5+1 NCB COM National SEPA/retail payments committees EU Forum of National SEPA Coordination Committees Agenda items, issues for disc. information, issues for disc., agenda Working Group on P2P E-Mandates E-Invoicing Contactless Payments Instant Payments Mandate Report David Ballaschk, Deutsche Bundesbank 06/01/2017

18 Annex – The Blockchain Project of the Bundesbank
Transfer of digital coins to/from Blockchain to/from commercial banks only - by Coin Providing Authority - via Coin Distributor All digital coins are lead back at the end of the day to Coin Providing Authority Direct transactions between commercial banks on Blockchain Transfer of Digital Coins and Digital Bonds between commercial banks (DvP, payments, FoP) Transfer of Digital Bonds to/from Blockchain . by Bond Providing Authority . via Bond Distributor David Ballaschk, Deutsche Bundesbank 06/01/2017

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