How important is it for a nation to have a payment system?

Nice speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank.

A nation needs to have a well-functioning payment system. Without fast, inexpensive and secure payments, a modern society grinds to a halt. Users today have access to payment methods that are dependent on large-scale IT systems to process payments efficiently. We need to ensure that the payment system can adapt to new technologies and meet the needs of business and consumers in the future.  

The Storting (Norwegian parliament) has assigned Norges Bank the task of promoting an efficient and secure payment system. This is clearly spelled out in the new Central Bank Act, which enters into force at the turn of the year. Norges Bank is the operator of the payment settlement system and supervises interbank payment systems. These operational roles may take on greater importance in the coming years. Let me point out two trends.    

First, we note increasing vertical integration in the payment market. Customer interface services are becoming more tightly linked to the underlying infrastructure. We saw an example here in Norway when Vipps merged with BankID and BankAxept. There is also a tendency for common contractual arrangements that were previously situated with industry organisations to be relocated to product companies. Another example is Apple, which is restricting which payment services can be offered on its mobile devices. In addition, plans are constantly being launched for new kinds of money and payment systems that offer both customer services and settlement, most recently Libra, a venture backed by Facebook and other investors. As an authority responsible for promoting an efficient payment system, Norges Bank needs to consider the whole payments chain. We also need to ask ourselves whether it is enough to be a promoter and regulator or whether we need to take on greater operational responsibility in order to perform our social mission.

Second, changes are taking place in the ownership of critical parts of the payment system. A relevant example is Mastercard’s planned acquisition of one of the key parts of Nets. The Nordic P27 initiative is hardly the last push for more international ownership of infrastructure for payments in Norwegian kroner. At Norges Bank, we need to assess the best way for us to ensure that society’s interests are being safeguarded.

For some reasons, Norway has lagged behind in digi payments:

Norway was an early adopter of digitalisation and its payments infrastructure has been world-class. We have reaped the benefits for many years. But then the development of common infrastructure came to a halt. A number of neighbouring countries have built payment infrastructures that in some areas are now ahead of ours.

Common infrastructure makes sense. It enables us to realise economies of scale, a well-functioning payment network and a level playing field. Payment service providers will be able to compete for customers supported by an efficient and secure system. Banks save considerable sums because an extensive network of branches is no longer necessary. The infrastructure is a collective good that benefits everyone.

It has long been our experience that industry operators come together and agree good solutions in partnership with Norges Bank. But developments in technology and market structure, where payment services are increasingly becoming a competitive arena, may hinder the emergence of good common solutions. We run the risk that progress will slow and the payment system will become fragmented because the common infrastructure is eroding. We must now consider whether Norges Bank should take action to counter this fragmentation.

Future users of payment services will hardly be satisfied with payment transactions that take several hours or days to complete. The infrastructure for real-time payments is therefore critical. In 2016, Norges Bank took the initiative on a joint project with the banking industry to put in place an improved real-time payment platform. In spring, Norwegian banks declined the invitation to participate in the P27 project.

The soon-to-be-launched Straks 2.0 instant payment platform is an improvement, but not a permanent solution for real-time payments in Norway. Among other things, it is not sufficiently well-suited to business users. The question is how we proceed from here. It has proved to be a challenge to drum up support for carrying out the necessary modernisation of the infrastructure owned by industry bodies.  

 

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