Live from Money 20/20 Asia Part 1, CBDCs and Cross Border Payments [Episode #6]

Podcast Intro (00:00:00) – Hello. Welcome to P.I.T. Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before and P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join currency research, exchanging ideas with today’s special guest.

Shaun Ferrari (00:00:33) – All right. Welcome, everybody, to the next episode of the P.I.T. Exchange, where we talk about the latest in payments, information and technology. I hope you’ve enjoyed the first couple episodes that we’ve launched here at Currency Research. And Jens and I are here, live in Money 20/20, in Asia, and we are thrilled to be taking the podcast on the road. Jens, good to be in person with you.

Jens Seidl (00:00:56) – We’re here in Bangkok and we’ve got some, some really exciting guests with us today here as well. And, rather than me hogging the microphone, let’s, get our guests introduced.

Shaun Ferrari (00:01:08) – Yeah, for sure.

Romain Zanolo (00:01:10) – So I’m Romain Zanolo, I’m currently the Managing Director of IDEMIA in Asia Pacific. If you don’t know IDEMIA, we are a leader in government solution and payment technology. So basically we do two things. Biometric gate at the airport and as well as, card manufacturing, physical and as well as digital cards. And recently we’ve been venturing into the funny world of CBDC that, that we will discuss, I’m sure, today.

Shaun Ferrari (00:01:34) – Yeah, we’ll talk definitely a bit more about CBDC. Lot going on. Well, thanks for joining us. Thanks for, coming into this, for those that, you know, just a little bit of of what’s happening behind the scenes here. So we’re sitting in a glass box, with no air conditioning on 103 degree day and, in Bangkok. So we’re inside, though there is some aircond, so don’t worry about too much, but it is getting a little steamy in here. We’ll try to avoid the controversial topics to get us more, more heated but, Dwight, thanks for joining us as well. Maybe a little bit about yourself. And, what brings you to Money 20/20?

Dwight Willis (00:02:11) – Oh, thanks. Yeah, thanks for the opportunity to join the podcast here. I’m Dwight Willis. I’ll live up the road. Right. So it wasn’t much of an effort to to come down here. We live in Chiang Mai. What can I say about Chiang Mai? it’s 43 degrees, so it’s a little bit hotter in Chiang Mai. They’re burning the forest in Lao Myanmar. So it’s like, you ever been in Singapore in August back in the early 2000? It’s like that up there in Chiang Mai and, so, yeah, but I run, I’m CEO of a payments company up in Chiang Mai called DSGPay. And, we do pretty much faster payments across Asia, aggregate solutions together for merchants that are based in Europe or, USA, Australia or other parts of Asia and provide them access to, you know, the billions of consumers in Asia. And interestingly enough, because of the smoking Chiang Mai, I just spent the last five weeks, traveling by train through Japan, Korea, and then Beijing all the way back to Thailand on the train.

Dwight Willis (00:03:05) – So, you know, kind of deep payments experience about what works, what doesn’t work on the ground.

Shaun Ferrari (00:03:11) – Sometimes that’s the best way. As you’re traveling around trying to figure out what what works and what what doesn’t work, I know we, we had a speaker at one of our events a couple of years ago from HSBC, who had a whole, trial, where he went around trying not to use cash for months, and he filmed it everywhere he went. And he made this whole presentation and it was really interesting. And he made it. I forget it was quite a long time. Once it was almost, almost a year, but it was like a long time. Anyway.

Dwight Willis (00:03:43) – I haven’t been to a lot of locations, but yeah, yeah, the majority of electronics probably easier nowadays.

Shaun Ferrari (00:03:50) – Yeah. For sure. well, great. Well, thanks for thanks for joining us. We may have another person joining us as well. On on unclear. If so, we’ll we’ll bring her on in as we, as we chat.

Shaun Ferrari (00:04:01) – But you’re right. I mean, we’re having a conversation before we kind of started here about, up to date up to this point, a lot of podcasts that we’ve all done have been virtual, so it’s great to be actually face to face with people around a table and having a discussion. So, thanks for going on this adventure with us. So let’s start maybe with some CBDC stuff, central bank digital currency stuff. Dwight is looking so we can’t see him, Dwight, and Dwight is pointing over to Romain here.

Shaun Ferrari (00:04:29) – Oh, but you know, you know, we know there’s generally CBDCs in two buckets, right? Wholesale and retail. And maybe we talk a bit about the the retail side of the world. so I mean, maybe first with it, maybe just a little bit about what, what you guys are involved with, with CBDC and then we can get into some of the I think.

Romain Zanolo (00:04:48) – At the end, if you look at what’s the DNA of it originally on the payment card, basically what the payment cards is, it’s one of the cheapest way.

Romain Zanolo (00:04:55) – If you take the secure element or the chip that is inside, this is the cheapest way to perform a signature. And this signature can actually be offline. So this is our DNA that we have encryption that can be done offline. And then if you step back a little bit and you look at what the retail CBDC is, it’s basically digital cash. And one of the fantastic features of cash is that it works everywhere, anytime, whether there is network or not, whether you’re on a remote island in the Philippines or you’re in a capital in a parking with no internet or outside. So what we do, in a way, is enable CBDC or retail CBDC to work offline by performing offline signature.

Shaun Ferrari (00:05:32) – Okay. And how, you know, thinking of the the offline piece of that, that’s where you where you focus like, how I would say, how does that work? But in broad, in a broad way, how does that work?

Romain Zanolo (00:05:44) – I think it’s a very good question, but it’s if you think about the network for CBDC, you’ll have most likely the first thing central Bank will issue a money commercial bank made distributed.

Romain Zanolo (00:05:56) – There’s a debate out there on would it be a one tier model or two tier model, which is going to generate the money? We’re going to distribute the money. I think we’re starting to see that it’s progressively converging towards the two tier money where central bank generates the money, commercial bank distributes it the way we operate with cash today. And you imagine that there would be a first layer that would be the government layer, which is going to generate the money and perform the transaction and act as the central ledger. So what we’re building, in a sense, is a sort of offline layer two that will allow a chain of transaction to work offline. So to maybe step back on the UX, I’ll have a very simple tool, a card, and I will tap my card. For example, on the mobile of Jens, Jens might not have to be online. You could just have a SIM card and we will perform an offline signature between my physical card and the SIM card. And what will move is basically the representation of the money, because this is how it works in blockchain.

Romain Zanolo (00:06:48) – So the the key and the signature will happen. And now the representation of the money will be with Jens. And Jens will go to you Shaun, and will perform also in offline signature. It could be like a mobile to mobile offline. Tapping his mobile on your mobile for example, and the chain will continue to use potentially you will go to my colleague there and we will have a chain of offline transactions at a certain point of time, if he doesn’t have a secure element or a chip in his device, you will have to go online to use the money. So you will have to reconcile this sort of layer of two or this chain and put it back on the blockchain, or put it back online.

Shaun Ferrari (00:07:20) – So there is..

Romain Zanolo (00:07:21) – We have a second layer that will act independently. And we’ll go back to the main layer basically at some point.

Shaun Ferrari (00:07:27) – Okay. So there is at some point obviously it does have to.

Romain Zanolo (00:07:30) – Go back.

Shaun Ferrari (00:07:30) – Go back online it but it but it can be offline for a certain.

Romain Zanolo (00:07:35) – A series of successful transaction basically.

Shaun Ferrari (00:07:38) – Okay. Cool. Interesting. And are you are you hearing I, I’ve heard a couple of different places now that the whole offline piece, you know, it’s definitely essential. But at the same time, folks are beginning to question like, okay, well, how how like paper currency does a CBDC still have to be? I mean, we’ve been trying to do this. It has to be exactly like it. And is there some sort of pendulum that’s swinging a little bit to say, okay, it needs to be another alternative? but maybe not necessarily exactly like paper currency>

Romain Zanolo (00:08:16) – I think its a fair question overall and I think our job as technologists is not to necessarily decide or position ourselves on what government will want to do. Our job is to enable multiplicity of use case. So with CBDC, I think you’ve pointed it right. You can go from, one spectrum to the other end of the spectrum in copying completely the properties of cash or acting differently. What we do is we enable the possibility of the optionality of replicating as much as we can, the properties of cash with this, with this offline, aspect.

Dwight Willis (00:08:48) – I really struggle with the utility. Right. What what’s the value apart from a control aspect, from a governmental point of view. Right. So understanding, you know, you can put me in a basket of, not anarchist, but, you know, I’d like to have my independence. And sometimes I like to spend things. So I don’t want governments or others to know. Right. So, I kind of worry about the, the overarching governmental control of said systems and what the data is going to be used for. Right. I understand the argument about as a technologist might be right, but if I put another hat on my job is to or part of a job of a citizen is to make sure we have an economy and a legal structure that will protect us as individuals and yet have utility in the product. And I kind of worry about the utility a little bit. Right. So..

Romain Zanolo (00:09:38) – I think it’s a very fair comment and very fair point and when I say we’re enabling use cases in technology, this is one also we are addressing. So we are working with some central banks in Europe on the privacy aspect of CBDC. How can you use technology to basically reassure you and ensure that you cannot come back and identify what payment has been, has been made so the technology will exist to move from? Also, in terms of privacy, one side of the spectrum where the central bank can know everything, it could be intermediary, where it will be only a limited amount of agents somewhere in the process that will be able to know to your permission to be on the network. But we don’t know what you’re doing on the network. I think the technology will allow to enable those use cases. And the reality is that how government are going to use it is probably very similar to the way they’re managing their country already. So we will we will be able to enable privacy use case and we’re already testing it.

Shaun Ferrari (00:10:32) – I think that’s what’s interesting about a lot of these different payments, whether it’s instant payments, CBDCs. And the discussion we get, I think trapped in a lot is around the policy associated with them. And. We are at a point, I think, where the technology for most of these systems will enable, whether it’s privacy, offline financial inclusion, I mean, the technology and the ways of doing these things are pretty much there. I think it’s are there policies that are in place that move that needle forward. So as you say, like with privacy as an example, can it be private? I’m pretty sure there’s a technology out there that could enable that. Will the policy makers decide that it should be private? Is an open question.

Romain Zanolo (00:11:26) – Of people to decide. I think as a citizen, what fits your view, I think.

Dwight Willis (00:11:31) – I add one other kind of argument that I struggle with is the utility want. Right. So, we’ve had the whole crypto which was not centralized around governmental control, right? And those that control the economy, the king, right, wants to be in charge of the currency.

Dwight Willis (00:11:48) – So we bring it back to CBDCs. Right. But is there a crypto really struggle with utility apart from the speculative investment product, I think. Right. There’s been lots of projects out there open as any of those projects really taken off. Yeah.

Shaun Ferrari (00:12:05) – So I mean, the use case argument is a good one, I think. And that’s where we’re looking at what’s happening around the world now, too. It’s there’s been a shift a bit, even in the CBDC space to deposit tokens, digital assets, putting things on, you know, how do we how do we as an ecosystem put together, whether it’s again, it’s in payment CBDC deposit tokens, stable coin because there are some I mean, we’ve looked at, there are some interesting use cases in terms of like a distribution or like in Ukraine or even in Palestine to some, some degree able to get funds into areas quickly. And if you’re talking about an area that also has a lot of potential fraud and, things like blockchain can definitely help there. So there are some use cases.

Romain Zanolo (00:12:54) – But one that comes to mind, and I think it has been rightly tested in Singapore Fintech Festival the past couple of years is programmability of the money. So with a CBDC or a blockchain based money, you can add some condition to the money to stimulate the economy to basically distribute vouchers. So I think what Mas tested doing as a five year and a half ago, was I think for use case one was around education, for example, giving subsidies to citizens that they can use only for certain education, approve merchant and use case and think you can do that to a certain extent with standard money, blockchain and smart contract, making it super easy to have conditions because basically that’s what the smart contract is. It’s, it’s money with condition basically.

Jens Seidl (00:13:37) – Maybe you should get something there as well. And there is a difference between program money and program payments. Right. and I think a lot of people in the faster payments, camp will say arrange payment is enough. Actually, that can achieve most of the things that you want to do. And there’s a big policy debate to get around. How much do you want to actually limit the usability of money? and I think that’s what for me, what’s changed a lot recently is since Pix has taken off so much in Brazil, a lot of people now start to ask what we really need [inaudible], or can faster payments actually do everything that retail CBDCs can online..

Dwight Willis (00:14:18) – And yeah, right. So the Pix and UPI are the two main use cases. Yes. But I think the alternative.

Jens Seidl (00:14:23) – Is a good use case where faster payments do not really have a solution.

Romain Zanolo (00:14:28) – In theory, we could build a similar network on instant payment as well. I think nothing prevents it from doing it, but the CBDC ecosystem makes it easier. I think the debate is the right one. What you’re seeing is a lot of countries are in an exploratory stage looking at the CBDC, asking themselves the question, especially in Southeast Asia, where there’s now a, a quite solid, real-time payment network across the countries.

Romain Zanolo (00:14:56) – I think that some countries do not have, as of today, at all, an instant payment network. So maybe they can build directly a retail CBDC network and connected to a certain extent with the rails. I think it’s a it’s an overall trend. What we start to see is payment rails converging a little bit more than before. We used to have cash alternative wallet, cards. Now we’re starting to see instant payment, CBDC. And ultimately you could settle transactions on different rides and you could imagine connecting one rail to the other going forward.

Shaun Ferrari (00:15:28) – I think that’s an interesting point and one that we try to delve into a bit too, which is how much does the I mean, we care, right? Because we’re involved in this. We were familiar with the different parts of the ecosystem, the different rails, all that sort of stuff. The consumer, 99% of the consumers I don’t think, know or care. We would talk about it, I worked at the Federal Reserve for many years and we over the cash area paper currency and no one ever talked about it.

Shaun Ferrari (00:15:58) – Right. It wasn’t in the news. People didn’t know we were doing and we just it just worked. And we kind of saw that as a success for the work. Yeah. It was like as long as people aren’t asking, they’re not talking about a security issue or anything, that’s terrific. I think payments in general in this space operate save, where if it’s working, the consumers shouldn’t care. Yeah. All right. But you’re right. What? What? Tool is then used to militate that transaction, can be a complex decision process, and I think maybe that that’s an interesting place for fintech to play or for banks to play, right? In terms of, okay, once you want to make a transaction. How does it get routed?

Dwight Willis (00:16:41) – You show us. That’ll go to my body. Yeah. For me, I think there’s two things they should care about. Right. So I, as a consumer, that when you were talking about cash money, right. I was thinking they probably concerned about do I have fraudulent currency.

Dwight Willis (00:16:55) – Right. That that was the big concern. Right. Do I legal tender or have I been given something that I shouldn’t have. so the so, for me, with the digital space, it’s the cost aspect I should care about and also the privacy aspect as a consumer. So the cost aspect is, you know, we have cross-border connections of faster payment rails across Asia, right? And, intermediaries or intermediaries. Right. And intermediaries typically charge, what, two, three, four, 5% for use of those variables, right. So and particularly during more difficult economic times, we’ve seen quite a bit of pushback. Who’s going to actually pay for that, the merchant or the customer? And ultimately the customer pays for it right in the product because the merchant will pass it on where they can. So it’s kind of interesting, cash, in a way, is being kind of a hidden cost to the central government level, right. Versus a payments which is pushed out to a merchant or..

Shaun Ferrari (00:17:52) – Individual, I think on the cross-border payment.

Romain Zanolo (00:17:53) – And this is why, like CBDC is still debated, but wholesale CBDC is starting to be tested. I think on the B2B international payment, there is still a big pain point that instant payment has not completely solved because, there’s more and more discussion on the wholesale CBDC happening at the moment.

Shaun Ferrari (00:18:11) – Yeah, yeah. It’s. Yeah. No, I think so. And I think, you know, one of the things that’s interesting walking around here at Money 20/20 is just then I know that’s the theme of this year’s show is kind of, cross-border payments and that sort of thing. But nonetheless, there’s so much cross-border discussion here. And I think that’s, you know, super fascinating because it is kind of that, that area, I think I don’t say is low hanging fruit because it was low hanging fruit would have been solved probably a long time ago, but it’s a readily acknowledged pain point in terms of speed, time as well as cost.

Dwight Willis (00:18:51) – How many haven’t lived in living in that used for a long time, right? So how many economies, legal systems, different cultural systems do we have in Asia? And how far, you know, is the fly from Singapore to Japan, for example.

Dwight Willis (00:19:02) – So it’s not like Europe, where you have one large market in the US where you have one large market. Right? So you’ve been you can argue about the one large for your profit here. It’s very diversified legal, cultural, monetary systems etc.. Right.

Shaun Ferrari (00:19:19) – Yeah. Cool. Well we do want to, so when you hear her talk to so you know who she is. Nilixa has joined us and look. So if you want to just say hello and just a bit a bit about yourself and we’ll, we’ll weave you into the conversation here.

Nilixa Devlukia (00:19:30) – Hi. Thank you, Shaun, Nilixia Devlukia here. I’m the CEO of Payment Solved, a consultancy providing regulatory advice on payments, payment services and digital assets. I work across the UK and Europe but also have insights in the global payments market as well.

Shaun Ferrari (00:19:48) – Cool. Excellent. Well, thanks for joining us. We’ve been talking about CBDCs, about instant payments, about the underlying rails. Should people care? Should they not care, all that sort of stuff.

Shaun Ferrari (00:19:57) – So we’ve had a lot of different, different conversations. Were you just out listening to the talk? Was it was it interesting? What were you up to and about?

Nilixa Devlukia (00:20:05) – It was very interesting because it was the assistant governor for the Bank of Thailand talking about prompt pay, cross-border payments, their vision for innovation, inclusion, their strategy and the fact that they want to move into an open data economy.

Shaun Ferrari (00:20:24) – Awesome. But it sounds like a great talk.

Romain Zanolo (00:20:27) – You know, one thing I didn’t discuss on that is still in favour of CBDC. It’s still a direct claim most of the time to the central bank. So as a consumer, I still care that my money is protected, right.

Nilixa Devlukia (00:20:37) – Yeah, but we’re in for consumers. You know, most people really don’t know or understand the difference between commercial banking, our kind of money, and they all use commercial bank money without thinking about it twice. But what’s interesting, I think if we’re talking about CBDC, is that, the Bank of Thailand released their feedback on their sort of projects, and it comes with the implication that they don’t really need retail CBDC at this point to try.

Nilixa Devlukia (00:21:09) – And I think if you look across the globe, we’ve got a lot of well, we have had a lot of focus on retail CBDC. And there are benefits in, in many jurisdictions. So I think we’ll see that evolve. But obviously I think there’s now a change in the narrative towards more, the benefits of wholesale CBDC and, programmable payment structures within those ecosystems.

Shaun Ferrari (00:21:35) – Yeah. No, I think it goes along the lines of what we were saying. There’s it’s definitely a region by region.

Romain Zanolo (00:21:41) – Even market. I think a market that does not have a real time payment system as of today could jump straight to retail CBDC and connect it somehow.

Nilixa Devlukia (00:21:50) – I think that the challenge is mostly small from the retail, one. They’ve sort of been part of the infrastructure, but actually they’ve also got to create digital identity. I mean, those are the building blocks, aren’t they? If you look at what India’s done with its India stat, it is cracked the infrastructure, it’s cracked the identity. it’s, you know, faster. It’s okay with all of the pros and cons, but actually now that it’s in the market and looking up to CBDC from my position, I think it’s got all the building blocks that if it issues a retail CBDC thing, it’s a jurisdiction which there could well be widespread adoption.

Shaun Ferrari (00:22:26) – So actually you brought a digital ID, I mean, how crucial to whether it’s CBDC or even other electronic payment methods is a is a digital ID to this, this implementation.

Jens Seidl (00:22:41) – Especially from a financially general point of view, was very often the lack of an ID address stands in the way of its digital ID, the silver bullet here?

Dwight Willis (00:22:53) – It’s also a path to further exclusions. Essentially, yeah.

Nilixa Devlukia (00:22:59) – Digital ID can be an exclusion in itself. But if you look at the direction of travel in all jurisdictions, it’s how you want to implement it and structure it. I would say that if you take India as example, their driver was inclusion and they did it in such a way that they did include everybody. But I think the way that the world is going, whether it’s in emerging economies or advanced economies, I don’t see how we could continue to make particularly the payment space far so secure payments without having, a secure digital ID infrastructure as well.

Dwight Willis (00:23:39) – My issue is I keep coming back and being skeptic in these arguments right now, living in, living in this part of the world. Right. And, that, you know, particularly the border areas that are, under a civil war conflict for the past 60 odd years. And there’s a number of these that come across the border. And without that ID here in Thailand, you are excluded from formal financial services. So that’s kind of my concern. Right. And it’s really a governmental policy issue that in implementing digital IDs, then you’re trusting the central government will do the right thing. And people talk about financial inclusion. Great. But it’s also a tool to exclude people out of whose inclusion. Right. So going to be careful. I think it’ll be really careful.

Nilixa Devlukia (00:24:26) – But I think you also have to distinguish between digital ID and the policy of associating drivers between different jurisdictions as well.

Dwight Willis (00:24:35) – But you can’t have one without the other. That’s the problem. If you do the digital IDs and you don’t have and they can be manipulated in a bad way, and they can be used in a good way, right. And I see examples of both. So that’s my concern.

Nilixa Devlukia (00:24:51) – The distinguished difference as though between the two slightly add a paper or non paper ID however it’s still the same problem, is it not?

Shaun Ferrari (00:25:00) – I mean, to some degree, I think it goes back to the, cash, gives you anonymity in a way. Right. That gives some advantage for financial inclusion and some disadvantage.

Romain Zanolo (00:25:10) – But it seems to be a problem. That is, I think, being well addressed and tackled, I think in the case of India was probably a case study, but I think they use this concept of assisted KYC, where as much as it was a digital ID, they created an enrollment center. People were going in the countryside, they were helping people to enroll, capturing biometrics, getting the data and documents, and reading it to people for the ones that were not able to. So it was inclusive in the sense. And when we discussed with, with some government institution that wants to launch some, I would say payment in between payment and identity program, inclusivity is at the core usually, and building a digital ID and ensuring that the people are actually getting one is at the core.

Romain Zanolo (00:25:52) – This is not just, okay, download an app on the smartphone and do your KYC yourself. Like what we do when we open a new bank? There is an industry that is actually focused on inclusivity and doing this assisted KYC thing. And you see it even in the payment scheme, they have teams dedicated to that now in some of the of the large schemes. So I think it’s not perfect, but it’s going in the right direction to be inclusive.

Shaun Ferrari (00:26:15) – Yeah. And that’s where I think kind of one of the comments we made earlier too was that there’s, there’s a the policy element behind all this. As long as the policy lines up, if the policy is we want to include people in X, Y, and Z way. And that’s the goal then okay, yes, your digital ID program can be structured as such. And you can do that. It’s not the technology generally that’s standing in the way, honestly. It’s the policy driver. Correct. Yeah. We want this to happen and here’s how we’re going to make it happen.

Shaun Ferrari (00:26:50) – We’re going to subsidize phones. We’re going to I mean in the US for instance. Will the digital ID never happened? No, I don’t think so. Do a lot of us have passports? Of course. Do we have licenses? Yes.

Dwight Willis (00:27:05) – I got rejected in my home country, Australia.

Romain Zanolo (00:27:09) – But contrary to this point, not only I think we see technology supporting, but also we see discussion around ensuring that the cost of whatever you’re rolling out can address this topic. Like when we spoke about offline, for example, one of the reasons why we’re going for a car, for example, as a simple offline wallet is because this is probably one of the cheapest way to actually enable offline. So you can hold this out for like a really affordable price versus putting a smartphone in the end of everybody, for example. Yeah.

Shaun Ferrari (00:27:39) – Yeah. I mean, I think that’s the if I go back to retail CBDC for a second, again, thinking about, you know, having the banks as their materials and rolling through that system.

Shaun Ferrari (00:27:51) – Yes. And the regulatory and supervision and policy area has to widen to allow bank accounts, leave very limited bank accounts or what have you. For those that could ordinarily not get a bank account to then get a bank account right to at least function the CBDC transaction, or it doesn’t go at all towards addressing financial inclusion if the banks are those intermediaries, oh, do you have to have a relationship?

Romain Zanolo (00:28:18) – The cost of onboarding and KYC. Right. This is I think the.

Shaun Ferrari (00:28:21) – Sure. Yeah.

Nilixa Devlukia (00:28:22) – But the recent report published by the Reserve Bank of India, the cost there for onboarding for traditional providers and digital providers was, you know, a total end of the spectrum. but I think, you know, it was interesting what you said about accounts and banks. And I think that’s, again, a narrative that’s changing because it’s not it’s fintech and wallets.

Shaun Ferrari (00:28:48) – Sure, it’s fintechs and wallets, but the bank is still the account holder for the first..

Romain Zanolo (00:28:56) – Maybe it is fintech and wallet, but it is also banks. I mean, you look at this region, Malaysia is rolling out digital banks as we speak. One of the mandates that the Bank Negara gave to the digital banks is to actually address a segment called the B40, which is the bottom 40 of the population. So they are creating licensed digital banks to address this specific segment.

Dwight Willis (00:29:15) – So why digital banks? The problem is the cost?

Romain Zanolo (00:29:18) – Cost of KYC onboarding customers managing it. I think it’s a streamlining the cost of acquisition, of those customers with technology and the structure that is built to do this and address the segment.

Shaun Ferrari (00:29:31) – It’s interesting. Yeah. I mean, and I think that’s where some of the new technologies can help, whether it’s AI, where we talk about AI, but is there a way to leverage data that you get? I was so I was listening to a speaker, in Washington earlier this week, a couple days ago, and they were speaking about how this was in the loan context and getting a loan, but basically using AI and alternative ways of approving folks to get loans, can expand the universe, right? You could envision a similar analogy of, okay, I’m a I’m a fintech, I’m a digital bank.

Shaun Ferrari (00:30:08) – I want to assess someone’s KYC, AML, while the AI is crawling through your phone. It knows everything about you. It can very easily give you a rating of hey, yeah, you’re a risk or you’re not a risk. Now how the how regulators will view that I don’t know, but it seems like there are tools there that could help. If people wanted.

Nilixa Devlukia (00:30:30) – Well, there’s the AI tools and particularly when we’re talking about loans, SME financing in the UK, we’ve recently had a piece of work done by Siefert whole open data, open finance and SME lending. And what they should just have access to. A greater variety of data sets and easier access actually had a really substantial rise in approval ratings for SME lending. We think SMEs is key to every single economy. So AI is there and I’m sure that will tremendously, you know, come into this ecosystem. But actually right now we have solutions. If we could just get access to the data.

Shaun Ferrari (00:31:17) – Yeah, yeah. Data access.

Romain Zanolo (00:31:20) – I think AI is used as the flagship word, but it’s rules and based on engine and on data, which I think helps in a semi lending. Like if you see the payment you should be able to see a pattern money in, money out. And so if you have access to those data, you probably make it easier to borrow money I think for merchants.

Shaun Ferrari (00:31:38) – Yeah for sure. So what is you know, given all this technology, all these different payments, different rails, different ways of doing it, what does the future look like? What do you think of Crystal ball? what’s what is the future payment world, given all of all of these different threads that are being worked on right now? Any thoughts on that?

Nilixa Devlukia (00:32:05) – To get questioned. It’s almost like, you know, what is the future of the financial ecosystem. So I mean, from my perspective, I think we will continue to see the rise of the fintechs. I think it’s quite likely that we’ll see more of the big techs actually coming into the market, because at the moment they sort of play on the fringes of the market and positioned themselves that way.

Nilixa Devlukia (00:32:31) – I think that obviously more digital banks, challenger banks and sorry, traditional banks are either have to go into evolve or they’re going to play a very different role. And I think that’s going to actually cause a headache for the regulators as to what’s the balance? What are the prudential? What are the protections? One within that entire ecosystem. And what are the difference in the protections with consumer perspective? Because at the moment you have a different protection if you hold a bank account or if you hold a payment account and then I also think there’s going to have to be a lot more focus on a, on a, on a global perspective, because all of these face particular I mean, you know, we have global banks. But when you look at the number of customers that the global fintechs have, you know, the banking numbers that are quite small in comparison. And how do you manage and regulate those sorts of providers, actually with a global view, rather than that very sort of narrower jurisdictional position?

Dwight Willis (00:33:39) – Yeah, I’ll go and I’ll roll this back to one of my original fights. I think we need to ask the regulators that question. Right. The key, the key party that is going to determine how payment systems used [Inaudible] There are no economies of financial inclusion, etc. etc. so that will be a challenge. Then there will be a connectivity across them. And as a Asian fintech, I understand right the complexity of trying to operate against across different markets. It’s difficult to do so, and I think it will. Will it become easier? I am skeptical.

Romain Zanolo (00:34:25) – No. No. Good. No, but I was about saying. It’s, if you look at history of payment, payment means tends to add and not replace each other. I mean, we’re discussing about retail CBDC and those events are focusing on those topics. Real time payment connectivity, the countries that are trying to phase out checks and checkbook. So so I mean, and there’s still like, I know, companies still making money at selling checkbooks. so this is still happening quite a lot.

Dwight Willis (00:34:52) – I, sorry, just on that beside Thailand, wonderful prompt pay system for my son’s insurance claim. The checks in the mail. So. Yeah.

Romain Zanolo (00:35:00) – So payment means tend to add. So I think we’re going to see a coexistence of payments with new ones. I think for me that’s one I think we operate in the card industry. What we see as numbers is that the current bills are actually going and issuing more cards and even digital native alternative wallets using the on QR, and then on those alternative right, most of them show cards today if you look at what they’ve done there. So it’s, there’s still some different pain points that are addressed, different value proposition also to the consumer. So I think there will be more choice for the consumer ultimately. There’s an underlying trend across all the payment rates, which is more lifestyle banking.

Romain Zanolo (00:35:38) – I think, we see this rise of embedded finance that has taken, at least the Asia Pacific, but probably the world in the past couple of years, where there’s more and more payment tools and payment means that are issued by non-traditional, fee. And there would be like not necessarily fintech or banks. It would be like an airline or hotel chain. So, crypto exchange, at some point we’re issuing payment cards as well. So you start to see that depending on what I like as a consumer, I might be able to get my payment product and the cash back in the reward and things that goes with it from the lifestyle, I would say product that I like and that speak to me. And I think this kind of lifestyle banking is growing slowly but steadily. And I think coming back to my last point will be on the payment rails. I think we might see a hibernation of the rails going forward. So to make it simple, in Asia we had QR on one side, cards on the other, and people are looking at this as QR is cheap, card is expensive and high end.

Romain Zanolo (00:36:35) – The reality is both are technology QR and EMV. What’s cheap or expensive or give more? What is the payment rates behind? But nothing prevents you from doing a QR transaction on the card or card transaction on the QR, actually. And I think we’re going to see this more and more. We start to see, people conceptualizing this idea of doing a EMV transaction, physical or, or digital on alternative rail. So it might happen more and more as well. So we’re going to see also a split between I believe the front end and the back end is more and more.

Jens Seidl (00:37:09) – Okay. I want to be a bit more provocative actually. And see, see, what do you think about that? And I’m, I’m drawing a parallel here to cash. Where, cash that was the core purpose of a bank many years ago. distributing cash, making sure cash is available to people. If you look at mature markets now, banks are almost completely removed from handling cash. It’s all outsourced.

Jens Seidl (00:37:35) – They might have to still put their name on it, because the outsource party isn’t licensed to distribute cash, and then they issue cash to the public. But the bank really is considering this more of a burden than really a, a revenue generating product. Could payments actually go the same way now? Because with, a lot of the fintechs and big tech’s disrupting driving down costs, could payments become so uninteresting to banks that they just say, look, happily outsource that to these parties, subject them to regulation, whether it’s possible, whether they could even completely let go of that and focus on loans, mortgages, stuff that actually make them a lot more money, is that conceivable?

Romain Zanolo (00:38:20) – I’d be happy to go. But I think if you look around. So we’re in a glass window. There’s tons of payment processors, modern cloud based. So I think you’ve got a hint that there is more and more outsourcing of some blocks. I don’t think banks will outsource everything. What matters to them is the customer relationship, the onboarding and this part.

Romain Zanolo (00:38:39) – So I think managing the customer is what they do. Having very large team to manage a processing system or things like that, there’s probably going to be more and more outsourcing of core technology being core banking or card management system or alternative payment system, probably. But I think they will outsource by blocks, probably not everything straight away, keep the relationship because that’s where you can build new services. New business case. If tomorrow there’s new payment tools or CBDC like find a way to monetize it as well. So I think they will they will always keep the try to keep the customer relationship. And don’t forget like how many times are you doing a loan versus how many times are you paying? This is still your touchpoint and interaction with your bank, so I don’t think they will outsource the part, which is the real, customer relationship.

Dwight Willis (00:39:26) – I worked in banks for years. It’s additional triangle relationship. Right. So the payments, it’s the bottom infrastructure. You see the touch point, as you say, the customer, and then it goes all the way up to the home loan or the car loan or whatever else, wealth products. Right. So you need that touchpoint whether you outsource it internally. The regulator is still going to hold the bank to account. Right? So, we need to be careful about how that evolves. I think if I were still work with the bank.

Shaun Ferrari (00:40:00) – I think yeah. The they’re going to hold the even in the cash space. They there is a there is the risk of the quality of the engagement with the customer and the quality of the product based on that outsourced provider. Right. So even I think it’ll be an interesting place for banks. I think they’re trying to figure out how to best engage with the with the fintechs and other partners to, to innovate and make a seamless customer experience. I think the, the part that’s, that’s oscillating a little bit right now too is okay, you know, how do how do how does the bank ensure that that’s still then a good product. Right. And how do they make sure that that flows through. Because then that’s where it comes back on the bank. And no one has no one has the patience for a bank saying, I don’t know. That was my provider that did that.

Nilixa Devlukia (00:40:51) – Well, maybe the next question on from what Jens was asked is actually, we already see quite a lot of pops in the market in fintechs is the next stage acquisition.

Dwight Willis (00:41:01) – Yeah. Correct. Who’s got the balance sheet right?

Shaun Ferrari (00:41:06) – Well, yeah. Oh, go ahead.

Dwight Willis (00:41:08) – Yeah. On a similar point I kind of struggle with is fintech going to come into this space? Right. Why are they going to stay at the fringes of it? Because the cost of the regulation side is one large part that if I’m at fintech, I really haven’t had to deal with. Right. And so do I want to get into that, right, I don’t know. Or do I want to outsource.

Shaun Ferrari (00:41:32) – Well, in the fintech seems to be in a way partnering with. So there’s a project going on now where a lot of the large banks are sharing their anonymized data sets, with each other and a big tech partner, to do all sorts of AI and other analysis on it.

Shaun Ferrari (00:41:50) – So there’s actually a lot of data being there. And it’s I found that heartening because that’s one of the few cases that I can think of where you had your, your big, big banks agreeing to say, yeah, I’ll, I’ll share my data with the other banks and not really hold it. Yeah. They’re not sharing their customer data. I mean, the customer identifiers, but still it’s a lot of data that’s being shared and it’s, it’s it, it will it was at least an a project to look at the AI abilities and to train some AI which, which I think was interesting. Anyway, I a long way of saying I see some cooperation out there with some fintechs. That is encouraging.

Romain Zanolo (00:42:26) – Oh, you even see some, some of the very large fintech, even some of those that invented the term fintech have a B2B offering for banks.

Nilixa Devlukia (00:42:36) – Yes. Banking licenses. Well Revolut just got one in Mexico. And and it’s an interesting concept isn’t it, because you’ve started as a fintech, you one assumes you have a fintech mindset or take bank mindset and they are a little bit different. But yet there does seem to be this drive to want the banking license. And that’s because it gives you the ability to, to provide more services. You know, payments is just one silo in that aspect. And that that is what a bank can do and then therefore again, the for me opens up the question of what is the what is the authorisation supervision regulatory regime? Or are this as full? Will it just be that the fintechs because they want to do more, become banks? Or do we look at the whole ecosystem and say, actually whatever you call them, whether they’re banks or fintechs and they get a license, what should that regime actually look like? Are the prudential requirements right? Are the protection measures correct? It doesn’t really matter which ecosystem you play. And this is where I’m talking about consumer payments. I think large value corporate payouts probably like different. You know, what do consumers understand as to as to who they’re interacting with and what they’re doing and what benefit they gets it.

Shaun Ferrari (00:44:00) – Yeah. Well, and are you seeing any movement. So to me, for, for fintechs and others to get banking or anybody to get a banking license. Can be a Herculean effort, depending on the most jurisdictions, really. Can be a Herculean effort. So is there discussion in the central banking community? Who’s going to issue those licenses? Around different types of licenses. Maybe you don’t need to be a full fledged bank. You’re some sort of digital bank or you’re something. Is there a different regulatory and approval process?

Romain Zanolo (00:44:37) – In Asia it’s been happening since Hong Kong started. Singapore has done it. Malaysia is doing it. I think Thailand announced they will do it probably next year. So they split basically traditional banking license and digital banking licenses with different set of requirements, no physical touch point, balance sheet requirement that are high for protection but not necessarily the same. So this is happening. And, I mean, we’re like here right now because we speak to everybody that wants to issue a card physical or digital.

Romain Zanolo (00:45:04) – So we’ve seen the ecosystem in the past, in the past years evolving. But like one thing that has slowly changed across the past 5 or 7 years is we used to speak to a lot of fintech that were starting in the garage and wanted to be the next revolute. Now, most of the digital or fintech players are actually consortium backed by very large balance sheet group. There’s still a few small payouts, but. Yeah.

Dwight Willis (00:45:27) – And the management structure or capital structure for managing banks. It’s been there. It’s evolved over time that there’s Oracle regulations, right. So if any on the complexity of the business will depend on the capital requirements. So, so I think that structure is already in place globally for digital banks to then operate because their business model should be far simpler. Maybe a traditional full stack retail wholesale bank that will have huge capital requirements. But the challenge I see across Asia is the opportunity for fintechs to participate in the neo banking licences. Now who’s actually getting them right? Are they large conglomerates that already operate in those economies that may or may not be banks that are partnering with fintech? So I think you see a lot more partnerships that are going to be happening in, you know, vacant space going forward.

Romain Zanolo (00:46:16) – It’s true and I think we see also in consortiums, some of the flagship fintech have managed to get their way into a consortium where there’s three, four players that are going into a JV to get the license, but there’s always a very big local conglomerate or someone that actually has a lot of like a big customer base already.

Nilixa Devlukia (00:46:33) – This sort of overall jigsaw, because often the reason that you want hiking license is to get access to pay systems about settlement accounts. And also the regulatory direction of travel started with the by the way, that the EU is doing other jurisdictions for [inaudible] is to allow non-bank participants into payment systems with direct access and to get accounts with central banks. So if that barrier falls away, then again, it’s depending on what business you want to do as to what sort of license you want to get.

Dwight Willis (00:47:08) – Now comes back to the whole point of the definition of the intermediaries. Right. And what roles do they weigh in the infrastructure. So it’ll be interesting to see how all’s and I think it’s going to be a bit of a hotchpotch in this part of the world. Would be different solutions different.

Shaun Ferrari (00:47:24) – Cool. Well, we’ve been having time flashed up in our in our face for a little while. So I want to thank everybody for coming to to chat with us today. it was a great discussion. Hope you guys have a successful show here at Money 20/20. And once again, we want to thank the Money 20/20 folks, for letting us come and do an episode of the P.I.T. Exchange here. we’re going to do another one. So, we’re going to share two with you this week. but thanks, everybody, for coming. I think we definitely heard a lot of different topics, and I think Jen’s and I are thrilled that we’re going to continue these discussions, in, in Kuala Lumpur at a couple of our events coming up in June at our Global Payments Summit and our Central Bank Payments Conference, which I think should be a great, great venue to further a lot of these discussions. Well thanks everybody for joining. Thanks, everybody for listening.

Shaun Ferrari (00:48:16) – And we will be back with you later. Please like subscribe, follow do whatever you do at whatever podcast channel you’re listening to this on. And we look forward to coming back with you again soon. Thanks a lot and see you all soon.

Podcast Outro (00:48:32) – Thank you for listening to The P.I.T. Exchange, a podcast by Currency Research. Check out our upcoming events and publications at and join us for our next episode to hear what’s trending in payments, innovation and technology.

Welcome to our latest episode, where we delve into the intricate world of payments innovation and technology. We recently had the pleasure of hosting a fascinating discussion during Asia Money 20/20 Live with industry experts Romain Zanolo, Dwight Willis, and Nilixa Devlukia, who brought their unique perspectives to the table. Today, we are excited to share the insights and key takeaways from that conversation, which covered everything from central bank digital currencies (CBDCs) to the role of digital identity in shaping the future of financial transactions.

The Rise of Central Bank Digital Currencies
One of the main topics we explored was the evolving landscape of CBDCs. Romain, the Managing Director of IDEMIA in Asia Pacific, shed light on their work in biometric gate technology and card manufacturing, as well as their ventures into the CBDC space. We discussed the different facets of CBDCs, including retail and wholesale variants, and the potential they hold for revolutionizing cross-border payments.

Dwight Willis, CEO of DSGPay in Chiang Mai, voiced his concerns regarding the utility and privacy aspects of CBDCs. Privacy, in particular, is a hot-button issue, as the programmability of money could lead to new levels of financial surveillance if not managed correctly.

Nilixa Devlukia, CEO of Payment Solved, provided a regulatory lens, discussing the implications of CBDCs in the UK and Europe. The conversation highlighted the need for consumer protection and the implications of an open data economy on payment systems.

Digital Identity: The Cornerstone of Modern Payments
The importance of digital identity in implementing electronic payment methods was a recurring theme. We touched on the challenges and opportunities related to financial inclusion and the role of regulators in this space. Nilixa emphasized the shift towards wholesale CBDC and programmable payment structures, noting the need for a secure digital identity infrastructure.

India’s Aadhaar system was cited as a successful example of digital identity implementation, which has significantly contributed to widespread adoption. However, Dwight expressed skepticism about the potential exclusionary impact of digital IDs and stressed the need for careful government policy.

We also discussed the role of technology, such as AI, in streamlining onboarding and KYC processes for financial inclusion. Assisted KYC and inclusivity were highlighted as crucial elements in the process.

The Impact of Big Tech and Fintech on Payment Systems
The future of payment systems seems to be heading towards a rise of fintechs, big techs, and digital banks. The potential challenges for regulators in balancing prudential protections and consumer safeguards were a point of concern. We pondered the coexistence of different payment methods and the potential for hybridization of payment rails.

The potential outsourcing of payment processing by banks was compared to the evolution of cash handling. The importance of maintaining the customer relationship was emphasized, even if core technology gets outsourced.

Big tech companies’ role in the payment space was also a hot topic, with instances of cooperation and data sharing between banks and big tech partners being discussed. The acquisition of banking licenses by fintech companies and the potential impact of their entry into the banking space were also explored.

Fintechs and the Quest for Banking Licenses
A significant part of our conversation revolved around the drive for fintech companies to obtain banking licenses to expand their services. The regulatory regime’s adequacy was questioned, as was whether fintechs should become banks or if a separate regulatory framework would be more appropriate.

We delved into the complexities of obtaining banking licenses in different jurisdictions, particularly in Asia. The emergence of digital banking licenses with varying requirements and the trend of consortiums and partnerships in obtaining these licenses were highlighted.

Stay Connected!

As we conclude this insightful journey, we invite you to stay connected and participate in our upcoming events, Global Payments Summit and Central Bank Payments Conference. Our esteemed speakers will be exploring various facets of Central Bank Digital Currencies (CBDCs) and other critical topics highlighted in the GPS and CBPC agendas. Your engagement is crucial as we collectively strive to modernize cross-border payments effectively through public-private sector collaboration and global cooperation. Thank you for joining us on this exploration of the future of finance. We look forward to sharing more insights and fostering discussions that drive the industry forward. Stay tuned for more updates and thought-provoking content from the “P.I.T. Exchange” podcast.


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