Carl-Ludwig Thiele: Citius, altius, fortius - challenges for payments
and settlement systems and their analysis
Speech by Mr Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank,
at the conference "Economics of Payments VIII" 2016, Eltville am Rhein, 9 November 2016.
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Dear participants of the Economics of Payments conference,
Dear President Weidmann,
Thank you for your welcoming introduction to this conference. On behalf of the Executive Board
of the Bundesbank and of the Directorate General Payments and Settlement Systems I too
would like to extend a warm welcome to everybody attending this event at our Training and
Conference Centre in Eltville.
The Latin phrase "Citius, altius, fortius", which translates as "Faster, higher, stronger", has been
the motto of the Olympic Games since 1949. The French Dominican preacher Henri Didon
originally coined the term back in 1891 for a youth sports competition, the aim being to motivate
his students to give their level best and survive the stress of competing.
This rallying call strikes me as equally prescient today with regard to payments. Market
participants' expectations of the availability, speed and security of payment systems are growing
at an ever increasing rate.
Users are demanding that payment be made almost immediately, wherever the recipient is in the
world and round the clock, all without any hiccups during transmission. Ideally, payees would like
to know exactly when they will take receipt of payment so as to be able to use that expected
liquidity again in real time.
If we are to fulfil these expectations then it will be necessary to massively expand the
requirements that apply regarding the operation, oversight and analysis of payment and
settlement systems. The operators of payment and settlement platforms, be they public or
private in nature, are now consequently faced with growing challenges.
The payments landscape is currently undergoing a number of significant developments that may
prove game-changing. These include the advent of instant payments and the establishment of
innovative fintech solutions as well as distributed ledger technology, which is built upon
blockchain algorithms.
The Eurosystem is currently examining and enhancing its market infrastructure services by
pursuing a range of project initiatives.
On the one hand, following the successful migration of TARGET2 Securities, it is anticipated that
the benefits and modern technology offered by this new platform can be put to use for TARGET2
as well.
Moreover, in a second project, the Eurosystem is playing with the idea of providing a new range
of services connected with instant payments settlement. This would enable us to support the
market in its efforts to implement a pan-European instant payments solution and to reduce the
level of credit risk arising from payments thanks to an instant final settlement facility using central
bank money - as seen in Australia, for example.
A third project initiative comes in the shape of a range of services dedicated to harmonisation of
collateral management for monetary policy counterparties. At present, this activity continues to
be dominated by specific national circumstances and a certain degree of fragmentation along
national borders.
All three of these project initiatives were given the go-ahead by the ECB Governing Council in
September of this year and are now in the process of being scrutinised.
But the market is also in a state of great flux. For instance, over the past two years, fintechs have
gained enormously in importance. Young businesses are increasingly acting as junior partners to
established banks, offering customer contact. Start-ups creating innovative solutions for the
interface between customer and bank are particularly well placed to reap the benefits in terms of
cooperation.
The new EU Payments Directive envisages action to standardise technical interfaces in
response to such third-party access to accounts. And this may well pave the way to even greater
innovation.
All in all, the world of transaction banking is becoming more complex and the ways in which
cooperation occurs more varied. This also presents analysts in payments economics with a
challenge. To some extent, payment flows will change on account of technical developments but
in part they will do so because of changes in payment behaviour.
For my part, I believe blockchain based technologies will be another major source of change as
they offer up the chance of simplifying convoluted intermediation processes entailed in the
business of payment and settlement. Virtually all payment service providers are looking at ways
to apply these technologies to their payment and securities settlement activities.
In addition to many other uses, they could potentially be integrated into automated procedures
(known as "smart contracts"). It is also conceivable that blockchain technology could be used to
greatly simplify the laborious task of managing reference data records.
Needless to say, analysts would benefit from the establishment of a reliable worldwide master
database, especially if payment behaviour is to be examined over time.
You will note that I have repeatedly spoken of potential in this regard. That is because we are still
a long way off finding solutions for live systems that are suitable for mass use. Blockchain
technologies still have many hurdles to jump before they can be applied in real life to alleviate
large-scale applications. Their biggest problem at present seems to be their all too limited
scalability.
Innovation is the driving factor behind growth. However, the practical application of new
innovations must not lead to a trade-off between efficiency and security, both of which need to be
safeguarded to maintain the architecture of our financial system in the long term. This applies not
just to distributed ledger technology and instant payments but also to other innovative fintech
solutions.
At this stage in developments it is too early to say much about the implications of blockchain
technology. This is partly due to the fact that it is not a simple case of one technology replacing
another. What we are dealing with here is a new technology whose actual worth probably lies in
its capacity to usher in different processes and structures that are broadly more efficient than
those in place today.
The task of analysing financial market structures consists in identifying the potential and the risks
associated with the various technologies that are being used and understanding their impact on
market participants' behaviour.
In future, ever greater priority will be attached to interconnectedness and appreciation of the "big
picture" as it affects the individual market participant as a means of gauging developments and
the risks they entail.
On top of this, a solid understanding of market participants as can be garnered from payment
and settlement systems, is also useful outside the confines of the actual systems themselves.
That is why the direct access to customers afforded by a current account is of such importance
to credit institutions. For it allows them to get to know the customer.
And the same holds true for central bankers. Analyses derived from payment and settlement
systems can be of great use in connection with monetary policy, banking supervision and
financial stability.
The aim of this conference is to bring central bankers and researchers together with a view to
discussing changes and challenges in the world of payments
deepening our understanding of today's payments landscape
forging ahead with innovations in this field.
Last year, the Bundesbank held its first ever academic conference on the topics of payment and
securities settlement. That event was a major success. And we hope to expand on that success
with this event.
In making our invitations this year we teamed up with partners from the United States and we are
glad to see the excellent response that has been generated.
Ladies and gentlemen, the ball is now in your court to enliven this conference through your input
and to use it to your own benefit. The expectations made of economic analysis are at least as
high as those made of payment and securities settlement services.
Let us live up to the Olympic motto of "citius, altius, fortius". For my part, I look forward to
encountering multiple ingenious analyses and ideas and a lively exchange of information.
Thank you for your attention.