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Paris FinTech Forum 25 January 2017
Speech by François Villeroy de Galhau,
Governor of the Banque de France and Chairman of the Autorité de contrôle
prudentiel et de résolution
France: a European powerhouse for financial service innovation
Good morning to all of you. I am delighted to be here today. Who could have imagined just a
few years ago that a central banker would be making an appearance at a forum on
innovation? I remember when we first met up, about a year ago, with the developers from the
start-up Labo Blockchain to work on a Proof of Concept, everyone from the Banque de
they'd
France had made an effort: dressed casually for the occasion... except that all the
developers had decided to turn up in a suit and tie. It was a complete role reversal! But
things change very rapidly. Today, our dealings with innovators go far beyond any of the
assumptions we might have had about each other: the Banque de France is testing
blockchain technology and is opening a LAB to work with start-ups; the ACPR (the
supervisory body which I chair) has welcomed more than 100 key innovators since the
creation of its FinTech Innovation Unit, and has set up a FinTech Forum with the AMF to
increase our interaction with innovators. For all actors in the financial industry, including for
the Banque de France and the ACPR, the digital revolution is creating challenges but also
incredible opportunities that are just waiting to be seized, whether by FinTechs themselves,
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by the entire financial system banks and insurers or by the French and European
economy as a whole.
1. What are the challenges for FinTechs?
It's hard to imagine how we would get by today without
cash-gifting sites to fund events,
aggregators to draw together our different bank accounts, or peer-to-peer payments to split
restaurant bills or rents for flat-shares. Steve Jobs coined the well-known mantra: "simplicity
is the ultimate sophistication", and I think all of these innovations have managed to offer a
simple, often cheaper solution to new user habits and needs. They combine cutting-edge
cases, they've been developed by
technology with user-friendly interfaces. And, in many
nimble start-ups that are in tune with the market and have the freedom to think outside the
Today, France is Europe's
box. second biggest crowd-funding market, after Great Britain,
and one of the most dynamic markets in Europe for payment innovations.
Today, what I want to say is this: we are learning from you. Through your technology, you too
can contribute towards making the financial system more secure. The artificial intelligence
public's
and chatbots you are developing will help us respond more effectively to the needs;
big data, machine learning and biometrics will help us to better prevent fraud; blockchain
technology and smart contracts will help to optimise transactions; and your APIs (Application
Programming Interfaces) and open source technologies will help to make financial
technologies more interoperable.
I'd say
When I think, in turn, of what the Banque de France and ACPR can contribute, this:
stable, reliable and agile regulation. Stable because we have a strong anchoring in European
regulation: this means that FinTechs established in France can offer their services in all
- it's what we call "the European
countries in the European Union passport". Reliable,
because we strive to limit potential risks, so that innovation is always synonymous with
customer protection, payment security, IT security and financial stability. But also agile,
because innovation must not be stifled by administrative red tape; that's why we are
developing regulations that are based on objectives and principles rather than on rules, and
that are proportionate to the scale of the risks. New FinTech players also help to stimulate
competition with digital incumbents, and in particular with the initiatives launched by the US
web giants. The industrial stakes are high: we need to foster this active competition, which is
by far preferable to monopolies, even technological ones. Stable, reliable and agile
regulation is a basis for confidence. And confidence is a basis for success in innovation. We
want to build this regulation with your active participation. We need your answers in order to
transpose PSD2 quickly and efficiently; we also need your active involvement in order to
build the best possible RegTech.
2. What are the challenges for the French financial industry?
Innovation does not just concern new entrants, of course. For banks as well as insurers, the
digital revolution is disrupting traditional customer relationship models. One figure is
particularly revealing: the level of footfall in high street bank branches. In 2007, 62% of
French people visited their branch several times a month. In 2016, the figure had fallen to
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just a third of that: 20% and to as low as 13% for the 18-34 age group.1 Customer journeys
are becoming increasingly digitalised: France currently has the highest rate of usage among
large European countries for internet banking services (69% of customers).2 But, beyond
customer relationships, financial companies need to take a more comprehensive approach if
they are to succeed in the digital transition - placing innovation at the heart of their strategic
management, as well as rethinking their business models. These are difficult choices that
naturally need to be taken by the companies themselves; the answers are not easy or
uniform, but I would like to share with you a few avenues for thought.
In the case of banks, it is important that they rethink their sources of income: one response
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could be to diversify the range of services both proprietary and via partnerships that they
offer to customers, and possibly change existing pricing policies, with fewer flat-rate prices
and more pricing by use. The digital transition will also involve preparing for shifts in jobs and
in skills, through dialogue with social partners. It will also require adopting an open approach,
with the creation of partnerships with FinTechs and the scientific community. Finally, it will
call for major IT investment to provide services that are increasingly aligned with customer
needs, to reduce structural costs and improve regulatory compliance. IT systems will need to
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be and this is the crux of the challenge more secure so that they provide strong
protection against cyber-risks, but at the same time more flexible and open to
interconnectivity.
In the case of insurers, the digital revolution is also starting with a complete overhaul of
I'd
customer relationships and user habits. But it goes further than that. just like to underline
two topics that I think are essential. First, with the help of reinsurers, insurers need to be
capable of meeting demand for coverage against cyber-risk, a concern that affects all
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companies both small and large. Yet in 2015, fewer than 5% of French companies and 6%
of individuals had some form of cyber-insurance.3 Insurers can and should take inspiration
from their own experiences in tackling cyber-risk, and use it to develop a more mature
1
Sources: Fédération Bancaire Française; Observatoire 2016 de l'image des banques, published by BVA and
based on a survey conducted in May 2016, and Observatoire 2015.
2 Source: European Commission's Digital Economy and Society Index.
3 Source: Le marché de la cyber-assurance : la révolution commence maintenant, PwC, January
2016.
French and European cyber-insurance offering. Second subject: data and big data, with the
spread of connected objects that is triggering an exponential rise in the amount of data
available on insurance policyholders. Naturally this represents an opportunity: the traditional
business of insurance consists precisely in collecting and exploiting data in order to quantify
and put a price on risk. Nonetheless, I would urge insurers to take a responsible approach:
we need to strike the right balance between segmentation and the sharing of risk between
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policyholders the basic principles of solidarity and risk-pooling that are intrinsic to insurance
are at stake. And we must not lose sight of our collective values regarding individuals' right to
privacy.
3. What are the challenges for the French and European economy?
Let me just remind you of two basic economic facts: there can be no lasting growth without a
rise in productivity; and there can be no productivity without innovation and its diffusion.
There has been a lot of discussion among economists about the current slowdown in
of a "secular
productivity and the threat, as some see it, stagnation". Personally, I think that
expression is going too far, and you here stand in proof. But for an economy to be
competitive and to grow, it needs to increase innovation and its diffusion, not slow it down.
The digitalisation of the financial sector can accelerate this positive process: it helps to
disseminate technological advances such as electronic signatures, solutions to defend
against cyber-attacks or distributed ledger technologies. Innovative and secure payment
solutions, such as tomorrow's
blockchains, are also helping to speed up the development of
e-commerce and modernise physical trade.
Achieving this will require greater harmonisation at European level: in the precise application
of the texts governing the financial industry (definition and security of payment services), in
more recent fields (crowd-funding) or in the search for greater interoperability of technologies
and standards. But, above all, it is vital that we define an overall strategy for European
innovation in financial services. This strategy must cover all the issues raised by digital
finance: from data protection to the fight against money laundering; from IT security to
consumer protection; from financial stability to the social challenges of banking inclusion;
from financial literacy to changes in jobs in the financial sector. It is a project currently being
conducted by the European Commission. And the Banque de France and ACPR are both
playing a part. Europe depends on it; its independence from the other big global regions
depends on it; and so too does the strength of its economy.
My message is clear: we, as regulators, regard innovation as key. Within Europe, France has
many strengths that can make it a leader in the digital transition. You are the driving force in
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this, with your audacity and your successes; it is up to us the Banque de France and the
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ACPR to ensure that we are capable partners - vigilant when necessary and always open-
minded. Rest assured we are fully mobilised towards this goal. Thank you for your attention.