Jon Nicolaisen: Digital challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the Financial Industry’s Digital Services Conference, Oslo, 9 June 2016. *  *  *  Introduction Technology advances rapidly, giving rise to opportunities and challenges. Norges Bank will actively promote efficient solutions for payments and financial transactions. I presume that the participants at this conference have the same goal, so we have common interests in this area. The Norwegian banking industry was among the first to adopt digital solutions. The giro systems were integrated and a common debit card system was put into place. The first internet bank giro was available already 20 years ago. Internet giro payments and BankAxept card payments in shops are cheap, efficient and widely used. Payment system costs in Norway have been considerably lower than in most other countries for a long time. Common solutions do not impede competition. Banks and other operators have their own customer interfaces, services and prices. But underlying that are a common infrastructure and common standards. This provides economies of scale and accessible solutions for customers, regardless of where they hold an account. Cooperation has rendered the payment system efficient and robust. New operators and new technology are now entering the payment market. This can, in principle, strengthen competition and improve efficiency. But it is important that the competition is rooted in a robust and cost-efficient common infrastructure.

Similar centralised solutions also exist for the settlement of foreign exchange and securities transactions. Society could possibly benefit greatly from replacing the existing infrastructure with more decentralised solutions, for instance based on so-called Blockchain technology. Such solutions were first used when the digital currency Bitcoin came onto the market in 2009. Such freestanding digital currencies face a series of challenges, such as significant price volatility, safety issues and pressures on IT resources. Experience shows that the public can easily lose confidence in such currencies and their payment systems, which are not backed by a central bank or a government deposit insurance scheme. Recently, the international debate has shifted focus away from freestanding digital currencies to other uses and the underlying technology. Decentralised systems are peer-to-peer networks where transactions are made directly between participants. They each have an identical copy of the account system or ledger, which is updated continuously. As the ledger is distributed among incumbents, central operators or intermediaries are not needed to undertake the operations. This also provides potential for faster and cheaper settlement. Public confidence and safety rely on encryption. It should not be possible to manipulate the ledger and transactions, and funds cannot be used more than once. It goes without saying that the quality of the security solutions is absolutely essential. The decentralised technology can potentially be used in many areas. Besides the financial sector, proposed uses include registration of property and objects of value and in elections.