constantinos herodotou : how can banks and fintechs co - exist? introductory speech by mr constantinos herodotou, governor of the central bank of cyprus, at a discussion with mr jose manuel campa, chairperson of the european banking authority, limassol, 4 july 2023. * * * your excellency, chairperson of the european banking authority, your excellency chairwoman of the standing committee on financial and budgetary affairs of the house of representatives, distinguished guests, i am delighted to host this event at the central bank of cyprus and it is an honour to have mr jose manuel campa with us, whom i thank again for accepting my invitation to visit cyprus. the history of mankind is marked by innovations. some of these have made our life better, others possibly worse. in the absence of a crystal ball, we cannot predict where an innovation will take us. and those who try, can get it easily wrong. wilhelm ii, emperor of germany, said in 1886 :'i believe in the horse. the automobile is a temporary appearance '. history speaks for itself on that. today's fast - paced technology - driven environment is the result of numerous technological breakthroughs in recent decades, combined with changes in consumers'needs. consumers need easy access, a wide range of options, better control and more speed. recent study of the european central bank1 on the payment attitudes of consumers in the euro area [ 1 ], shows that although cash was the most frequently used payment method at the point of sale ( pos ) in the euro area, its usage has been declining, from 79 % of transactions in 2016, to 72 % in 2019 and 59 % of transactions in 2022. the trend towards electronic means of payments has accelerated with the pandemic, and a majority of consumers now prefer to use electronic payment methods. as consumers move away from cash, they are becoming more acquainted and accustomed to using mobile services offered by banks and fintechs. the ease of use, the speed and cost of executing transactions, are all factors that businesses and individuals take into account when deciding with whom to cooperate. we cannot predict how innovation will evolve or whether new systemic challenges and risks will be created. currently, new entrants exert competitive pressures on incumbent banks. at the same time, these new entrants can facilitate innovation in the banking sector. these entrants are usually smaller ( in terms of size and complexity ), have a competitive

the area of payments, amending the payment services directive, and also proposing a new payment services regulation. these developments are important to strengthen further the resilience of supervised entities, combat and mitigate payment fraud and level the playing field between banks and nonbanks. furthermore, the enactment of the digital operational resilience act ( dora ) of the european union earlier this year, is a critical milestone and accomplishment. the european banking authority and the other european supervisory authorities, have a critical role to play in its smooth implementation. dora introduces advanced ict risk management requirements, threat - led penetration testing and, importantly, oversight of third party providers, including bigtechs. 2 / 3 bis - central bankers'speeches going forward, legislators and supervisors need to ensure that the existing and prospective legal framework does not leave significant room for undetected risks, while the level playing field should be strengthened. in addition, mechanisms should be developed at the global level to enable supervisors to cooperate effectively across borders. in this way, the stability of the financial system will be safeguarded, while combating money - laundering risks and protecting consumers. i take this opportunity to say a few words about the innovation hub that the central bank of cyprus set - up earlier this year. we see the innovation hub as a vital platform to encourage, promote and support fintech innovation, while maintaining regulatory oversight. the innovation hub can serve as a bridge between regulators, fintech startups and established financial institutions, facilitating dialogue, collaboration and knowledge - sharing. it provides a safe space for fintech firms to enter into a confidential dialogue with the central bank of cyprus, presenting their innovative products and business models and receiving feedback on regulatory requirements. the hub also enables the central bank of cyprus to gain valuable insights into emerging technologies, risks and trends, allowing us to adapt our regulatory framework effectively. an equally important initiative is the project on " digital onboarding " for the banking sector, which was launched by the central bank of cyprus, despite the fact that it is not within our duties to do so. we initiated this project, as we are convinced it brings multiple benefits to banks and to the real economy. in parallel to this, and with the aim to address the risks associated with the general digital transition, the central bank of cyprus has already required licensed institutions to carry out a series of actions on an annual basis, including annual anti - intrusion testing of their critical systems to address cyber risks. the importance of cyber risk has increased over the past