pentti hakkarainen : banks and payment services in finland speech by mr pentti hakkarainen, deputy governor of the bank of finland, at the nets holding a / s management, helsinki, 19 september 2013. * * * accompanying slides can be found on the bank of finland website. i ’ m glad to have this opportunity to share with you some of my views about the main trends and challenges for banks and payment services. i will also talk about finland, but mainly as an example. the trends and challenges present everywhere have been clearly visible in our small and open market. challenging environment of retail banking retail banking is originally about deposit taking, lending to households and companies, and providing payment services. since 1990s the financial sector expanded. retail banks got involved with new services such as wealth management, funds, brokerage and even corporate finance. there was convergence of insurance and banking products and financial conglomerates were born. banks did not only expand their customer services but also became active players in the financial markets for their own account. basic banking services like payment services were automated, and brought to new channels. some trends, however, were missed. as an example, many banks did not respond sufficiently to emerging needs of internet payments that would support online shopping, or mobile or real time payments. in the digital environment, payment innovation was left to new non - bank institutions to a large extent. after the recent financial crisis, we have seen a new interest in basic retail banking. the industry is also seeking cost efficiencies from all functions. this reminds me of developments in the finnish banking sector in 1990s. finnish banks had invested heavily in information technology during 1970s and 80s, when the regulations of the time directed competition to service and quality enhancements. only when a severe banking crisis hit the finnish banking industry in early 1990s, banks had to make full use of their technological capabilities. electronic payments were promoted heavily with customer education and price incentives. this has paid off, and finns currently use electronic payments predominantly. during the following 5 years, recovering from the crisis, banks more than halved their work force from 55, 000 persons to about 25, 000 when at the same time banking activities and volumes were expanding. currently, finnish banks have managed the turbulent times relatively well. the european banking sector faces much the same challenges as the finnish banks during 1990s. in order to recover and to comply with the forthcoming regulations, banks need to seek cost efficiency. payment processing is traditionally seen as investment intense

does not mean that people suddenly lose their capabilities. in the future, we see more active and demanding aging population requiring services online as they have used to get them during working life. with experience these people may be more risk sensitive and they are able to demonstrate their needs, but they are no way hindering services development, rather the contrary. it goes without saying that the younger population considers the internet and mobile services as selfevident. people today are used to being online all the time and they are used to travelling according to their wishes. in my youth, a trip from helsinki to stockholm was special, nowadays young people choose where they want to travel or study globally, and people have summer cottages in thailand. in these circumstances it is very difficult to justify why payments need excessive bureaucracy or time. international payment card companies have succeeded to create a global acceptance network benefiting the card users, though authorities in several jurisdictions have pointed out problems in their fee structures. the single euro payments area, sepa, harmonizes european payments : payment services directive harmonises the rights and liabilities of payment service providers and their customers and sepa standards harmonise the technical environment of payments. the migration to sepa may be a burden, but in the long run, it is a source of efficiency and should be seen in that light. bank of finland approach to payment services bank of finland has a longstanding view that the role of central banks should remain rather limited in retail payment systems. central banks as overseers and regulators should promote competition friendly environment for retail banking and payment services as well as ensure that the systems are safe, reliable and efficient to the society as a whole. central banks can act as catalysts for change and improvements. however, retail payment related services should not be provided by central banks as this may distort the competitive environment. bis central bankers ’ speeches we have pointed out and expressed five principles against which we evaluate the development of payment services. firstly, we wish to promote technical efficiency making payments cheaper, faster and more secure. technology is not a goal itself but a tool. often in adopting new technologies in network industries we face the chicken and egg problem : when is the market ripe for new technologies and when the technologies are ripe to benefit the industry and its customers. sometimes here, the central bank ’ s catalyst role may be needed. the second principle for payment services is non - discrimination. there are people who may have limited capabilities to use internet or mobile services. strive for efficiency must