erkki liikanen : enhancing reliability and efficiency of future payments – five criteria speech by mr erkki liikanen, governor of the bank of finland, at the european central bank / bank of finland retail payment conference, helsinki, 4 june 2015. * 1. * * introduction traditionally retail payments were made only by notes and coins. cash - based payment process required a great deal of physical money transfers. the payment system was inefficient compared to what it is today. today we use more and more debit and credit cards to pay for shopping and online banking services to pay the bills. the efficiency of the system has increased, but still, it is not exploiting the full potential of digitalization. digitalization will shape the future payment landscape. but it is not necessarily the banks and other established financial institutions that will dominate this future. they are being challenged by new entrants and large established companies from non - financial industries. in finland, we remember how nokia became the biggest in mobile phones after it had challenged incumbents in the industry, such as motorola, ericsson, siemens and others. but nokia itself was challenged by new entrants : android from google and iphone from apple. therefore, the next big change in the payment industry may be more than just an evolution – maybe even a revolution. 1 what is the role of central banks in the development of the future payment methods? innovation and new development should naturally come from the private sector. but at the same time, retail payment systems are essential to efficient functioning of the economy. when we take into account the social costs related to payment systems, 2 central banks can have an important role as a catalyst to facilitate the socially best possible development. this is our task. 3 2. the five criteria for a payment system and the role of central banks we at the bank of finland have defined five criteria which should serve as guiding principles when assessing the present payment systems and the future developments. there criteria are : 1 ) technical efficiency, 2 ) accessibility and non - discrimination, 3 ) efficient and cost - based pricing, 4 ) operational stability with contingency plans in case of problems, and 5 ) international compatibility. this issue was briefly discussed in the final report of ec conference titled “ emerging challenges in retail finance and consumer policy ”, 18. 11. 2014, brussels. this document can be found here : http : / / ec. europa. eu / internal _ market / conferences / 2014 / 1118 -

of payment methods has evolved slowly over time. but digitalization and the emergence of new actors in the field of future payment methods are something new, not seen in the past. so far the speed of change has been overestimated. but we must remember that in the short run we often overestimate the change but underestimate it in the long run. this has happened with many technological breakthroughs. conclusions to conclude, i would like to emphasize that even in the future, the five criteria for a payment system remain essential. in other words, technical efficiency, accessibility and nondiscrimination, efficient and cost - based pricing, operational stability with contingency plans in case of problems, and international compatibility are still important for developing new payment systems. the key challenge for developers is how to solve the trilemma between usability, costs and security of a payment method. the competitors in this future payment race are likely to come from different directions and their solutions can be very different. since payment methods are part of payment networks, no payment service is isolated from the real world and other financial transactions. the competition - cooperation nexus needs to be taken into account to enable faster adaptation of innovative solutions without compromising security, but also to maintain and foster competition between providers of such payment services. the end - user benefit and transparency are the key points here. authorities need to be able to monitor the development and usage of new payment services, keeping in mind the proportionality principle. this means that it is not in the interest of authorities to suppress innovation ; new entrants should have a fair chance to be able to enter into the market. nevertheless, safety of the payments must be ensured in all cases. in a speech titled “ euro banknotes – a means of payment recognised worldwide ”, yves mersch, member of the executive board of the ecb, highlighted some of the problems associated with bitcoin. this speech can be found here : https : / / www. ecb. europa. eu / press / key / date / 2014 / html / sp140519. en. htm. bis central bankers ’ speeches the economics of payment networks are highly complex, so there is a need for continued research in the field. academic papers and discussion in this conference have shed light on many important aspects that should be taken into account in relation to future payments. conferences such as this are a welcome sign that the necessary exchange of information and views is going forward. authorities,