, a necessary condition is that its financial system must be deep and wide. and its financial institutions must function as intermediaries to allocate funds effectively and efficiently. in the past, asean relied on external source of funding, mainly from developed countries. at present, however, new polar source of funding has shifted towards asia as well as asean. having well - developed financial system would enable asean to better recycle its surplus capital among its members. for decades, asean has used its banking system to manage resource allocation. banking system worked fine in the past. however, in new and volatile financial environments, asean needs to have both strong banking system as well as well - developed capital and bond markets to better service consumers ’ and businesses ’ financing needs. having welldeveloped capital markets can allow financial risks in the economy to be spread out, shared, and more efficiently managed. and, the efficient allocation of financial resources would, in turn, allow asean to have better access to capital and for its goods and services to flow in greater quantity. at the centre of building strong asean finance is ensuring its continued systemic stability and ongoing market developments. in this regard, asean central banks have a clear role in safeguarding price stability and financial institutions stability. on price stability, let me just say that asean generally has a good track record of keeping inflation low. as for financial stability, the framework of policy has moved toward risk - based supervision, and to an adherence to international standards. indeed, many asean countries have significantly advanced efforts in implementing basel ii and fsap, which have fostered a stronger and more balanced financial system with greater transparency. maintaining financial stability also means that asean must be able to withstand the ebbs and flows of foreign capital. but, as small open economies, keeping balances over any length of time is easier said than done. for asean, avoiding capital account crises will become increasingly more important because the more asean trade with each other, the more closely linked our economies are. hence, the more contagion there will be, and the faster and wider will crises spread. fortunately, we have already seen a region - wide move toward a more flexible exchange rate regime, with a disciplined framework in the conduct of monetary and fiscal policies. financial policy becomes more flexible, yet proactive, in dealing with changes in the market conditions and practices. when necessary, a traditional fiscal - monetary policy mix has been augmented by appropriate prudential measures of financial institutions, especially to preem

the associated innovations. still, a number of issues are pending. customer privacy is the most salient one, but there are more challenges : on the demand side, on the supply side and with the regulators. the rest of my talk is organized along this triplet : demand, supply and regulation. i do not have definite answers to all pressing questions related to psd2. what i ’ ll try to do, is give you a concise impression of issues that need further attention in the near future. 2. psd2 and the demand side : consumers and retailers • let ’ s start with some basics. what is psd2? psd2 is the legal framework for retail payments in the european union. the radical new element of psd2 is attractive for some, and frightening for others. that is : a bank is obliged to give so - called service providers online access to the account of a customer … if – and only if – the customer consents. this is an important proviso. the service providers exist in two types : the ones that initiate payments and the ones that extract and exploit information from bank accounts. such data – on all kinds of transactions – contain commercial value. the collected information can also be redirected to the bank customer as a housekeeping book. both types of service providers will be regulated under psd2. • what is the intrinsic demand for innovative payment services? the novelty of psd2 is primarily concerned with payments connected with e - commerce. two facts. first, those payments are still a small portion of the market. right now, only 2 percent of total payments in the netherlands. second, there are already several ways to pay online : through credit cards, by paypal and, in the netherlands, through ideal. what else would you need to become a happy payer? i hasten to say that this question may be rather silly. the story goes that henry ford once sighed : “ if i had asked my customers what they wanted, they would have said … faster horses ”. paying online in the netherlands is quite easy, also compared to other countries. moreover, already next year, the ideal of 24 / 7 instant payments will be realized for mobile and internet payments. but judging from the excitement in the industry, plenty of new p2p applications are likely to be within reach. • what are retailers interested in, as for payment methods? reach, user convenience, conversion time and – last but not least –