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45 minutes

Digital Euro, Innovation & EU FinTech Developments with Inge Van Dijk from the Dutch National Bank

In the fifth episode of PaymentGenes’ “Voices in Payments” podcast series season 2, our host, Diederik Klopper is joined by Inge van Dijk, Director Payments & Market Infrastructure at the Dutch National Bank. This episode takes a deep look at the developments that are shaping the future of FinTech, including the digital euro and how the central bank is keeping up with the rapid developments in payments.

digital euro, innovation and fintech
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The mission of the Dutch National Bank (DNB) is to safeguard financial stability and thus contribute to sustainable prosperity in the Netherlands. To do so, they work alongside European partners to ensure price stability, a shock-resilient financial system, and ethical financial institutions that fulfil their obligations and commitments

In this episode we talk about:

  • How players in the FinTech ecosystem can best contribute to the DNB’s vision.
  • What the Digital Euro is and why it’s important
  • The potential conflict with DNB entering into the domain of commercial banks
  • How the DNB balances ensuring the trust of the financial system while stimulating innovation and competition with the major developments in the AI, Blockchain, Cloud and data
  • What we can learn of Asia’s innovation in FinTech
  • The state of financial inclusion in the Netherlands
  • The most promising developments in the market, and how both companies and consumers can benefit from them

If you are interested in learning more about the role Inge van Dijk or the DNB play in the mentioned topics, feel free to reach out to Inge van Dijk for a conversation.

About Inge van Dijk

Inge is a Managing Director with a track record in the banking and payments industry. She is skilled in interim management, business transformation, organisational change management, digitalisation, supervisory board, Instant Payments; Single Euro Payments Area (SEPA), complex stakeholder management and program management.

About PaymentGenes's "Voices In Payments" - The Future of Payments podcast:

The “Voices in Payments” Podcast, is an initiative launched by PaymentGenes to positively impact the payments community, by educating and connecting the market with vertical-specific industry expertise.

Growth by providing expertise-driven Recruitment, Contracting, Greenfield Consultancy. These services all resolve and intersect around payments. Learn more about how we can help your business here.

For those who prefer reading, we also have a written version of this episode.

How did you stumble into payments?

Quite some time ago, actually. I think it was, in the early nineties, I discovered at my first job that marketing, sales and the commercial part of the business was interesting for me. I then applied for a position and I ended up as a product manager at Europcar and somehow the passion for payments stuck to me and I never left. I've been in payments ever since then. 

Areas of responsibility as the Director of Payments & Market Infrastructure at the DNB

I can imagine that for some people it's sometimes a bit puzzling how things are organized, but in principle, the Dutch central bank is made up of several important tasks. One is of course the central bank part where we take care of monetary policy, financial stability, and also make sure that we perform payments and issue the bank notes that everybody uses. The other part is looking after all the vital financial institutions like banks and pension funds and payment companies and insurance companies. 

My responsibilities include policy for payments and policy for market infrastructure. We make sure that payments are happening safely and securely. With my department, I deploy and operate the eurosystem part for the Netherlands. So we support banks within the Netherlands, but also outside the Netherlands in terms of access to the Euro system. We do the policy bit. I also have a team that is responsible for preventing hacks and keeping our walls up to prevent cyber crimes. 

I also have another department that looks after the most critical payment systems that we have in the Netherlands and takes care that these are well functioning and follow the rules of the game but are also well equipped to make sure that everything is operating smoothly.

How working Dutch National Bank is like

It was certainly an interesting change because I went from MasterCard, the massive scheme and then to working for a FinTech and having my own company. Now being on the central bank side is quite different. What I found is that the DNB is a remarkable organization. You don't see much of it on the outside but being on the inside, I find so many passionate people who are really truly engaged in what they're doing and are highly knowledgeable. Of course now is a very interesting time to be in a central bank with Brexit and the pandemic in full effect. I find that people have been working around the clock like crazy to make sure that everything is up and running and that everything is well catered for. I'm also a bit in awe of all the colleagues and very honored to be working here. 

The Digital Euro - an initiative by the European Central Bank

It is one of the key topics at the moment I would say. Well I think the main consideration there is that the central banks aren't principally the guardian of the Euro. And so we provide currency that basically falls into two forms. On one hand, we issued bank notes. On the other hand, we transfer electronic deposits of very high value to banks and other financial institutions. They then use that towards the retail market. I would say that digitalization has spread to every corner especially as the pandemic has had a very strong influence on the cash use. We are seeing much more electronic transactions. It's really growing steeply, certainly in the Netherlands. I think that before the pandemic, we had roughly 30% of cash transactions. Today we are roughly around 20% of cash transactions. 

What makes the Digital Euro a promising initiative
We see that cash is becoming less common than digital payments. That's one of the things that we see people are embracing in digitalization and have been already for a long time. We deem it vital that the citizens of Europe in general have good access to a digital Euro payment. We see also many key players coming into play also from outside Europe. We think it's important that we ensure that alongside cash, there is a digital form of the bank note that becomes available to the general public. We're not sure whether this needs to be introduced, but all signs today are indicating that it is relevant to introduce something like that because the market is changing. 

The digital Euro as a project in exploration
Currently we are in an exploration phase to see, internally, what type of function that the digital Euro could play. We expect that something in terms of policy will come out from the ECB, together with us, of course, and we are heavily involved in the Netherlands. We expect more to follow up on this mid 2021.

The future of cash in a digital era

It's always difficult to say. From a historic angle,  when I was not with the central bank years ago they were already working for a long time on a policy to get rid of the “acceptgiro” and it's proven much more worthwhile and it's still there. So there's no policy to get rid of cash, But we do see that one cash is expensive on the one hand. So we need to look into that. My colleague is looking into that with a research that they're currently undertaking together with a party so that we see what is the cost of cash and how can we efficiently organize that. In view of the fact that we do believe that cash will still be relevant for absolutely the years to come. I think also that the dimension of cash, what Sweden has taught, it taught us that cash also serves a function. 

So we should be very careful of discarding cash too soon. I hear a lot of calls also these days and the pandemic of what was going up for merchants saying, okay, should we just please all accept only pin, but please keep in mind that are a lot of people out there also in the Netherlands who have cash and who rely on cash and don't have access to the banking system and we would exclude them. That's absolutely the wrong way to go. I think cash will be here to stay for some time, but we need to make sure that we have both, instruments available, both a cash instrument, as well as a digital form of cash, which is effectively what we're trying to establish with the digital Euro. 

Launching such a digital euro, that of course means working together with all the Euro countries, I can imagine as well, that many different countries have many different angles and wishes for such a digital currency. 

Digital Euro project alignment throughout Europe

I think it's quite aligned around Europe. There are nuances as you say, but I, I would phrase them as nuances because of course our cash use has dropped more significantly than from other countries, but other countries have experienced the same drop in cash. We all see that the market is changing. If you talk about the HCD players, they are entering every market. In terms of making sure that as Europe, we control the Euro and we control the digital Euro and make sure that continuity for our citizens is safeguarded. I think that's something where we come together. From that angle, I don't think that maybe some countries are front running and others are a bit lagging. I think that's always the case with every instrument that we adopt. So from a digital Europe perspective, we are very much united, and I don't think that there's going to be much discussion in terms of what we want to do with it. 

It's much more in terms of, where do you start first? What is the key topic when we need to start? And of course the European area may be quite different from the Chinese area or other players in the market. I think there is a difference, but I think in terms of where Europe is set today with SEPA and the instant payments and the retail payments strategy, we are quite like-minded. 

The DNB’s plans for dictating policies for companies operating in the ABCD of payments

In terms of keeping up, of course the policy department is heavily involved. We have our own that we have much more, I would say, technical people, internally, computer wizards, working om, artificial intelligence. We have a data science lab, across the Dutch central bank to accommodate these and we experiment ourselves. We also benefit from exchanging views with other countries. Certainly also in the bank of international settlements, we are making sure that we work together on this and also share the burden of work a bit because otherwise it's totally undoable. Many things are happening at the same time. On the other hand, Blockchain, we've been looking at this for quite some time now, and we know, I think what it is as yet capable of and what is at as yet less capable of, also, interesting time. It'd be in the trade area to see where that's going. On the one hand, in terms of keeping up having our own experts, but we also listen carefully to the consultants in the market and make use of that. That's also the same thing, no difference from what everybody else was doing, I would say. 

The DNB’s role in fighting cybercrimes

What we've done is a couple of years ago, we rolled out “Tiber” which is a threat intelligence based ethical red-teaming. Great great name, look it up! In principle, it boils down to the, that we organize hacks on our own system, from the Dutch central bank, we are facilitating this. We're very proud of that. Meanwhile the ECB has taken over this, approach and, or 11 countries in the Eurozone are now doing the same thing, with, central banks facilitating this and what we're organizing, isn't that, the vital parts of our infrastructure as banks, but also pension funds and insurance companies organize their own hacks. It's not that we organize it, but we facilitate the process and we facilitate the knowledge sharing in terms of what comes out of these acts. That we, as an environment, as a community are, most well-protected and best served and keep our costs off as best as we can. 

The DNB’s views on the rapid FinTech developments in Asia

I Van Dijk I think Asia for sure is a continent that has already been on the move for quite a number of years already. From my perspective, certainly many interesting things are happening out there. Maybe not limited to Asia, but I would say, maybe also beyond that, also in Australia, you see a lot of interesting things happening, but I think the main thing is that, continents were here too for, they're making a leapfrog pretty much. I compare it usually to, take our colleagues from France. They move from, the cheque or instantly to, the card with a, with the chip on it. And they did leap frog. I think that's what we see happening in Asia for the last, I would say five years or so, they are leapfrogging, they're opening up the countries. They have no, infrastructure distribution network with bank offices that we have in Europe. They are, using the new technologies in terms of reaching out to the customers. 

Also we have recently seen some governments worried, and they have tried to intervene because if we come a bit to be too vocal, a bit too dominant, and I think, so from that perspective, it's always good to have checks and balances, but I considered it from that perspective. There's a lot of potential and a lot of money and also, intelligence involved in that. So definitely something to watch out for. This is certainly an area where we see it happening. Of course, in Europe here, we have a lot of legacy already, had it very good, and then it's difficult to make even more progress and leapfrogging would be maybe going to the moon, but that's not what we’re going to do, but suddenly it becomes more difficult once you have the legacy in place. I think that's been the topic for certainly the Western part of Europe, but, I should not forget also, the East because I'm now giving them not much room. They have been growing immensely, certainly in Poland and Romania. And I'm very, I see many.

New payments initiatives in Romania and Bulgaria

I think from some perspective, because they also had to make a, quite a big jump and there's room to grow, and that's the best, fostering ground that you can have for innovation. Here we are heavily regulated, which makes it much more difficult. Don't, we can always look to Asia, but don't forget to look also to Eastern Europe,

Diederik: Perhaps personally, I've always been surprised with the dominance of QR codes in Asia. We've had it here for a short while and didn't really catch on that. It was away for a while, and now it's coming back with this place. Like they Connick for instance, but the sheer dominance there totally took me by surprise. 

The rollout of QR codes in Asia is surprisingly successful 

I was not convinced that this was going to catch on that, but that was a very personal opinion. I have to say. Because from my perspective, I thought it was too, we were already further, and in terms of internet of things or making sure that it's a much more integrated themed experience if you're looking at the commercial part of payments. I think, there, we've seen that sometimes, these things, and I think Yoko cure credit, meanwhile, proven its worth, very much also in the Dutch market, that, whenever there's real ease of use for the customer, it will typically catch on. If you keep your fees good in place, then this is something that's going to happen. It's always the combination of finding the added value for the customer and the technology that enables it. And some things are still too difficult. 

I was very much convinced that in the things that was going to happen sooner, but that seems to take more time. That's certainly something that I'm going to keep an eye out in terms of technology. Of course the whole way that the market's going to evolve in terms of, existing players with banks, new players, the big techs have been here for a long time already. How they come into play in combination with fintechs, how this is going to change the payment landscape. It is going to change the payment landscape. We all know that no, but nobody has the crystal ball in terms of what it's going to head. One thing that we tried to do from our perspective, make sure that the level playing field is safeguarded, that we all play by the same rules and that nobody has, the benefit of the first advantages or the legacy of benefit or whatever benefit to that we have, a market that is equal and that everybody has the same chances. 

The DNB’s contribution to creating a seamless, digital customer experience

I think it's something that we are looking closely into a first, let's see how the market developed. There are many ways to roam in this respect in terms of internet of things. The key thing is that you will lift on the existing, infrastructure and that you make it as seamless for the customer as possible. I think indeed, if you let a thing pay that is somehow mandated by you, that you say, yes, maybe this thing can pay for me whether this is, I do a car wash, a simple car, which could be the trick. I think the fridge ordering food is a really interesting one, but I don't see that happening sometime soon. I think that the car wash is quite easier there or a painful toll. When do you go to, when I drive to France, for example, these days we do that with a direct debit. 

That could be something. When you have a token on your window shield or something, these things I think can, that can make happen, can go quicker, but there are many instruments already out there that can make use of whether this requires that we reconsider, attaching bank accounts is another thing we can do that also with tokenization. Let's just wait and see what the market comes up with and whether we need to somehow to facilitate that any further, I try to stay away from, going into technical in terms of describing what you cannot do, as long as continuity, privacy, security, those things are saved. God that's what we're trying to do for the rest. We try to let the markets develop on its own, I think are quite good at that. 

How merchants are dealing with the fast developments in digital services

Maybe it's a much more question for the markets. I think to a certain extent, I think that the public has already welcomed them. It's a fact of life I would say. For sure, I think you also read the newspapers, from European perspective where keenly trying to, I, that the privacy of consumers has said the audited, the seasons in Europe, where these companies are not from Europe, to make sure that, we played by the European rules, and that we can save GABA. I think that's something that the public, the citizens and consumers can expect from us in terms from a retail and how the market should respond to that, interesting times. I think what we've also seen, at some point in time, these big texts, small fintechs, so there also would there always be other companies that pop up and that find a nice niche or a nice area to set up the business and go about it. I think it's already there and we need to make sure that we, organize it well. Of course also the central bank has a role to play in that aspect. 

The market’s role in including more people in the financial system.

On digitalization, our focus is very much on privacy and security and making sure that the consumer protection is safeguarded, here, it's maybe a much bigger role for central banks to play in terms of making sure that everybody is included in the system. You might think that in the Netherlands, we don't have that problem so much, but we do very heavily. I think there are a million people in the Netherlands alone who are having different difficulties with digitalization. 

We need to keep a very good eye out for them. That's certainly going to be key topics. Not just migrant workers coming in from other countries to the Netherlands, but certainly also just those people who are, who have difficulties to catch up and they don't need to be old age either. They usually are also, quite younger. From that perspective, inclusion is a key topic for me to be working on and something also where I think we can do much more ourselves in terms of, keeping an eye out for them that then translate back also to the use of cash.

How fintech platforms and banks can ensure those who struggle with digitization are not excluded

I think that's one of the key things that we're going to see that things are changing. We see them changing, and we need to make sure that, people can have access. Maybe also the digital Euro can play a part in that we're offering a basic bank account. That could be something in terms of making sure that people are included. Again, we certainly don't want to, we, let's you say, we certainly want to do that in combination in a cooperation also with the marketplace, because in terms of, front end systems, they are most well equipped in terms of delivering an access in the public. 

The trajectory for the digital Euro going forward

That's difficult to state at this point in time. I think we first need to look at what the experiments internally have brought us. We also are looking at the design, in terms of what are now the key features in terms of how we should do this, or we're still in a stakeholder consultation. I think that the deadline, by the way, if somebody is listening, you still have time. The deadline is today, I think from PCB to get input on the survey. It's going to be difficult, how this is going to, develop. We first need to, bring our thoughts together, make sure that we align well with also the market and the stakeholders. That brings us to an idea of terms of whether there's a need to introduce it now or later at what time it's highly likely that we will, continue on the journey. 

There's much effort from ECB and whole, your system in order to develop this. I would say it's rather a question of when we are going to do this, rather than if we are going to do this, and the pressure to make sure it's also very dependent on how the market reacts and what the actual need is in terms of stability, in terms of digitalization and inclusion and the cash development. A number of things are coming together, so that will determine the rate, but, also from an instant payments, famous ECB is very well equipped with, for CB to develop quite, quickly enough, a new system. From that perspective, I think in a few years time, we certainly will see something like the digital new world coming along, but it's too soon to tell what, so, let's just first do the exploration phase. 

You have to have a very careful growth model in terms of benefiting maximum cooperation between the marketplace and the central banks, not inventing the wheel ourselves and really looking for what is it that we actually need. Because if you look at the report, we've had several scenarios and some of them are much more, maybe I will say, at the forefront of what we need to solve. Whereas some are less at the forefront. If we have good instant payments railways, and we have a nice QR code, and we put that on top of it whenever then somebody is in a supermarket and the system falls out and you can use that in terms of the fallback. And then I don't need cash. I don't need a digital Euro as a fallback for that. Why would we need to, but that's the Dutch situation and it's different from other countries. 

My perspective, it's much more on the inclusion part and make sure that we have something alongside the cash, but we have to make sure that it comes together from a European side. Let's see how this plays out, but it's going to be interesting. That's for sure. 

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