The accelerated adoption of digital channels, electronic payments, and remote working all represent trends that pre-existed the coronavirus. To a large degree they are here to stay. The post-COVID-19 economy will therefore be more digital than ever, and Europe will need suitable public policies that stimulate innovation and help the economy recover.
Spanish experts debated these topics and more — such as the European Digital Single Market and the regulation of data and crypto assets — in a session organized by the European Commission. The session was brought to a close by the Secretary General of the Spanish Treasury, Carlos San Basilio, who stressed the need for finding a balance between the benefits and risks of digitization, for both the finance industry and the economy as a whole. San Basilio also underscored the importance of making continued progress towards a true Digital Single Market within the European Union.
According to Pablo Urbiola, Head of Digital Regulation at BBVA, “the experience of the last few months leaves us with a lot of useful lessons that can be used to map out the future of Europe’s digital finance strategy.” First, it has underscored the essential role of banks in alleviating financial stress and providing funding, even in the most extraordinary of times. In addition, it has clearly shown the enormous value of data — regardless of the kind of activity or sector where it originates — and how new technologies allow us to use this data in a way that is user-centric and consistent with European values. Furthermore, changes to maximum limits for contactless payments demonstrated the importance of flexible regulatory frameworks, based on principles that cater for change and innovation. All the while, the efficiency and flexibility of cloud computing sustained our exponential reliance on digital processes.
Urbiola also stressed that “as we and our economic activity rush towards a digital world, we must all do what we can to prevent vulnerable segments of society, those who lack digital skills and/or access to resources, from falling through the cracks.” Within this context, it is important to bear in mind that digital inclusion is the basis for all types of inclusion: educational, social, economic, and financial.
A decisive impetus for the Digital Single Market in the EU?
Digital technologies make the remote delivery of financial services possible. They are, therefore, a powerful tool for improving the European Common Market. To ensure that the landscape continues to be open and competitive, BBVA believes that policies need to be defined on three fronts: i) data – extend the principles behind PSD2 and open banking to all of the sectors of the economy; ii) guarantee fair access to the digital platforms and technical infrastructure necessary for the delivery of financial services; iii) seek a more proportional application of prudential regulation and supervision in such a way that banks can compete on equal footing, in non-financial intermediation activities, with companies that are subject to only limited regulation.
Greater regulatory harmonization should also go hand-in-hand with the borderless nature of technology. Although steps have been taken in the right direction, Pablo Urbiola points out that there is still fragmentation within Europe, resulting from the different approaches member states take in adopting EU directives, as well as divergent supervisory practices.
Digital technologies also lower the barriers to new competitive entrants, which are generally focused on specific aspects of the financial services value chain. Urbiola explains that this has produced greater innovation and driven banks to more actively embrace change. Regulators have responded to these market changes with new activity-specific frameworks (for crowdfunding, for example), which provides regulatory certainty and facilitates innovation.
Nonetheless, we are now witnessing how the big technology companies are also entering the financial services space, integrating financial services within their digital ecosystems. These companies benefit from key competitive advantages such as access to huge amounts of data from different products and services that allow them to further enhance and develop their services.
“This means that they have the potential to significantly alter the structure of the financial services market,” Urbiola explains. This is something about which International organizations, such as the Financial Stability Board, have raised warnings.
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