Sibos 2016: central banks must innovate to stay relevant
If central banks want to retain a large share of payments in central bank money, they must innovate, said Andrew Hauser, executive director for banking, payments and financial resilience, Bank of England (BOE).
Speaking during the Towards a single platform for all payments session, he said BOE consultation on a refresh of its real time gross settlement (RTGS) system suggested that users would migrate to other platforms if the Bank failed to innovate. He said this phenomenon is referred to as the ‘Uberisation of central banks’. Uber is a mobile app that enables smartphone users to submit trip requests and automatically sends the driver nearest to the consumer. It has been much used in Geneva this week by Sibos delegates keen to avoid the high charges of the standard taxi service.
“We have to be very alert to this. If we don’t innovate we could impede innovation elsewhere,” he said. “Innovation can help to improve financial stability – how stable are ancient legacy systems? The more robust and modern systems that can be delivered by innovation will be good for stability.”
Any new RTGS system will have to take into account changing technologies and adopt those that are mature enough, he added.
Fellow panellist Marc Bayle de Jessé, director general, directorate general market infrastructure and payments at the European Central Bank (ECB) agreed. “As a central bank we must remember that our role is to provide a resilient and safe infrastructure that supports the development of our economies. We favour innovation in our economies and we need to make our economies welcoming environments for new, innovative technologies.”
A significant challenge when innovating, and with IT in general, is maintaining availability, said Miguel Díaz Díaz, director of payment systems at Banco de México. Availability is particularly important for Mexico, because most payments run along a single RTGS pipe. “A single platform gives efficiency of payments flows but there are also very important risks,” he said. “If there is a problem with the pipe, there is a problem with all economic activity in Mexico.”
For this reason, the bank had to be particularly aware of cyber threats (a ubiquitous theme at Sibos) because “when you allow everything to pass through the same tube, it becomes very important to defend against attacks.” He added that a system is only as strong as its weakest link and therefore the bank not only makes sure that its defences against cyber attack are strong, but also that all participants in the payments system have adequate defences.
BOE’s Hauser introduced delegates to the concept of the ‘chaos monkey’, developed by Netflix. Chaos Monkey is a software tool that was developed by Netflix engineers to test the resiliency and recoverability of their Amazon Web Services. He said the tool helped to ensure that software was written to be very fault tolerant as the Chaos Monkey randomly goes through systems turning off switches at random.
A year ago at Sibos, said Hauser, panellists spoke about new infrastructures and the positive aspects of new technology. The focus this year, he said, was more about the potential threats those innovative technologies pose.