Speech by Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB,
Closing remarks for the ECB colloquium “European integration and stability” in honour of Gertrude Tumpel-Gugerell,
Frankfurt am Main
It was over 12 hundred years ago here in Frankfurt, where Charlemagne (Charles the Great) introduced a wide reform of the coin system. At the great synod in Frankfurt in 794, he not only harmonized the coins with respect to weight, size and design, he also decided that the new coins would be commonly introduced and accepted, making the “Carolingian Denar” the common currency and means of payment on both sides of the Rhine.
An impressive example of early stage financial and monetary integration, which shows that such integration has been preoccupation throughout history.
This afternoon’s discussion centred around financial integration and stability, the challenges of this relationship and the broader link to overall European integration.
Central banks – also the ECB – have always set out the great benefits of financial integration. For very good reasons – I think:
An integrated financial market is the basis for a smooth and equal transmission of monetary policy, it increases the efficiency and overall welfare of the economy, and enhances the resilience of the financial system from risk diversification.
We have promoted the integration of the euro area’s financial market with concrete action – particularly in the area of payments systems and market infrastructures, in which I had the pleasure to work on for the past 8 years.
For example, we created an integrated real time large value payment system, TARGET, which today is the first market infrastructure to be completely integrated and harmonized at the European level. [This has been instrumental to the integration of money markets and wholesale banking activities in Europe.] We have also supported very much the creation of the Single Euro Payments Area (SEPA) in the area of retail payments and have decided to setup a fully harmonized platform for securities settlements, T2S.
But despite our commitment and our support for financial integration, we also had to learn – with the experience of the past 4 years in mind – that financial integration and financial stability do not always go hand in hand. Indeed we have witnessed that in a financially integrated market risks can spread and spillover to other segments of the financial market, increasing the likelihood of contagion of financial fragilities and systemic risks.
So has this recent experience changed our view about the benefits of financial integration? Not at all!
It is true that the cause of the financial crisis has many dimensions – which we still need to study carefully. But a key issue has been loose regulation and supervision, opaqueness of financial products and practices, massive mispricing of risk and a distorted allocation of resources.
In my view, financial integration remains not only a fact and necessity of today’s financial markets, but an irreversible process, a process that we do not wish to reverse.
Instead, we need a more resilient financial sector!
For this, we need financial integration and sound policies guarding our markets. Only with appropriate policies, the benefits of financial integration can outweigh its potential risks.
First and foremost, we need to strengthen financial market regulation and supervision. And when I say strengthen, I do not only mean stricter rules, greater buffers and better risk management, but also:
• that regulation and supervision is uniformly applied.
• that banks’ business models and corporate governance become more sustainable[, internalizing the costs of their risk taking and potential failure]
• that financial market activities become more transparent with respect to financial innovations, practices and risk assessments
• and that the soundness of the system as a whole has to be ensured.
The systemic dimension of financial market actors’ – but also governments’ – actions was not sufficiently recognized before the crisis. Traditional banking supervision was designed to look at individual institutions’ risks in isolation. Today, we know better.
And a lot of progress has been made in this regard. In Europe, we have established the European Systemic Risk Board (ESRB) and three pan European supervisory authorities. And similar institutions were setup across the Atlantic in the US.
I often hear and I am often asked: Is it because we have the euro?
We cannot make our common currency responsible for issues caused by market failure, lack of regulation and supervision and undisciplined fiscal expenditure.
I am convinced that maintaining price stability is the best contribution a central bank can make for macroeconomic, but also financial stability. However, we also have seen that price stability may be a necessary condition for financial stability but not a sufficient one.
Moreover, we have seen that the materialization of systemic risk and financial instabilities can lead to deep recessions with great economic costs, carrying risks for medium term price stability as well.
Does this mean that monetary policy should be used to preserve financial stability? Not primarily!
We should not violate the Tinbergen principle: a separate policy instrument for every policy objective.
The first best policy for preserving financial stability and specifically to prevent systemic risks from materializing is macroprudential supervision.
Of course, we cannot judge yet, the success and the effectiveness of the newly established macroprudential supervisors – here in Europe and across the Atlantic in the US. But, I am convinced that if we are wary on financial innovations, potential activities shifting to unregulated markets segments or entities and we are mastering the analytical challenge of measuring systemic risk, this undertaking will be a very successful one.
I have started my central banking career in the 70ies when the fight against inflation and macroeconomic instability was a big challenge. From this period I have kept my conviction that you have to lean against the wind.
So, I believe, that we as monetary policy makers should not shy away from our responsibility to contribute to preserving financial stability.
Having said that, I believe that we at the ECB are well prepared for this task.
First, with our medium term orientation on price stability, we have the framework to take into account in a systematic way more medium term developments and potential imbalances occurring at that horizon.
Second, our two-pillar monetary policy strategy foresees that we not only take into account economic but also money and credit developments when setting interest rates. Such money and credit development can help to identify financial market imbalances and unsustainable credit and asset price developments and can serve as early warning indicator for financial fragilities.
And third, we have a framework to implement monetary policy in a flexible way, allowing that we can react swiftly when fragilities occur.
Still, we should be modest as well. It is true that before the crisis, we have seen signs of imbalances – imbalances at the global level and imbalances in local markets in the euro area and we have warned that correction could take place in an abrupt manner. But it is also true that nobody – also not at the ECB – has seen such a severe and deep crisis coming.
Therefore, we also learned our lessons:
• that the financial sector is absolutely crucial, for macroeconomic outcomes and monetary policy transmission. This link we still have to better research.
• that public policies at international, but also national level are all intertwined. National policies – macroeconomic and fiscal policies – can have a systemic effect on the whole euro area. It took this crisis to really understand this. And the euro countries need to prove now that it can work, that we can make policies consistent and can recover trust and confidence.
• The euro countries took the necessary steps to pave the way put of the crisis. As a central bank we have made our contribution to overcome the deep recession we experienced only 2 years ago, contributing to bring back trust and confidence.
Now it’s time to address new challenges:
First, governments have to work on regaining confidence, putting the necessary reforms in place
Second, the regulatory reform which is on its way has to be fully implemented
And third, the unwinding of our non-standard monetary policy measures has to go forward as financial conditions improve, not least to prevent moral hazard and delay in the needed financial sector restructuring
We should not forget that the European Monetary Union came a long way. The Werner report 40 years ago, the establishment of the European Monetary System 30 years ago, the Delors report 20 years ago and finally the the establishment of the European monetary union a bit more that 10 years ago. We must not undermine this great achievement. The serious currency turmoil and fluctuations in the 50 years preceding the European Monetary Union, notably the exchange rate shocks in the 1980s and the crisis at the beginning of the 90s should be a reminder how precious the current achievement of a monetary union is.
Like with financial integration, I believe that the European Monetary Union and more integration and consistency of public policies on a European level is a fact, a necessity and an irreversible process. What we need to ensure are sound and sustainable policies for an ongoing success.
Copyright © for the entire content : European Central Bank, Frankfurt am Main, Germany.
Digital collaboration: Shaping the Future of Finance
By Ryan Lester, Senior Director of Customer Experience Technologies at LogMeIn
With heightened economic uncertainty and increased customer expectation becoming the norm in the banking industry, it is understandable that the sector is struggling to keep afloat. Due to its precarious nature, banking institutions are trying their best to ensure they remain relevant in the competitive landscape and guarantee that their customers continue to be a priority.
When it comes to the first half of this year, the pandemic has shown how easy it is for industries to fail. Customers and companies alike had to get used to the new normal, as physical locations started to close. The banking industry felt this first hand, as banks were made to restructure how their business ran, with restricted opening hours and a wider push to motivate people to use online banking.
While some had already embraced digital options prior to the pandemic, this proved to be a stark contrast to the elderly population, who frequently visited branches to access their finances. Moving forward, banks have to adopt new methods to ensure customers get the most out of our their accounts, without their experience suffering.
Heightened Customer Expectations
When the pandemic reached its peak, people were encouraged to use online banking, as telephone contact was under strain with long waiting times and pressure mounting on contact centre agents. According to Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, there was a 200% jump in new mobile banking registrations in early April, while mobile banking traffic rose 85%.
With branches remaining closed, customers were continuously being urged to limit the amount of calls they made to the most urgent cases and consider whether they could solve their answers through mobile online banking or checking the company website. Although already being adopted in pockets of the industry, this was a real catalyst that spurred banks to up their game on digital channels and with self-service tools.
Banks are challenged with precariously balancing customer needs with the cost of personalised support. With the demographic of customers changing over the last few years, customers are becoming increasingly younger and more comfortable with technology. Influenced by the “Amazon Effect”, their expectations have raised to an all-time high, placing record strain on the sector
Customer experience isn’t just about support anymore, it’s about serving your customer at every point in the journey. Companies have an opportunity to elevate the experience they provide by moving beyond one-and-done interactions to create continuous engagements with their customers. It is starting to become a primary competitive differentiator in the market and one that doesn’t have a lot of variation. Deploying AI chatbot technology will be able to strategically help banks improve customer experience and raise the level of support that agents provide.
Digital collaboration: Working around the Clock
The benefits of adopting digital channels and self-service tools are second to none. By implementing chatbots, fuelled by conversational AI, banks will be able to help serve a wide range of customer queries and ensure they are protected from fraud and scams.
Conversational AI is exactly what it sounds like: a computer programme that engages in a conversation with a human. When it comes to service delivery, conversational AI can be deployed across multiple channels to engage with customers in ways that effectively address evolving customer needs. At a time defined by COVID-19, self-service tools such a conversational chatbots can work around the clock to solve customer queries in a concise and timely way. Of course, self-service tools won’t completely replace human agents in the banking industry, but they will help companies re-distribute customer traffic and workflows in ways that enhance customer experience. Self-service tools fuelled by conversational AI can also improve employee experience because service employees can handle fewer, but higher-level service tasks that chatbots might escalate to them.
Adopting new tools to help facilitate consistent and concise answers and help maintain customer experience is on the forefront of many industry minds. Banks such as the Natwest Group have seen this first-hand and are testament to the benefits that a good digital experience can provide. Simon Johnson, Capability Consultant, Digital at NatWest Group highlights NatWest’s use of digital tools during lockdown, “Over the last few months, we’ve learnt how to use digital tools to help our employees remotely. From a banking perspective, there have been a lot of changes including base rates, waive fees and the best ways of contacting our vulnerable customers, ensuring we keep them protected from frauds and scams.
“By introducing our Bold360 chatbot interface, Ella, we’ve been able to get relevant information out quickly, apply the best practice and ensure that our customer journeys are being developed correctly. Due to the volume of questions, some of our customers were finding themselves waiting longer than usual. So digital channels become essential to helping reduce the wait time. Using Bold360, we were able to mitigate issues and answer questions in a more timely way through our chatbot.
“Moving forward, as we open more digital services, we are analysing our data to see if customer will return back to their usual way of banking, now that they’ve seen what a good digital experience can provide. Either way, with Ella, we are ready.”
Chatbots and Humans: The Best Option for Customer Service
Over the last year, banking institutions have recognised the power that digital collaboration can have to their success. Delivering exceptional customer service and support is key for any business wanting to stay competitive in today’s market and banks are especially challenged with precariously balancing customer needs with the cost of personalised support. Leveraging the right technology, such as AI-powered chatbots, will enable the banking industry to provide better support and a more robust customer experience in the long term. Other institutions must follow suit, or risk becoming obsolete.
A sleeping digital giant wakes? 4 key trends accelerating payments transformation in the US
By Lauren Jones, International Payments Ambassador, Icon Solutions
The US payments industry is undoubtedly ripe for change. Before the unprecedented shock of COVID-19, digitization and payments transformation initiatives had been organic, piecemeal and predominately the preserve of the largest banks.
Now, increasing pressure means that financial institutions of all sizes are working to define a digital strategy to unlock new opportunities, drive business value, and stay competitive. But beyond the immediate impact of COVID, what underlying trends are accelerating digitization in the US?
- Real-time payments – the stimulus for change
Real-time payments have been met with a degree of caution by US financial institutions. Risking traditional profit generators in return for potential revenues down the line is a gamble many have not been willing to take. But immediate payments are coming to the US whether banks like it or not.
Major payments infrastructure providers, including NACHA and The Clearing House (TCH), have moved to encourage immediate payment adoption in recent years. But the Fed, frustrated with a slow rate of progress, has announced that it is pressing ahead with the implementation of its FedNow system (despite significant industry objection). Although the Fed’s true intentions are open to interpretation and this may just be a play to accelerate private initiatives, it is a clear signal that they mean business.
This means holdouts risk their own ‘Kodak’ moment if they miss the huge opportunities in front of them by fixating on traditional revenue streams. Banks are in a position to support innovation across entire industries such as healthcare, which could be released from the constraints of paper-based bureaucracy and slow, expensive transactions.
Another opportunity that can be unlocked via instant payments is ISO 20022 (used in the TCH RTP system). It is the future of payments messaging standards and can greatly enhance various payments processes through increased data-carrying capabilities. More importantly given the current climate, citizens reliant on federal or state support can benefit from RTPs combined with additional data to immediately access emergency funds.
- The kids are growing up
The US is getting older. Consumers who were 10 when the iPhone first launched are now 23. This means we are seeing a ramp-up of digitally native Gen Z consumers (roughly those born between 1995 and 2010) accessing banking services.
Demographics are an inexact science and not perfect predictors (there are technophobe college students and 100-year-old Instagram influencers), but we can detect noticeable trends.
Younger customers don’t usually choose a bank because there is an ATM in their neighbourhood, a slightly better interest rate or an advert in the newspaper. Rather, a strong digital presence, personalised tools, rewards and experiences, and the trusted recommendations of friends and family, will have a more significant impact on customer acquisition.
Banks must look at the effect this will have on their longer-term digitalization strategy and be able to segment what this emerging customer base might want and how they will interact in years to come.
- Checkmate? Evolving corporate requirements
Corporate treasurers are people and their experience of seamless, immediate payments in their personal lives shapes expectations in the workplace. Although check usage for business-to-business (B2B) transactions is still the norm in the US and barriers remain, corporates are increasingly demanding the ability to transact in a real-time, omnichannel environment, 24×7.
The benefits are clear. Corporate treasurers stand to enjoy enhanced liquidity management and transparency, greater control over payments and enhanced data for reconciliation purposes. And for consumers, alternative digital payment options such as buy now pay later promote choice and flexibility.
- Increasing competition
A significant consequence of emerging consumer and business demand for digital offerings is the increase in competition from fintechs, technology giants and other third-parties. Traditionally, incumbent banks have enjoyed the advantage of consumer trust to offset more limited innovation. But as consumers become more comfortable entrusting their financial transactions to non-banks, banks must differentiate and digitize to remain competitive.
Data is where the technology giants excel, and their ability to personalise experiences and emotionally connect with their users is unprecedented. Banks need to learn from the positive aspects of this model to better understand their users and deliver meaningful, useful products and services.
For data to become the cornerstone of a banks’ customer relationship and take services to the next level, breaking the channel silos and extracting value from a comprehensive dataset will be decisive. But with only 18% of banks reporting that they are in the process of shifting from a transactional revenue model to a data-driven revenue model, this work has some way to go.
Taking customer propositions to the next level
Customers now expect services that work for them, not their banks. All banks, no matter the footprint, need to move quickly to offer a broad digital service platform that adds value to both the customer and the bank.
By defining a robust payments transformation strategy, banks of all sizes can remain fiercely competitive by rapidly lowering costs, unlocking revenues and promoting innovation
Return to Work Doesn’t Mean Business as Usual When it Comes to Travel and Expense
By Rob Harrison, MD UK & Ireland, SAP Concur
The last few months have been an exercise in adaptability for businesses across the UK. With the sudden mandate to work from home, company processes that were ingrained in employees’ day-to-day routines were either put on hold or turned upside down. The new office normal now includes virtual meetings, conversing through instant messaging instead of in the hallway, and the redefining of “business casual” attire.
Many of the processes that have undergone changes fall into the category of travel and expense. With most business travel on hold and the nature of expenses changing, finance managers have had to adjust policies and practices to accommodate the new world of work. Recent SAP Concur research found that 72% of businesses have seen changes in the levels and types of expenses submitted, but only 24% have changed their policies to support this. Examples of travel and expense related changes that were made at the beginning of work from home mandates include:
- A halt to business travel and its associated expenses.
- Temporarily ending expensed meals for business lunches, dinners, or in-office meetings.
- Increase in office expenses like monitors and chairs as employees furnish their home offices.
- New expenses to consider like Internet and cell phone bills for employees who must work from home.
Now, as companies begin thinking about return to work plans, finance managers are discovering it’s not simply business as usual again. SAP Concur research found that many expect finance will return to normal quicker than general workplace practices, but vast majority see the process taking up to 12 months. New policies and processes need to be put in place to accommodate travel restrictions and changes in expenses. While finance managers need to stay flexible as the business environment continues to evolve, spend control and compliance should still be a high priority.
Here are a few questions that can help finance managers prepare for return to work while keeping control and compliance top of mind:
- What will travel look like for the company? Finance managers must work with travel and HR counterparts to determine the need for employee travel, if at all, and how to keep employees safe. At SAP Concur, we surveyed 500 UK business travellers and found that health and safety is now seen as more than twice as important than their business goals being met on trips (34% versus 16%. Clear guidelines should be developed, even if they are temporary or evolving, so it’s clear who can travel, when they can travel, and how they can travel. Duty of care plans should also be re-evaluated and businesses should ensure they know at all times where employees are traveling for business and how they can communicate with them in the event of an emergency.
- Who needs to approve travel and expenses? While it may be temporary, businesses may have to implement a more stringent approval policy for travel and other expenses. Due to health concerns related to travel and the need to conserve cash flow, business leaders like CFOs may want to have final approval over all travel and expenses until the situation stabilises. To help ensure new approval processes don’t cause delays and inefficiencies, finance managers should implement an automated solution that streamlines the process and allows business leaders to review and approve travel requests, expenses, and invoices right from their phones. According to SAP Concur research, 11% of UK businesses implemented some automation of financial processes in response to COVID-19. This is definitely set to increase post-pandemic.
What types of expenses are within policy? Prior to social distancing, employees may have been allowed to take clients out to dinner. In-person team meetings held during the lunch hour, may have included expensed lunches. As employees return to work, finance managers need to determine if these activities and expenses will be allowed again. Clear guidelines must be put in place and expense policies need to be updated to reflect any changes.
- What happens to home office items that were purchased? While new office equipment may have been purchased for employees’ home offices, they remain the business’s property and what to do with them as employees return to work needs to be determined. Perhaps employees will continue to work from home a few days a week and need to keep the equipment to ensure productivity. However, if a full return to work is expected, finance managers have options that can maximise their asset investment and possibly save the company money, like replacing old office equipment with the new purchases, reselling to a used office furniture company, or donating to a non-profit.
- How can cost control be ensured? For many businesses, cash flow will be tight for the foreseeable future. Spend needs to be managed to help ensure recovery and stability. An important aspect of controlling costs is having full visibility of expenses throughout the company. Implementing an automated spend management solution that integrates expense and invoice management brings together a business’s spend, giving finance managers an understanding of where they can save, where to renegotiate, and where to redirect budgets based on plans and priorities.
Once finance managers have asked themselves the questions above and determined how they want to approach travel and expense procedures, it’s vital they create guidelines and communicate clearly to employees. Compliance can only be ensured if employees have a clear understanding of what has and has not changed with travel and expense policies and what’s expected as they return to work.
Digital collaboration: Shaping the Future of Finance
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