ECB Lagarde: COVID-19 pandemic has accelerated this trend towards digitalisation

[cryptomaniac_xxx]

Former Managing Director of the International Monetary Fund (IMF) and now President of the European Central Bank (ECB), Christine Lagarde, gives a speech at the Deutsche Bundesbank online conference on banking and payments in the digital world and mentioned:

1. Two trends in global payments
The first major trend is changing consumer preferences.

The digital revolution is transforming our lives in fundamental ways. More than four in five Europeans regularly use the internet, up from one in five two decades ago. This has had a profound impact on how we communicate, how we spend and how we work.

The coronavirus (COVID-19) pandemic has accelerated this trend towards digitalisation. E-commerce, which has grown steadily in recent years, increased by almost a fifth in terms of volume of sales between February and June 2020, while in-store sales declined.[1]

As our lives have suddenly gone digital, so have our payments: there has been a surge in online payments and a shift towards contactless payments in shops.[2]

So it is natural for people to expect and embrace changes in the way they pay. According to the ECB’s new payments survey,[3] cash remains the most common way of making small retail payments, with cash payments accounting for 73% of all physical retail payments in 2019. But almost half of consumers said they prefer to pay digitally, and this has increased further during the pandemic.

This trend is unlikely to be reversed once the pandemic is over. A survey conducted by a consulting firm in 17 European countries shows that a vast majority of consumers expect to continue to use digital services as often as they do now or even more often.[4] In other words, the pandemic has served as a catalyst, accelerating the transition towards a digital new normal.

The second major trend is the competition to dominate payments on a global scale.

Payments are subject to strong network effects: the more users a payment system has, the more attractive it becomes to new users. Scale matters - this limits the field and inevitably leads to just a few service providers dominating the payments market.

Europe has fallen behind in this competition. The lack of payments integration in Europe means that foreign providers have taken the lead. This is not necessarily a concern, as long as foreign firms are accountable and subject to appropriate regulation and oversight, in accordance with the principle of same business, same risk, same regulation. But the evolving global context and rapid technological progress are changing the nature of the risks that we are exposed to.

We are seeing an increase in protectionist policies, as sanctions and even exclusion from payment systems in recent years have shown. This presents new risks of payment disruption – especially for jurisdictions that are overdependent on dominant system providers.

Europe had a taste of the potential risks in the summer of 2018: outages at international card providers left millions of Europeans temporarily unable to pay for goods and services.[5]

European payments are also being affected by technology firms driving the digital transformation of global payments. These firms’ well-established user networks give them a unique advantage in the payments industry. More than a quarter of the world’s population are active users of Facebook, which could give its Libra project a global footprint from the outset. And it is not unlikely that other large technology firms enter the playing field, too.

This has great potential to drive competition, improve payment solutions and support financial inclusion. But it could also magnify a host of issues, ranging from abuse of market power to ownership of critical data. It could also make it more difficult to combat illicit activities and ensure operational resilience.[6]

And more importantly – but so far unlikely – if the bulk of payments are made using digital wallets rather than bank deposits and are denominated in private digital currency with weak links to sovereign currency, monetary sovereignty could be weakened. In a digital world, consumers must have the possibility to pay with sovereign money.

In China, for example, within a decade payments have shifted from cash to mobile payments, which are controlled by two large private technology firms.[7]

The planned introduction of a public digital currency can be seen as a means of managing the risks of this digital transition, in order to maintain trust in payments.

State backing is essential for there to be trust in payments and money. Money held in bank deposits can be seen as a form of private digital currency, but it is widely used because people trust that they can readily convert their deposits into central bank money. In the euro area, these deposits are also insured by guarantee schemes up to an amount of €100,000, effectively making them public money.

Private digital currencies would not necessarily allow the same kind of convertibility and are unlikely to have the same state backing. Without a monetary and regulatory anchor, the stability of payment systems would essentially depend on the safety of private money issuers.

People are clearly aware of these risks. A recent survey by the Official Monetary and Financial Institutions Forum shows that central banks enjoy a higher level of trust than commercial banks, credit card companies and technology firms, including as potential issuers of digital currency.[8]

https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200910~31e6ae9835.en.html#footnote.1

I know that it sounds very positive, but it also accelerated the growth on governments creating their own crypto, the so called CBDC (Central Bank Digital Currency) as well. Of course, digital payments doesn't mean crypto adoption in general as well.

What do you think of her speech though? Did we really see growth in recent months?

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[Kemarit]

Of course, we have seen some tremendous growth towards digitalization in recent months because of the pandemic. I mean people are buying online more often, contactless, using their credit/debit card or probably small percentage with their crypto.

But we will have to see the effect after the pandemic is over, she mentioned that it will be sustainable, but is it?

And as far as crypto goes, I think we are still further away from people using and adopting it as means of payment though. Bitcoin has become of the best assets so far, and with the price potentially skyrocketing in the future, I don't think that people are willing to use it, IMHO.

[jaysabi]

I think there's nothing groundbreaking here.  Everyone has long known that we've been on a path towards digitization.  It started decades ago when you could pay over the phone with a credit card.  It has naturally accelerated as the internet has made electronic communications cheap and easy.  I don't think those portends well for crypto necessarily.  USD and Euro-denominated digital transactions are not a weakness in need of crypto's solution.  Crypto doesn't really do anything better there, so there's no reason to pick crypto over the mainstream digital alternative.  Crypto is likely to only continue to satisfy a niche market.

[AmoreJaz]

I think there's nothing groundbreaking here.  Everyone has long known that we've been on a path towards digitization.  It started decades ago when you could pay over the phone with a credit card.  It has naturally accelerated as the internet has made electronic communications cheap and easy.  I don't think those portends well for crypto necessarily.  USD and Euro-denominated digital transactions are not a weakness in need of crypto's solution.  Crypto doesn't really do anything better there, so there's no reason to pick crypto over the mainstream digital alternative.  Crypto is likely to only continue to satisfy a niche market.

but this pandemic really made some life-changing progress among merchants, businesses and customers. a lot of businesses are now opting online payments. but yes, it doesn't mean that they are into crypto payment. however, this digitisation are really coming in full bloom. and this will pave the way to more businesses that will integrate crypto as part of their payment method. so still good in crypto imo.

[ecnalubma]

Were going towards decentralization even before the global crisis hit, we are already experiencing digitalisation via online banking, sending payment through mobile phone and crypto is just an addition to this growing financial technology trend. The current situation help realize the governments to push more research in developing CBDC.

Somehow this particular crisis will trigger the growth of adoption because people will now realize the importance of digitization and how it can help minimize contagion because using fiat can increase virus transmission unlike using digital payments.

[Upgrade00]

Inserting the text in quote tags should be fine for highlighting it, the colored font background makes it difficult to read.

To the actual topic, digitalization has been a popular discussion among banking agencies and the financial sectors and has experienced tremendous growth over the past few years, the pandemic situation has of course pronounced this more. I however highly doubt centralized financial agencies would support the growth of a decentralized currency like bitcoin. A top bank in my country recently organized a webinar on a similar subject, the video is linked in this thread - https://bitcointalk.org/index.php?topic=5267005.msg54942983#msg54942983 - the discussion was aimed at blockchain and its effect on digitalization, with no mention of cryptocurrencies.

What do you think of her speech though? Did we really see growth in recent months?

I may be being a fiscal conservative, but personally do not count these sort of reports as positive news for the growth of the crypo community, it rather accelerates the introduction of CBDCs by various governments in an attempt to maintain control of circulating money.

On the payment system and possibility of data breach; that's a consequence of using centralized payment structures, more so, when using a data centered platform like Facebook's Libra, although this project has been heavily slowed by regulatory issues.

[Lucius]

This is not the first time that Lagarde has given speeches where she look at digitalization and mentioned some problems facing the EU in this regard. But her speech only confirms that the EU lags far behind some countries in this regard, because if China has already made so much progress in this direction and if they are already intensively testing the CBDC in some provinces, the question arises whether the EU will lag behind too much to catch an accelerating train.

Although there is no explicit mention of BTC anywhere, this does not surprise me personally because I believe that the skepticism that prevails about it is still quite high if we take into account the common opinion that China has too much influence on it through mining. What is not clear to me is the mention of Libra, didn't that project get more than an obvious red light not only in the USA and the EU, but also in the rest of the world?

The problem with the EU is that it is very difficult to agree on some things between member states - because some countries are not even in the eurozone, and it is difficult for me to even comprehend that some kind of agreement can be reached on a common digital currency - if there is the political will to do so at all.

[oHnK]

We have seen the growth of digitalize during pandemic rapidly. Her speech is not a new opinion but that's the fact of current situation. Pandemic has changed consumer preference and made competition among digital payment providers. Not only in european but also in another countries. Pandemic has accelerated the digitalization and i dont think this acceleration will give bad effect for Bitcoin. Although the acceleration will support goverment to creat their own crypto but Bitcoin will stay in its position. Bitcoin will be an interesting investment for many years later because Bitcoin has its own reason for grow up and this situation will not influence badly.

[Febo]

I know that it sounds very positive, but it also accelerated the growth on governments creating their own crypto, the so called CBDC (Central Bank Digital Currency) as well. Of course, digital payments doesn't mean crypto adoption in general as well.

Most central banks will create or co-create with other central banks their own stable coins. There is no doubt about it. Problem is that people will not use them that much. Not in a long term.

[eaLiTy]

Of course, we have seen some tremendous growth towards digitalization in recent months because of the pandemic. I mean people are buying online more often, contactless, using their credit/debit card or probably small percentage with their crypto.

But we will have to see the effect after the pandemic is over, she mentioned that it will be sustainable, but is it?

The rapid growth of E commerce business during the pandemic was multiple fold and it is possible we will see that trend continue in the future, i am sure millions of users who never purchased anything online tried them for the first time when everything else was shut down and the only possible way to purchase was through E commerce sites and if they find it more appealing then those customers will continue purchasing online which will put a big dent of the local store business.

Most central banks will create or co-create with other central banks their own stable coins. There is no doubt about it. Problem is that people will not use them that much. Not in a long term.

What do you think they will be using as collateral, if you are saying they will be using a floating currency, which currency they will be using and if an asset like gold is used do you think they will be having the reserve to hold that much gold.

[20kevin20]

~

AFAIK, the EU has been working on the design of a CBDC for years - probably years before China started doing so. Maybe all they need left is the green light from other states before they push their currency to the mainstream, but China is always much quicker with a lot of things About Libra.. I think it's quite dead, honestly. It's received way too many negative views for it to ever have a successful launch.

[cheezcarls]

It is really important for us to finally adopt into the new normal, and one of them is to go digital.

Here are some things that I've seen doing major changes to survive the economic downturn due to the pandemic:

1. Adopting QR code and contactless/cashless P2P transactions such as buying and selling of products and services, transportation, paying bills, etc.
2. Organizers are now turning their events to digital through video conferencing, webinars, etc.
3. Schools are now adopting online classes since face-to-face classes are risky for now
4. Clothing and apparel stores are now going digital by means of creating their e-commerce website for their customers to buy online
5. The demand of food delivery services like Grab and Food Panda are increasing, which most of us are just taking out our orders rather than dining in. It also creates additional income opportunity if we want.

And there will be more to come. I know that traditional business are going to do whatever it takes to keep them going. However, lots of businesses are unlucky and were forced to shut down due to the pandemic. It's all about being creative and thinking outside of the box to make a living during these trying times.

[target]

My country is the slowest to adopt just about anything but this pandemic just made businesses started using digital payment systems like paymaya. Stores that we normally just see on malls and now accepting orders fro mthe facebook pages.

I think this is just the start and sooner we may be able to make transactions with BTC to the mall stores. Or maybe like the Chinese government, we will also be developing digital fiat for all to use.

[yulchatar]

If we talk about me, then indeed, during the period of quarantine, I began to use digital services more often - do more online orders of goods and things, ordered food delivery. Even books, I now prefer electronic ones, as they are more convenient to read at night.

[The Sceptical Chymist]

Inserting the text in quote tags should be fine for highlighting it, the colored font background makes it difficult to read.

No kidding--I have a dark mode extension on my browser, so it shows up as white text on a yellow background.  I had to use my mouse to highlight the quote in order to read it.  OP, it would be a good idea not to mess with text colors in your posts.  Getting creative like that doesn't accomplish anything.

I know that it sounds very positive, but it also accelerated the growth on governments creating their own crypto, the so called CBDC (Central Bank Digital Currency) as well. Of course, digital payments doesn't mean crypto adoption in general as well.

Governments created their own "crypto" is fine by me as long as my country's government doesn't eliminate physical cash at the same time (or at a later time).  Most of people's payments were digital pre-COVID anyway, I think, so it's not a huge step forward.  Nor would these digital government currencies spark any interest in real crypto, like bitcoin.  A person is either going to discover bitcoin and invest in it/spend it/adopt it or they're not. 

What do you think of her speech though? Did we really see growth in recent months?

Growth in use of digital currency?  Sure, if the definition of that includes using debit/credit cards, smartphone apps, digital gift cards, etc.  I don't think there was much, if any, growth in cryptocurrency use.

[hatshepsut93]

We are already highly digitalized, some european countries have over 80% payments done digitally, but guess what is the share of Bitcoin in there? 0.00001%? People sticking with cash is not the reason why Bitcoin adoption is low, people sticking with banks despite having an alternative is the problem. Even awareness is not a problem here, most people already know that Bitcoin exists, that it is money, but they aren't that disappointed in banks to look for alternatives. Even if polls shows that most people don't trust bankers, it doesn't translate to people abandoning banks.

[fiulpro]

Digitalization is already predominant, not just in European nations but also in Asia.

People usually get some discount if they make the payment digitally and are even eligible for rewards offered by the government for the same.

Since now a days going to the banks and cash transactions are risky , being the source of infection in many cases ( you cannot expect the bank notes roaming around everywhere to be sanitized! ) , The online transactions are not only easier but they are also beneficial.

Government have already made it compulsory for people to add their main Identity cards in their bank accounts which is being tracked in case of fraudulent transactions or some scams. It has not only made illegal market a little hard to exist but has also provided platforms for online trading.

- Bitcoins and other cryptocurrencies have not yet been adopted as a whole by people due to high volatility and their acceptance rates being very low. I do believe they can make the online transactions easier in case of international variants.

Lets see what the future has for us.

[avikz]

We are already highly digitalized, some european countries have over 80% payments done digitally, but guess what is the share of Bitcoin in there? 0.00001%? People sticking with cash is not the reason why Bitcoin adoption is low, people sticking with banks despite having an alternative is the problem. Even awareness is not a problem here, most people already know that Bitcoin exists, that it is money, but they aren't that disappointed in banks to look for alternatives. Even if polls shows that most people don't trust bankers, it doesn't translate to people abandoning banks.

I am not surprised to see that share of bitcoin among the digital payments are only 0.00001%! The reason is very simple! Bitcoin is essentially seen as an investment rather than a payment method, and that's everywhere! I mean there's nothing wrong in seeing bitcoin as an investment - it's a practical adoption in any way and anyone with a steady flow of money, would keep his bitcoin under cold storage to use as an investment.

We can only come out of this scenario if bitcoin price stabilizes! if the price fluctuation of bitcoin stays between 2%-5% for over a year, you will have a very different picture because then the investor class will be discouraged to store bitcoin for profit. Some with an aim of capital protection will still store it, but wannabe profit mongers will start using bitcoin to cover their expenses! It's simple human psychology!

[CarnagexD]

I know that it sounds very positive, but it also accelerated the growth on governments creating their own crypto, the so called CBDC (Central Bank Digital Currency) as well. Of course, digital payments doesn't mean crypto adoption in general as well.

Most central banks will create or co-create with other central banks their own stable coins. There is no doubt about it.

There has been some reports that many countries now are in trial with their digital currency banks, worth to mention the digital yuan that has been circulating already in some parts of China and in South Korea, there is a city where they utilize the use of their own city coin.

Problem is that people will not use them that much. Not in a long term.

Depends on the case, if government wants to fully implement it then the people should follow it especially now that we have a pandemic.
In my country, an uber like company does not take any cash as payment now, instead they take credit cards on in app credits.

[hatshepsut93]

I am not surprised to see that share of bitcoin among the digital payments are only 0.00001%! The reason is very simple! Bitcoin is essentially seen as an investment rather than a payment method, and that's everywhere! I mean there's nothing wrong in seeing bitcoin as an investment - it's a practical adoption in any way and anyone with a steady flow of money, would keep his bitcoin under cold storage to use as an investment.

That number is just a wild guess made to illustrate how small is Bitcoin's share of payments, don't quote me on that as a fact (I thought it's obvious).

I don't think that people don't want to use Bitcoin because they see it as an investment, I mean, I sometimes have to sell a little bit of my bitcoins to buy something, and I simply never have an option to buy with Bitcoin directly - no merchant I use has adopted it yet. I only saw merchants drop Bitcoin support.