In a digital ecosystem where every digital interaction is becoming a transaction, what’s next?
At INNOPAY, we are following three key interconnected clusters of the digital transactions ecosystem closely: Data Sharing, Digital Identity and Payments. These are the ‘ones to watch’ – impacting how we will live and work in the future.
1. Acceleration of new digital payment methods
COVID-19 has caused a surge in demand for contactless payments. This has been at the expense of the use of cash and traditional debit card payments. In the Netherlands, for instance, consumers were still using traditional debit cards for 21% of their purchases at the beginning of 2020. By the end of last year, this had fallen to 12%. The increasing demand for contactless payments has given rise to the acceptance of (new forms) of digital payments, often facilitated by BigTechs. Maarten Bakker, a partner at INNOPAY, sees the surge in demand for contactless payments and the fact that BigTechs have entered the European payment market as a sign of the growing importance of digital payments in general: “How this will all play out remains to be seen, but one thing is certain: BigTechs will change or limit the role of incumbents, and the way we pay will change too.”
2. Shift from Open Banking to Open Finance
Open Banking is the search for new API-driven business models by banks beyond compliance (in Europe this compliance is driven by PSD2). Now, other parts of the financial industry are opening up and Open Finance is becoming the new normal. The insurance and pension sector is also looking for Open Data business models. The financial industry is at the forefront. In the coming decade we can expect many other sectors to empower their customers by opening up their data.
3. Mandatory sustainability reporting drives standardisation
Environmental sustainability has been and will remain one of the most important topics of this era. Sustainability used to be a voluntary exercise, but today reporting on sustainability is driven by growing regulation and demands from stakeholders. That means there is a growing need for sustainability reporting: to report on footprints, targets (footprint reduction) and processes. We see regulators driving the trend towards standardisation and validation of this sustainability reporting.
4. Compliance by design required to maintain trusted position
Compliance in payments, identity and data-sharing is perceived as a huge burden, especially for financial services companies where trust is essential. Requirements result not only from regulatory activity but also from the good business conduct that customers, partners, investors and employees expect. And there is more to come. By redesigning the compliance function and embedding it into agile ways of working, it becomes an integral and value-creating part of the organisation, enabling upscaling and growth to take place on a basis of trust.
5. Renewal of the EU Anti-Money Laundering / Combating the Financing of Terrorism package will require more focus on compliance
Over the past three decades, the European Union has steadily improved its framework to fight money laundering and terrorist financing (AML/CFT). The EU’s action has focused on the prevention, investigation and prosecution of these harmful practices.
This recent EU package of legislative proposals constitutes an ambitious set of measures to modernise the AML/CFT regime in the coming years. The key focal points will be a proposal to move parts of the existing AML Directive into a regulation, making it directly applicable in the Member States and to implement EU-level supervision with an EU-wide AML authority, who will develop Regulatory Technical standards to improve harmonisation. This renewal of the EU AML/CFT rules will certainly impact organisations and requires a diligent approach to KYC/CDD compliance.
6. The search for (European) data wallets
The COVID-19 passport has given new impetus and urgency to the topic of digital data wallets where verified data attributes can be shared with third parties under the control of the owner. As the proposed EU Digital Identity wallet (revised eIDAS) takes shape and becomes mandatory in regulated sectors like banking, insurance, telco, health and energy, this is set to remain a live issue.
7. Decentralisation of the data economy
After the digital finance strategy, the Data Governance Act, the Digital Services Act, new AI regulation, the revision of the eIDAS Regulation and the Digital Markets Act we now have the launch of the European Data Act. Europe is creating a digital single market in the EU with data sovereignty for its members and citizens. Prepare for a wave of new regulation in the world of payments, digital identity and data-sharing. This will drive data-sharing ecosystems, effectively leading to a more decentralised data-sharing paradigm with data sovereignty: users in control of their data.
8. Data sovereignty and data spaces
At the end of 2019 the European cloud and data initiative Gaia-X was announced, with the aim of creating a more decentralised digital economy. Gaia-X is a large project involving major corporate actors across many sectors, including energy, agriculture, finance, health, manufacturing and mobility. We expect to see the emergence of a harmonised method of data-sharing between and within organisations. This harmonisation is also referred to as ‘soft infrastructure’ and will be based on commonly governed agreements facilitating the easy and secure sharing of access to data. Data-sharing organisations can use these agreements as a basis on which to build their own data spaces.
9. AI will benefit from decentralised data sharing
Training of AI algorithms will be carried out from multiple decentralised sources. Privacy- and security-enhancing techniques such as multiparty computation are available. This enables algorithms to ‘visit’ data without the data moving to the algorithms. Radiologists, for example, can train AI algorithms safely and securely from a range of different sources.