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The future of money: 2019 promises more dramatic changes in banking and payments

ANALYSIS: The collapse of Lehman Brothers in September 2008 and the ensuing financial crisis prompted major changes to the global banking and payments markets, both in terms of regulation and innovation, but an even more dramatic set of circumstances is set to impact industry over the next year.15 May 2018

From bank 'ringfencing' and Brexit, to the growth of 'open banking', the implementation of a new payments architecture, and the adoption of fintech solutions such as blockchain, 2019 promises to be a transformative year.

These themes were central points of discussion at the recent 'Future of Money' conference hosted in the London offices of Pinsent Masons, the law firm behind Out-Law.com.

The conference reflected the diversity of subjects which the participants and their organisations will grapple with into 2019.

There are six issues that we think will drive change over the next year and beyond:

Expert panellists gave their opinion on the type of issues they expect banks and other payment participants to be reflecting on this time next year.

Policy and strategy expert and Pinsent Masons consultant Lynette Nusbacher addressed geo-political matters that will shape the financial services environment. She predicted a chaotic period for government and regulation in the period immediately following 29 March 2019, when the UK is anticipated to exit the EU.

According to Nusbacher, who specialises in Brexit scenario planning, the UK is likely to reach post-Brexit agreements on trade with the US, India and other big economies, but warned that the terms of those agreements may not be agreed soon or on terms that are especially advantageous to UK companies. She also said there is hope that the UK business community will be able to use the 'soft power' it holds in the Commonwealth and build on cultural affinities, personal ties and relationships to grasp new trade opportunities, but noted that the Commonwealth does not have uniformly fond memories of past relationships with Britain and warned that UK business growth in the Commonwealth market post-Brexit should not be assumed.

Brexit expert Guy Lougher of Pinsent Masons said he is anticipating an eleventh hour agreement on the terms of the UK's future relationship with the EU. For financial services, a system of regulatory equivalence between the UK and EU is "the only show in town", he said, "regardless of how unsatisfactory it may be". The focus from this point next year will be on negotiations towards a future UK-EU free trade agreement, he said. There will be time pressures at play, however, as the EU27 are unlikely to agree to any extension of a Brexit transitional period beyond December 2020, Lougher said.

David Shinkins, head of cash management at Barclays in the UK, said 2019 will see the new open banking regime operating at a larger scale, and that a clearer view is likely to emerge from regulators on the topic of financial stability after banks formally separate their retail businesses in response to the new 'ringfencing' requirements that take effect on 1 January next year.

Shinkins also advocated the testing and piloting of innovative new solutions as the right approach for banks, referencing the potential for DLT to play a part in the new payments architecture that will soon be in place. He said that banks will increasingly focus on developing the user experience, including through the use of new technology to support consumers' use of wearable technology and connected cars, as well as other new technologies.

Lucie Munier, business and legal associate at Qadre, said that this time next year the industry will be reflecting on the nascent state of the market for DLT solutions in financial services.

Munier identified the potential of DLT as an enabler to make existing asset transfers or paper-based transactions more efficient, and to help banks and other businesses in the payments market to combat fraud and money laundering risks, since the technology allows users to be identified and erroneous transactions to be recorded and traced.

In his keynote address, Adrian Buckle, head of research at UK Finance, noted that the proportion of payments being made by debit card has grown over the past decade, as people have increasingly turned away from using cash and cheques. This trend is expected to continue, and by 2026 over half of all payments in the UK will be made using cards. In a wide-ranging speech he also examined the potential for the new payments architecture to change the payments landscape in the UK, and asked whether social media providers and online retailers in the UK will be able to replicate the exponential growth achieved in the last few years in China by WeChat Pay and Alipay, given a vastly different regulatory framework.

There was definitely an appetite from attendees to learn more from expert consultants and panellists on issues such as what is currently happening with Brexit and on understanding DLT. However, the event also highlighted the need for policy makers to better publicise some issues. Our survey finding that 84% of respondent attendees at the conference do not believe Brexit will dramatically alter their organisation's business model is perhaps an example that some in the market have yet to appreciate the scale of imminent change.

It became clear that there is definitely a move away from the traditional banking and payments models of recent decades. There is a realisation that change will continue to affect banking and payments. What we are discussing now in terms of the models and architecture for payments and the shape and regulation of payment participants will even be different in two to three years time.

Whether it be the impact of Brexit, banking reform, evolving regulatory agendas or fintech solutions, adapting to change ‘whilst doing your day job’ is the constant for participants in this sector now.

It is clear that the next 12 months are likely to yield even more dramatic and far reaching consequences for the financial services sector than what has been experienced to date.

Tony Anderson is an expert in banking law at Pinsent Masons, the law firm behind Out-Law.com.