Bundesbank, Germany’s central bank, said increased use of financial technology in the country could present regulators with their biggest hurdle since the financial crisis, according to a report by Bloomberg.
“We are seeing completely new business models like platforms and crowdfunding,” said Joachim Wuermeling, a board member at Germany’s central bank.
Banks’ outsourcing of activities to companies that are more technology than finance means regulators lose oversight of those activities.
Bundesbank has been in contact with all of the large tech companies providing financial services to talk about plans, Wuermeling said.
Globally, banks are looking for ways to improve their services and reduce costs while generating more revenue, and are increasingly looking to cloud computing services for data hosting.
While the new technologies can help to clear the table from lingering financial crisis effects, it also makes them vulnerable to new risks.
“Digitalization is the biggest challenge for supervision since the financial crisis,” said Wuermeling, who is also a member of the European Central Bank’s supervisory board. “It remains unclear which digital strategies will remain in the long term, therefore digitalization has to be seen as a moving target. Supervisors don’t like moving targets.”
However, Wuermeling said he did see how new technologies could benefit banks, and said “economies of scale can be immense when banks are in a position to provide digital products with hardly any physical infrastructure.”
Another benefit is that supervisors can use technology to get a better sense of a bank’s health, and do so more quickly than was previously possible.
Another sign that technology is changing the banking industry is that card payments in Germany, a traditionally cash-forward country, have surpassed cash payments for the first time in history, according to reports.
A survey by EHI Retail Institute showed that last year, card payments made up 48.6 percent of all retail sales, while cash payments made up 48.3 percent. The main cause for the shift, according to EHI, was a 4 percent increase in sales from Germany’s debit card system, to 30.1 percent. Another reason is that trust in card payments is at an all-time high in the country, a fact that’s especially true for younger Germans.