4.3 The COVID-19 pandemic accelerated the transition in the payments landscape in 2021

The Bank of Finland's oversight tasks comprise the assessment of risks related to systems, policy work to promote the efficiency of payments, and analysis work that supports these tasks. Payment habits have changed increasingly rapidly during the COVID-19 crisis. Payment systems and securities settlement systems have operated reliably during exceptional conditions, so too in 2021.

The COVID-19 pandemic has affected consumer behaviour and payment habits (Chart 23).

Digital payment methods have become more widespread, purchases are increasingly made online, and mobile payment has already replaced card payment to some extent.

These trends have also been evident earlier, but the COVID-19 pandemic has accelerated the transition and turned new payment habits into permanent habits.

Objective is to promote the coverage of instant payments throughout the euro payments area

In May 2021, the Bank of Finland organised the 14th Payments Forum (in Finnish) – this time as a webinar. In connection with the Forum, the Bank published the first issue of the Bank of Finland Bulletin that focused solely on money and payments.

The Forum and the publication discussed several important themes on the development of oversight as well as payment and settlement systems. One of the themes was the impact of the exceptional conditions, which was examined in the article COVID-19 pandemic causing permanent change in payment habits.

Both the European Commission and the Eurosystem have a new strategy for the development of retail payments.

The Bank of Finland article on the trend in European retail payments and its impacts on the Finnish markets (in Finnish) examined the objectives set by  these authorities concerning European payment habits and instant payments as well as how Finnish banks’ development projects contribute to the achievement of the objectives.

One of the objectives is to promote the instant credit transfer (SCT Inst) scheme.

The purpose of the Eurosystem measures is to improve the coverage of instant payments, i.e. to enable the transfer of payments via instant transfer schemes throughout the Single Euro Payments Area.

The issue was discussed in the article Eurosystem wants to enable pan-European transfer of instant payments (in Finnish), published on the Bank of Finland Bulletin website in late 2021.

In instant payments, the funds required for the settlement of transactions are transferred as individual payments. For the settlement of instant payments, the banks therefore must have a larger balance than before on their central bank account.

The scale of the increase in the liquidity need and the factors affecting the system-level liquidity need or the liquidity need of individual participants was examined in the article Instant payments as a new normal: Case Study of liquidity impacts for Finnish market, published in the Bank of Finland Economics Review.

The Bank of Finland coordinates the national Payments Council, which brings together the key entities in the payments market. The Council continued its work in 2021 to promote payment solutions that are efficient for society as a whole.

What is oversight?

The task of central bank oversight is to assess the reliability and efficiency of payment and securities settlement systems as a whole.

The article Payment and settlement systems subject to oversight, published in spring 2021, described the oversight requirements set for these systems and how the fulfilment of the requirements is assessed.

The systems subject to Bank of Finland oversight are, for example, the payment systems used by the banks operating in Finland, such as EBA Clearing’s STEP2 and RT1 or the domestic system Siirto, as well as the securities settlement system operated by Euroclear Finland. 

Oversight is conducted both independently and in international cooperation.

Analysis supports the Bank of Finland's oversight activities and policy work

The Bank of Finland hosted in October 2021 the 10th Economics of Payments conference. The three-day conference Economics of Payments X was conducted as a virtual event, and it attracted a wide group of participants globally.

The Bank of Finland continued in 2021 to develop its payment and settlement system simulator and to provide support services to the simulator users. The software is used as an oversight tool for assessing the risks related to payment and settlement systems and for improving the systems.

In 2021, a significantly renewed version of the simulator was released, the BoF-PSS3. In September, the Bank organised a simulator seminar in the form of a webinar, as in 2020.

2021 also saw the launch of a development project, in which the Bank of Finland, together with the European Central Bank, provide to the Eurosystem a new analysis environment for TARGET services. The Bank of Finland's role in this cooperation is to provide simulator software that can replicate the functionalities of the renewed TARGET-system.

The simulator is also used in the Bank of Finland's own analysis work. An example of this is the study Measuring counterparty risk in FMIs, and it is also an area of study in which oversight work is linked with the central bank's financial stability task and the work of the Financial Stability Authority.

Contingency measures protect the functioning of systems

The opportunities presented by digitalisation are made use of extensively by the financial sector. This does, however, also expose the entities to cyber risks. One of the best ways of managing cyber risks is to test the systems with exercises that simulate an actual situation.

In 2021, financial sector entities applied in their red team penetration testing the TIBER-FI Implementation Guideline introduced by the Bank of Finland in 2020.

TIBER stands for Threat Intelligence-based Ethical Red Teaming. TIBER-FI is based on the TIBER-EU framework adopted by the European Central Bank in May 2018 and that provides guidance on penetration testing.

The purpose of penetration testing is to establish the ability of financial sector entities to protect against cyber and other threats and to identify areas for improvement.

The Bank of Finland also conducted testing under the TIBER-FI framework on its own critical functions, and gained valuable experience and knowledge for improving protection.

The services provided by the financial sector are highly dependent on systems and databases located outside Finland.

For the development of national preparedness (in Finnish), the Bank of Finland proposed a so-called safe haven procedure as an alternative for financial sector contingency planning.

In the procedure, the data required for the provision of basic banking services are stored daily in a separate protected server environment, a digital vault. In the event of a crisis, the data can be recovered from the vault. The model also includes the idea of a standby arrangement that enables the temporary provision of basic banking services, if necessary.