Transcript of Question & Answer Session Panel participation at the Women in Payments Symposium

Michele, there's been a lot of talk about open data in the industry recently. How do you see the benefits of open data for the Australian banking system?

Well, the first thing I'd say is, along with a number of other developments, which have been alluded to, it has really increased the contestability of the payments market. So contestability is the ability of other firms to come in and contest the business. It allows competition, and so we at the Reserve Bank are very supportive of the concepts of open data, and we think that it will potentially have very important impacts on competition in the payments system and a number of other areas. A couple of cautions though, I guess, and one of the things, so we're responsible for competition and efficiency in the payment system, but we're also responsible for safety and safety of use of payments of the payment system for consumers. Emma alluded to some of the issues that I think are going to be very important issues, so yes, we want competition, yes, we want lots of different firms competing to generate benefits for consumers. They may be lower prices, but they may be other things as well. At the same time, there are things we have to make sure we get right.

Security is a very important one, and sometimes I think you might hear banks use security as a bit of a blocker, (for example) ‘We can't possibly do that because of security.' I think that's wrong to use it that way. I think you do have to be concerned about it, but technology gives you ways to address security. Related to that is the issue of fraud, and fraud in an environment where we are moving increasingly online, increasingly electronic, fraud is increasingly an issue. I think we need to concentrate on making sure that, again, we have strong fraud technologies and we have strong protections for consumers who are unwittingly caught up in those sorts of things. I think it's challenging. I think it's really exciting, and there's some really exciting things going on in this space, but we do have to be, and the regulators have to be, a bit nimble here as well. We have to keep abreast of what's going on. We don't want to stand in the way of developments. We want innovation to happen, but at the same time, we have to have our eye on some of these other challenges and make sure that payments remain safe and secure for the Australian people.

How do we help small businesses raise their standards, because many of the breaches overseas, it hasn't been a failure of a big corporate, it's been a failure of a subcontractor or a small business related to it or a phishing attack?

I'm not actually sure that the investment's that big. I do feel like there's a democratisation of innovation, and that because of cloud computing and any number of technologies that access to technologies and the ability to do things at fairly low cost to enter has made it a lot easier for small businesses. It may be a matter of sophistication and governance more than investment and access to technology.

I was just going to comment that this is actually a reasonably active debate amongst regulators as well, and I think there's a couple of perspectives. If you just think, for example, about the financial markets, which is where I'm most familiar, do you impose minimum standards, minimum security standards on financial institutions? And you could do that, and the big banks, I think the big banks invest a lot in security, and big companies broadly do. The smaller companies don't, but if you went to the extent of introducing some sort of minimum standards, then probably an industry would spring up to meet those minimum standards, I suspect. There's been a very recent example some of you would be aware of, where Swift, after the Bangladesh Bank incident, has imposed now, it's basically setting minimum user requirements, and people have got to meet them by certain timelines, and they've got to attest that they've met them, and there was sort of a ‘what's going to happen to little guys?’ question. Well, it turns out that an industry has sprung up to help the little guys meet the standards.

On the other hand, there is a debate that says, well, actually, setting minimum standards isn't appropriate because people think, ‘Well, I've met the minimum standards, and now I can sit back and relax,’ so people become complacent. But as we all know, time moves on, and the standards have to rise over time. I'd have to say there's still an active debate in this, but I think the concept of generally educating the much smaller, and they're not only necessarily smaller institutions as we've discussed. They're often, it might be the air conditioning service company that is somehow in connection to you is the weak spot. How do you get to these myriads of small businesses that really don't understand that they have any role in this at all? I think it's a really big challenge, and I think the regulators are really just starting to try and deal with it.

Yeah, I think that's an excellent point. We saw one of the recent hacks that occurred overseas, it was a thermostat connected to the Wi-Fi network that was insecure, and we've all seen printers and other devices that are connected to networks that are weak points.

I might just have the last word. I think this is going to be a very challenging time for the industry and the regulators quite frankly, because we do have privacy regulations and, obviously we have various regulations on banks, and the reason we have those regulations on banks is because we want to protect depositors. We want to make sure their money is safe, and for all the bad press that the banks get at times, I would say that people trust the banks with their security and their money. They do, so I think it's going to be interesting. These big networks are very classic examples of the way network economics works. The more you get, more people you get on, the more merchants you get on, the more users, the bigger they become. A couple of things there, I guess, the first thing is that are we headed for a future with some very big players and lack of competition? Because, will network economics basically mean that we're starting off with all these fintechs and all these new ideas, but ultimately what network economics does is turn (the market into) into one or two biggies, Visa and MasterCard. So I think there are some potential challenges there.

I think it's all very exciting, but I wonder about that world. Is that the sort of world we're heading to? And I do think there is going to be a need at some point, possibly, to think about the consumer. Whether it's consumer protection or protection of depositors, those big WeChat and Alipay and so on, I mean, it's WeChat and Alipay money. You've got your money with a non-financial institution. Now, in Australia, are we prepared to do that? Many young people I suspect are. Some people may not be prepared. Sometimes they don't even trust the banks, and during the global financial crisis, a lot of people went out and took their money out. Anyway, I think it's all a moveable feast. I can't predict where we're going to be. I do think that it's not going to be quite as easy just for them to leap in here and take over, because there will be some regulatory steps and cultural issues that they will need to get over, but all I can say is I think it's going to be challenging.

I agree, Michele. I think we're very lucky in Australia. There was no real GFC in Australia, and I think that's, in large part, due to the governance framework and the good work there is that the Bank does in that space. So moving onto people, because technology's great, but at the end of the day it requires people to implement it, and I'd be keen for your views on how new technology and the pace of change is changing the requirements for different skills and approaches in the workplace. What are the skills and approaches that you all value now for the future of work?

I'll start. This is a big, big topic at ANZ. We're actually going through an agile transformation as we speak, and I think part of the genesis of that is it sounds obvious, but the move from product-driven P&Ls to customer driver propositions and P&Ls is a massive shift in banking, and we had not gone through that shift. I would argue that others talk about having gone through that shift but may not have actually gone through the shift, so it's a massive cultural journey, and you couple that with technology, data, and just competition much more from many more sides, right? We view our competition as being the folks overseas as much as the next guy. It's a much more frothy space, which is, in my view, fantastic from a customer perspective, but as I look at the challenges for us, it's actually, when I started in banking, and I'm a baby banker. I haven't been at ANZ for even a year yet, but I talked to some of my friends in the UK who had already been kind of through this journey, and they said to me, we don't need any more bankers, and that may not be completely true, but what it talks to is the skills that I think banks have grown up with, the risk. Really, complex risk modelling and risk appetite development and working that through, these are all core skills. The ability to price a mortgage is a core skill, etc. etc. but increasingly the skills that we need is actually the lateral thinking.

What we have to do is say, well, if you want to do something with a customer that's a real person and a head and two shoulders and an arms and legs is, first of all, let's figure out what is it we want to be able to do with them? That means you need some customer voice, you need some marketing input. Say, well, let's figure out what data we have to support the thing that we might want to do, so you need to have some data science in there. Now let's actually go and co-create this with customers. Like, whoa, that means we have to go talk to customers and really try and think things through with them and figure out what parts you have to scale, what parts you don't. Can we achieve that on our platform? Can we not? How do we prioritise?

These are all, I would argue, kind of new skills for bankers. It's not like saying, I wouldn't say, ‘Oh my gosh, it's all about the data scientists now.' It's not. You can do a lot with a little, but you need to be absolutely on the front foot with customer driven design, creative thinking, and being able to frankly tap into the wealth of fabulous creativity that goes into all the apps that we all in other parts of our life and being able to bring them into the bank, and also, I think in a really robust way, face into the security, the cloud, the regulatory issues, and not shy away from them but actually kind of shoulder into them because it's very hard to scale those types of approaches unless you can say, "Okay, now I've got this terrific idea. I want to make this happen. Now let's launch it." That launch piece is actually really tricky, because to pull it right into your systems and make it work means that everybody's got to be confident that we can execute it at scale in a safe environment. It's a very interesting time, but I'm really excited at this concept of the P&L is about the customer, not about the product. Actually, it changes what we want from our suppliers, right?

So if we have a conversation, Richard, we haven't talked yet, but if we have a conversation with a Visa or MasterCard, I don't care about your credit card propositions. I want to know how you can take that great thinking that lots of great companies have put into credit cards and say, ‘How could you help me apply that to my customer, because I've got a customer first who may have a credit product?’ but frankly a credit card is just a facility. Whatever you call it, it's just a facility. It's a means for a customer to have some flexibility to manage their spend when we have the money. We call it a credit card today. We may call it something else in the future, so I think it does place a requirement not just on our own people but also on who we partner with and what we ask them to do as well.

We're not in the consumer space, so it's the same outcomes, it's just a different starting point. A couple of years ago we started moving into design thinking as we development our product, so it's coming very much from an outside in perspective, and stopping thinking about the technology and what can we do with the technology and oh gee, does that actually solve a problem, and does it really matter if it really doesn't, because that's a failing proposition. But really starting out with what is the business process that our customers and our partners are doing? Where are the pain points in that process, and how can we develop something that is different? And we do that today from the get go, we do it with our customers and partners, and we do prototyping and wire frames and things that are quite crude in the beginning, and then we iterate fairly rapidly to come out with something that has a real market need when we come out of the gate and actually launch it from a commercial perspective. We've been making that shift.

I just might add that it also is a reasonably active decision, particularly in our payments area at the moment because a lot of us really are economists where we sort of think in economic frameworks. Increasingly with technology barrelling down at us here, we've got to turn our minds to ‘we'll never be technologists’, but we've got to try and at least have enough understanding of what's going on in the technology space to figure out what it might mean for competition efficiency. We are thinking about whether or not there are different skills that we need in our teams. We need a different blend. That's not to say we don't need the economic frameworks and things. We do, we need those, but we need the ability to understand enough detail of the technology and then take a step back up and figure out what that might mean. I think that is a slightly different skill blend than we've had in the past. I think the bank, more broadly, a similar sort of thing.

In terms of the economy, we've got to try and get our heads around what technology means more broadly for the economy. The economic frameworks can help us with this, but there needs to be some sense in which we have a better understanding of some of the detail of the technology as well, so it's reactive conversation.

So skills are changing quite a lot in the workplace. Before we open for questions, there's one question that I'd like to ask all of you to reflect on. You've all been very successful in your careers and progressed a long way in very different areas, but if you could go back, what's the one piece of advice you'd give your younger self at the start of your career?

What advice would I give my younger self? Well, it's advice that I took actually, I think, and the advice is, and I think I said this last year, when opportunities come up, take them. Layla made this point as well. If there was one bit of advice that I'd give myself that I probably didn't take until maybe much later in my career, and that is be prepared to speak up. I think I spent a long time earlier on in my career where I wasn't confident enough to speak up when there were other loud voices in the room, and many times someone would make a point and I'd think, ‘Oh, yeah, that was a point I was going to make.' So I'm not suggesting to be a different person, the way I would sometimes make a point is I wouldn't bang my fist on the table and make it like others might, but I might say, ‘Well, another suggestion or another idea might be X, Y, Z.' I think that's a bit of advice I'd give myself. Speak up more. Back yourself.

Michele, this is a question for you. How does the bank as a regulator look to the future to make sure that the payment system is regulated in the right way with so many new entrants coming in all the time?

That is also a very good question, and I'm probably not going to be able to give you a very good answer, but let me say that most of the work, a fair bit of the work we do in Payments Policy Department is talking with people. We talk with fintechs, we talk with banks, we talk with Visa and MasterCard, so we're talking with everyone all the time. I think our perspective is, at the moment, that we want to have a level playing field, but we want a competitive playing field. We don't want to have to regulate, but we need to understand where all of these various players and all the new players are going to fit in terms of their competitive landscape. Are they going to have a competitive advantage? If they are, do we need to change regulations somewhere else, drop regulations in order to make sure that's not the case. It's a very difficult question, and that's what I said. I think it's going to be challenging for us in the next few years, and really we're going to be relying on our relationships and our networks with all of you, all of the people in the payments system. The new, the old, the upcoming. You're all going to be really important to our understanding of this market, and that's going to be essential if we're going to harness it for the good of the Australian people and economy.