Digitalisation, cyber risk and central

bank digital currency –

a financial stability perspective

Nikolaos Stavrianou, Deputy Director

The views expressed are personal and do not necessarily
represent the views of the Bank of Greece.
NBR & IMF Seminar on Financial Stability Issues
Sinaia, 21 September 2023

Financial Stability Department Sincere thanks to D. Marcelli, A. Kaliontzoglou and S. Savvidou for their valuable input and insights.
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Agenda

1 Digitalisation

2 Cyber risk

3 Central bank digital currency

Financial Stability Department 2

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The digital infrastructure has developed significantly in Greece; in
tandem physical network has been rationalised
ATMs POS terminals
2016 – 2022 2016 – 2021
# ‘000 #

6.500 1.200

6.000
800
5.500
400
5.000

4.500 0
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021
Source: HBA Greek banking system structure/ Branch network and number of employees Source: HBA Greek banking system structure/ Aggregated data

Branches Employees
2016 – 2022 2016 – 2022
# #
2.500 50.000

2.000 40.000

1.500 30.000
2.332

42.628

41.707
2.168

39.383
1.980

36.727
1.834

33.097
1.000 20.000
1.702

30.619

29.177
1.549

1.470

500 10.000

0 0
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022

Source: HBA Greek banking system structure/ Branch network and number of employees Source: HBA Greek banking system structure/ Branch network and number of employees

Financial Stability Department 3

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The Covid-19 pandemic has boosted use of electronic payments

Credit transfers Direct debits
2016 – 2021 2017 – 2021
Number of credit transfers (lhs, # mn) Value of credit transfers (rhs, € bn) Number of direct debits (lhs, # mn) Value of direct debits (rhs, € bn)
600 800 30 6

5
600
400 20 4

400 3

200 10 2
200
1

0 0 0 0
2016 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Source: ECB, Statistical Data Warehouse Source: ECB, Statistical Data Warehouse

Cards in circulation Card transactions

2016 – 2022 2016 – 2022
‘000 # Number of card transactions (lhs, mn transactions) Value of card transactions (rhs, € bn)
25.000 2.500 100

20.000 2.000 80

15.000 1.500 60

10.000 1.000 40

5.000 500 20

0 0 0
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022

Source: Bank of Greece Source: Bank of Greece

Financial Stability Department 4

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The reduction in the share of cash transactions has been more
pronounced in SE Europe…
Change in the share of cash transactions at the POS in terms of number of transactions in percentage
points (pp), 2019-2022, by country

“Cash use declined most in Southern

European Countries
[Greece, Spain, Cyprus and Portugal].”

(Source: ECB, Study on the payment attitudes of consumers in

the euro area (SPACE) – 2022

https://www.ecb.europa.eu/stats/ecb_surveys/space/html/ecb.spacereport202212~783ffdf46e.en.html)

Financial Stability Department 5

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..while internet and mobile banking penetration has improved in
Greece
 Almost 90% of payment transactions through internet and mobile banking
 Almost 4 million internet banking active users at the end of 2021
 More than 2.3 million mobile banking active users at the end of 2021
 Almost 50% of total money transactions through mobile banking applications
(Source: Hellenic Bank Association – Greek Banking Overview)

Financial Stability Department 6

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User familiarity has also improved

Use of internet for banking services, population aged 16-74 Use of e-commerce, population aged 16-74
Q1 2016 – Q1 2022 Q1 2016 – Q1 2022
% %

Q1 2022 Q1 2022

Q1 2021 Q1 2021

Q1 2020 Q1 2020

Q1 2019 Q1 2019

Q1 2018 Q1 2018

Q1 2017 Q1 2017

Q1 2016 Q1 2016

0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70%

Source: Hellenic Statistical Authority, Information and communication technology research (households & individuals 2022) Source: Hellenic Statistical Authority, Information and communication technology research (households & individuals 2022)

Financial Stability Department 7

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Card fraud has also increased

Card fraud in Greece Value of card payment transactions Value of card fraud
2016 – 2022 2016 – 2021 2016 – 2021
€ bn € mn

Number of fraud transactions (lhs, '000 #)

Value of fraud transactions (rhs, € mn)

500 18

16
400 14

12
300
10

8
200
6

100 4

0 0
2016 2017 2018 2019 2020 2021 2022

Source: ECB, Report on card fraud in 2020 and 2021, All reporting card Source: ECB, Report on card fraud in 2020 and 2021, All reporting card
Source: Bank of Greece
payment scheme operators payment scheme operators

Financial Stability Department 8

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Challenges to financial stability

Challenge Risk Authorities’ response
 Deposit mobility through digital  Liquidity risk  Supervisory practices and
banking channels coupled with social  Contagion risk priorities (e.g. liquidity regulation
media acts as an accelerator and and monitoring)
amplifier of bank-specific stress  Crisis management and deposit
episodes insurance framework
 Gradual erosion of banks key  Business model  Roadmap to a new banking and
competitive advantage in the form of risk financial landscape
access to relatively stable and cheap
funding through retail deposits
 Digitally illiterate clients (e.g. elderly)  Financial exclusion  Ensure availability of cash and
or remote areas without digital access to critical financial
infrastructure lose access to critical services via physical channel
financial services
Financial Stability Department 9
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Agenda

1 Digitalisation

2 Cyber risk

3 Central bank digital currency

Financial Stability Department 10

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Cyber risk: market developments

Market developments
 Increasing amount of data
generation and storage
Implications
 Increased digitalization of
organizational processes and  Threats to confidentiality,
services (e.g. digital platforms) integrity and availability of
information
 Increasing adoption of new tools
(Big Data/Data analytics, AI/ML)  Larger attack surface for
cyber criminals
 Increasing role of technology/third
party providers (e.g. cloud)
 Increasing familiarity and adoption
of digital offerings by society

Financial Stability Department 11

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Regulatory and market responses

 Various international organization frameworks & recommendations (e.g. CPMI-IOSCO, FSB)
 Digital Operational Resilience Act in the EU (DORA)
• Holistic approach to ICT risk management, incident reporting, operational resilience testing,
intelligence sharing, management of ICT third party risk and oversight of critical third parties
 Cyber resilience oversight expectations for financial market infrastructures
 TIBER-EU
 Future EU AI Act

 Important steps towards building institutional and activity based cyber resilience

Financial Stability Department 12

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Systemic aspects of cyber risk

 Potential financial stability risk
• Operational dimensions + potential scale and speed of cyber shock propagation require the
strengthening of system-wide resilience against cyber risk
 ESRB initiative to study systemic cyber risk  need for the establishment of a pan-
European systemic cyber incident coordination framework (EU-SCICF) to mitigate the risk of
a coordination failure
 EU-SCICF envisaged as an add-on to DORA to take propagate coordination from the micro
to the macro level
 Need for development of further tools:
• Cyber resilience scenario testing
• Identification and measurement of macroprudential tolerance for disruption levels

Financial Stability Department 13

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Agenda

1 Digitalisation

2 Cyber risk

3 Central bank digital currency

Financial Stability Department 14

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Central bank digital currency – an introduction

 Digital innovation has brought about important changes in the financial sector, such as:
 the increased use of digital form of payments,
 the decline in the use of cash and
 the emergency of crypto-assets and stablecoins that could potentially become competitors of
both commercial and central bank money.

 As a response to these challenges and to preserve the role of central bank money in an
increasingly digital economy:
 several central banks around the world are exploring the issuance of central bank digital
currencies (CBDC) or
 have already launched a pilot digital versions of their respective currency (like China).

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Key objectives of digital euro
Overarching objective: ensuring citizens’ and businesses’ access to central bank money in the
Preserve the role of
public money as the
monetary anchor for
the payment system
Financial Stability Department
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digital age
Support the digital Offer a free, riskless Support strategic
transformation in and accessible form autonomy and
payments, providing of central bank economic efficiency
a form of central money for digital in the euro area
bank money for payments – in the
digital payments that same way as cash is
would preserve the used for physical
coexistence and payments - along
complementarity of with private forms of
private and public money.
money
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Overview of European Commission proposals

Context: changing payment preferences (2022: 55% of

consumers prefer cashless, 22% prefer cash, 23% no
preference)

Overarching objective: Ensuring citizens’ and businesses’

access to central bank money in the digital age

Proposals
Legislative framework for retail digital Euro
Draft Regulation on legal tender of euro cash

Financial Stability Department 17

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Digital euro legislative proposal

 The European Commission legislative proposal aims to make a digital euro widely
accessible and accepted as a means of payment in the euro area, alongside cash.
The proposal envisaged that a potential digital euro has:
• Legal tender status: providing the option to pay with a digital euro in the euro area.
Like it is for banknotes, it guarantees that merchants accept it as a means of payment
and that credit institutions distribute it to their clients upon request.
• High degree of privacy: user data will be protected for its users while minimising
money laundering and terrorist financing risks.
• Basic services free of charge and appropriate economic incentives for intermediaries
to distribute it.
• Online and offline functionalities.
• Holding limits: maintaining the healthy equilibrium between bank deposits and
central bank money.
Financial Stability Department 18