African Union Development Agency CEO: Infrastructure, investment keys to continent’s future

Joe Kornik: Welcome to the VISION by Protiviti podcast. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-Suite and executive boardrooms worldwide. Today, we’re exploring the future of government, and we welcome in Nardos Bekele-Thomas, CEO of the African Union Development Agency, commonly known as NEPAD, the New Partnership for African Development.

Endorsed by African Union Heads of State and Government, including 33 prime ministers within Africa, Bekele-Thomas became the first woman to lead the Africa Union Development Agency when she took over two years ago. She is a powerhouse who has influenced growth and development in Africa for nearly 40 years, serving in prominent positions with governments of multiple countries, and for more than two decades with the United Nations.

Nardos, thank you so much for joining me today.

Nardos Bekele-Thomas: Thank you so much for having me, and for this opportunity to converse with you.

Kornik: Now, I know NEPAD aims to transform Africa with regional and continental priority development programs and projects. Can you highlight a few accomplishments since you took over, and then maybe talk a little bit about what’s the next big one on the agenda?

Bekele-Thomas: Yes. Thank you very much. Actually, I’ll start by saying that the NEPAD has transformed itself to being the African Union Development Agency, which is really an expanded mandate of making sure the development activities in the continent. There are many, if you go country by country, actually, development cooperation is overcrowded. The space is overcrowded. But how do you coordinate these activities and make sure that they are impactful? This is one of the mandates that was assigned to NEPAD.

Also, to identify the gaps and make sure that these gaps are filled in and that the requisite resources are mobilized for the realization of the agenda that was put in place. So NEPAD actually is really, it’s monumental, has monumental tasks and responsibilities. Therefore, I’m just humbled to being the CEO of this organization.

Now, coming to—when I came to NEPAD, of course, this whole transition took place in 2018, and 2019 being the COVID year, we have to subtract like two years of our time. The two years were really more into COVID and responding to the challenges of COVID. Therefore, in reality, the operationalization of the African Union Development Agency came into effect with my coming into this position in 2022.

Since then, the first thing that came to my mind is, if Africans coordinate its activities, its development cooperation, its development activities at national, regional, and continental level, then we need to have a common framework. We need to have a plan. Therefore, the first thing that we started doing is the review of the 10-year implementation plan. How are we fairing? How did we perform? Where did we go wrong? What are the best practices and how can we build on the best practices but also address the deficiencies? Then, come out with the design of the second 10-year implementation plan.

In terms of infrastructure, which is the bedrock of African integration and industrialization, we had a big conference in Dakar last year in February. This conference was different from the conferences we used to have before. In the past, we used to have politicians come, ministers or whatever, and make statements after statements, commitments after commitments, and sometimes they still remain to be unfulfilled promises. Therefore, we wanted it to be different.

We brought the program owners—these are countries, of course, the project owners—but we brought also the development finance institutions that could do a guarantee fund, that could come out with guaranteed funds, and also the private sector and investors together. We had the rules project by project, we brought them and went into deeper discussions and understanding. This yielded concrete result to the surprise of so many. We brought $800 million for feasibility studies of our pipeline projects under the Program for Infrastructure Development for Africa. More than that, the $86 billion were mobilized for the construction of roads, transport, energy, water, dams and all this, and also on digital infrastructure.

Kornik: You mentioned infrastructure, which I think is interesting. I know that’s one of the priority areas, and I think there’s eight priority areas that you focus on among others of course. Those are, I guess, political, economic and corporate governance, agriculture, infrastructure as we mentioned, education, health, science and technology, market access and tourism, and the environment. I’m just curious what are the biggest priorities for governments in Africa to better serve their citizens? I mean, what are the biggest ones that you need to address?

Bekele-Thomas: All of them are important. I truly believe that we need to do everything. We can do that if we come out with catalytic approaches, catalytic programs, because these programs are intertwined and they can bring all the different sectors together. For us, for example, what we have chosen for the coming five years is infrastructure is very important.

Kornik: You’ve touched on this a little bit in your some of your answers, but can you talk to me a little bit about how the public and private sector companies either inside or outside Africa even can collaborate and work together to move Africa forward?

Bekele-Thomas: Thank you very much. I think this has been really one of my, should I say forte, but I’ve been dealing with the private sector in my past in the UN, that’s an area where I have been working, and I think it’s so critical. No one country can do this alone, and we need all the support that we require. Especially the private sector because they have—it’s taking all this, the development of country or the development of the continent in general, it will offer them more opportunities to expand their businesses so the public-private partnership is critical.

Today, I just finished—actually this morning—a meeting with the Indonesian government where—when I was in Bali for the G20 last year, it was very interesting to see how the private sector and the public sector work hand in hand, and we were having discussions with them. Therefore beyond, also, in our private sectors, we’re going beyond that to the ones that are outside, like Asian Business Council, the American Business Council, the Corporate Council on Africa, the European Business Councils and Chambers of Commerce, we work hand in hand with them. Especially in investment, when we talk about infrastructure. I mean, we really need this.

We need them also to team up with African investors so that together, they build equity and they meet the challenges that Africa has to offer. It’s not a challenge actually. It’s a big opportunity, it’s a huge potential. I think working hand in hand, we can perfect the conducive environment, the environment that they require to thrive, but also make sure that investment flows are smooth and directed in the growth areas that are identified by Africa.

Kornik: Right. That investment is so key, obviously. I’m going to zoom out a little bit and take a 30,000 foot view here and talk a little bit about the continent itself in the future. It is the fastest growing population of any continent on Earth. By 2050, the UN estimates one fourth of all people on the planet will live in Africa. My question is, how can African governments navigate that rapid growth and are there ways that countries can collaborate to help lift the entire continent as it goes through this next two-to-three decade rapid growth period?

Bekele-Thomas: Africa is showing confidence in itself for the first time. You go to the G20, you go to the COP, you go everywhere, Africa is standing, Africa is talking, Africa is taking a space, which it didn’t do before. Therefore, that is foundational, it’s fundamental, and I’m glad that is happening. The second thing that is very important and clear is that Africa has its own vision. Africa started believing in itself and understanding that it’s sitting on a wealth. Wealth in terms of natural resources, but wealth in terms of the human resources and capital.

Therefore, I think for Africans, this is really a time to build on this confidence level and implement the programs that would make them be the powerhouse, the global powerhouse, which I am sure and I am so confident. When I am sitting with heads of states, when I am sitting in the EU Summit, I see so much, so much energy that I leave inspired but also encouraged. We hope that the rest of the world will support us in making the dream, the African dream to be a reality.

Kornik: Well, Nardos, thank you so much for joining me today. I really appreciate the time and the conversation.

Bekele-Thomas: Thank you so much. Much appreciated.

Kornik: Thank you for listening to the VISION by Protiviti podcast. Please rate and subscribe wherever you listen to podcasts, and be sure to visit vision.protiviti.com to view all of our latest content. Until next time, I’m Joe Kornik.

Cybersecurity expert: The U.S. is doing almost everything wrong

Joe Kornik: Welcome to the VISION by Protiviti Interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, a global content resource examining big themes that will impact the C-suite and executive board rooms worldwide. Today, we’re exploring the future of government and I’m joined by Tom Vartanian—an author, lawyer, futurist, board member, and former federal bank regulator. Currently, Tom is the executive director of the Financial Technology & Cybersecurity Center, the Alexandria, Virginia-based non-profit that advocates for dynamic financial services and public policies. Tom served as a regulator in both the Reagan and Carter administrations and he is the author of nine books including his latest, 2023’s The Unhackable Internet: How Rebuilding Cyberspace Can Create Real Security and Prevent Financial Collapse. Tom, thank you so much for joining me today.

Tom Vartanian: Joe, great to be back.

Joe Kornik: Tom, as I mentioned in my introduction there, you are the executive director of the Financial Technology & Cybersecurity Center. Can you tell us a little bit about the center and its mission?

Tom Vartanian: Yes. What I wanted to do after being a regulator for a number of years and practicing law for 40 years is sort of bring to bear the concerns I had about the future financial services and particularly how it’s impacted by technology and security questions. What we wanted to do was set up a center that would focus on cybersecurity, focus on the future of fintech and key on to the issues that we think we need to consider to make financial stability the preeminent and dominant concern in the future.

Joe Kornik: Yes. I mentioned your excellent book in the intro and in it you addressed the threats facing the integrity of our national security and our financial services sector including the possibility of cyberattacks by foreign adversaries like China and Russia. Your book poses a challenge to America to take the lead and create a coalition of democratic nations to implement financial cyber strategies. Why do you think this is so critical to the future?

Tom Vartanian: You can go on to the CISA’s website today and look at the numbers that they have prominently on their website. CISA, which, of course, is part of the Department of Homeland Security, says that one in three, five people in America have malware on their computers, one in three. 47% of us in the country have had personally identifiable information collected about us, 47%. 600,000 accounts are hacked daily. $4 billion in crypto is stolen each year and ransomware attacks are now averaging—the theft of more than 500 million—there are more 500 million ransomware attacks every year, 500 million around the world. What you see is a scale of devastation and destruction that has to be put into some context relative to the enhancement of the human quality of life that technology can provide. And I think we are losing the battle in that balance because we’re irrationally focused on the upside of technology and not very focused on what can happen on the downside. We don’t know so much about technology and we’re playing as if it’s always going to be benevolent and good to us, but the problem is that there are so many people increasingly every year using it for bad purposes and to steal money or to influence elections or bring down governments.

Joe Kornik: Let me ask you a question. As a country, is the United States of America doing enough? Do we have the right people on it? Do we have the right investment pointed at it? I mean how are we doing in that realm?

Tom Vartanian: I think, Joe, that we are playing into the hands of our adversaries. Let me say it this way. If we wanted to build a system to allow our adversaries to take as much advantage of critical infrastructures, money, power, and every possible aspect that our government relies on, we wouldn’t built the system we built online, right? Because it is highly insecure and it is increasingly vulnerable to attack. When the internet started in 1969, the ARPANET, it was established to communicate messages, not to store data, and here we are, all these years later, storing all the data on the planet and all of the value on the planet on a system that was never built to do that, right?

Again, I think it changes the scales and the balance of things. It allows countries that shouldn’t be able to punch above their weight to punch above their weight. North Korea is probably the best example of that. It’s basically running its economy off hacking, right? It’s all of this money they’re making from hacking everything around the world, it’s giving this money to run its economy and run a nuclear program. Right? So, we’ve got to start seeing that we can think in terms of traditional regulations, traditional concepts if we’re moving forward in a world where the scale has changed and the balance between good and bad is now moving dramatically.

My bottom line is, is that we need leaders in this country to basically move forward with an agreement among democracies. Forget the other countries that aren’t going to come in, dictatorships and totalitarian governments, they’re never going to come along because they’re now seeing technology as the way that they can control their people. I mean if we had an hour, we could talk about what’s going on in China with 300 million facial recognition cameras, giving everybody a social score, right? For totalitarian governments and dictators, technology is now the greatest thing in their hands because it will prevent them from ever being out of power, because the facial recognition, they will know when two people are meeting that they think shouldn’t be meeting and that’s pretty scary.

I think the answer to your question, the government hasn’t done enough, isn’t spending enough and isn’t focused enough on these issues because at the end of the day, said very simply, a lot of these issues are not campaign issues you can raise money off of, right? Those are the issues, whether they’re important or not, they tend to draw political donations and that the politicians tend to focus on. The second problem is that I don’t think most people on the hill understand more than—about technology than how to turn on their computers. I mean you can watch any congressional hearing you like, the ones with Mark Zuckerburg and Facebook were interesting, and you realize that most of the questions have been written down and the people asking those questions really don’t understand the broad significance of the questions and the answers that they’re getting.

The sad thing is that Bill Clinton in 1996 nailed the problem. He identified critical infrastructure. He had great people working on his cybersecurity proposals and he nailed the problem. And he laid out the fact that we need to protect critical infrastructures because of the inherent vulnerabilities of the systems that they’re on. 25 years later, probably 27 years later now, we really haven’t made much progress. If you compare, as I did in the book, the executive orders of President Clinton, President Bush, President Obama, President Trump, and now President Biden, they look eerily alike as if somebody’s just cut and pasting every four years. Who’s running the technology parade? The technology parade is being run by the private sector: large, big tech companies. At the end of the day, I ask the following question. You may not like the politicians we have, you may not think they’re making decisions, you may not think they’re doing anything, but at the end of the day, do you want them deciding the future of your life as elected officials that you can elect or un-elect? Or do you want Jeff Bezos or Mark Zuckerberg making those decisions, because that’s who’s making those decisions today, the guys that run big tech and that’s not the world I want to live in.

Joe Kornik: Tom, it’s some pretty scary scenarios that you laid out and something that would require cooperation first in this country and then globally among other countries. It feels like a pretty daunting task, to be quite frank.

Tom Vartanian: I’m going to leave you with one example, Joe, just very briefly. Today, RSA encryption, which is the typical encryption being used by financial institutions to protect data, is a 2048-bit encryption which means the key is 2048 bits long and to make it simple, it’s very complicated keys. So, to run a brute force against a 2048-bit encryption data, you probably need 300 trillion years to break it and then you might break it on the first try, but to go through every possible permutation to break a 2048 RSA-bit encryption, you would probably need 300 trillion years. All right? Quantum computing. We are now within 10 years of having high-powered quantum computing, which will be, for some purposes, enormously powerful and enormously useful. A 4099-cubit quantum computer—and we have only now, I think we’re now just approaching 1000 cubits quantum computing— so that’s the ways off, but a 4099-cubit quantum computer can reportedly break that 2048-bit encryption, not in 300 trillion years but in 10 seconds. That’s why it’s being reported that the Chinese are gathering up all of the encrypted information they can today so they will be able to decrypt it tomorrow.

Joe Kornik: Is the United States far behind the rest of the world when it comes to this—making sure that we’re protecting ourselves?

Tom Vartanian: Yes, it’s a great question. I addressed that question in the Unhackable Internet and I said China’s going to have some severe economic problems themselves, but China’s plan is to by 2030 have the largest economy in the world, the most sophisticated technological prowess, be dominant in artificial intelligence and be dominant in quantum computing. If they do those four things, that’s not going to be a good day for the United States of America, and they’re outspending us in each of those areas. They’re outspending us in artificial intelligence, they’re outspending us in quantum computing. They have built bigger quantum networks than we have built. Right? I think we’re thinking like people who have been on top, not realizing it’s harder to stay on top than it is to get there, and everybody else is running fast to get to where we are. We’ve got to spend the money judiciously to guarantee our future in the technological sense.

Joe Kornik: Last question for me, Tom and that’s how optimistic are you about the future when you put it all together and take a look over the next—let’s say 2030 and beyond, how optimistic are you that we’ll get most of this right?

Tom Vartanian: I think we’re getting most of everything wrong today and that makes me pessimistic. I mean, you can talk at any level: social, cultural, financial, political. We just seem to be getting so many things wrong and I equate it to a lack of the ability to prioritize. I think we’ve lost our capacity to prioritize the issues that are really, really important. I think we will continue to muddle along and do just fine as long as everybody else is doing worse, but as other countries and other systems begin to do better, it’s going to shine a light on the flaws in our system. It’s going to shine a light on the archaic makeup of our regulatory system. It’s going to shine a light on the fact that we’re focused on the wrong issues at the wrong time for the wrong reasons. It’s going to focus the light on the fact that we’ve let so much of the financial services business that takes consumer dollars be completely unregulated.

I am what I call guardedly pessimistic. I mean we seem to muddle along and do just fine, but when you look at something over a long trendline, which I look— I tend to look at 25-year trendlines—you can see we’re not going in the right direction on any of these issues and I wrote in one in op-ed that I thought the only solution to those problems was better leadership. I concluded that we just weren’t electing at any level the kinds of leaders we need to confront and solve these issues and that to me is the fundamental problem that we’ve got and unless we were able to stand up as voters and say, “Look, you got to give us better candidates.”

Joe Kornik: Sure. That seems like almost an unsolvable problem. I hope I’m wrong, but that seems like a really, really difficult one to fix.

Tom Vartanian: Yes. No, I agree, that’s why I’m guardedly pessimistic.

Joe Kornik: Well, Tom, you’ve given us a lot to think about today. I appreciate the time, the insights and the conversation. Thanks so much.

Tom Vartanian: Thanks, Joe. Thanks for having me. I really appreciate it.

Joe Kornik: Thank you for watching the VISION by Protiviti Interview. On behalf of Tom Vartanian, I’m Joe Kornik. We’ll see you next time.

Longtime regulator Tom Vartanian on crypto and a CBDC: Proceed with caution

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-Suite and executive boardrooms worldwide. Today, we’re exploring the future of money, and I’m joined by Tom Vartanian, an author, lawyer, futurist, board member, and former Federal Bank regulator. Currently, he is the executive director of the Financial Technology and Cybersecurity Center, the Alexandria, Virginia-based nonprofit that advocates for dynamic financial services and public policies. Vartanian served as a regulator in both the Reagan and Carter administrations. He is the author of nine books, including his latest, 2023’s The Unhackable Internet: How Rebuilding Cyberspace Can Create Real Security and Prevent Financial Collapse. Tom, thank you so much for joining me today.

Tom Vartanian: Joe, thanks for having me. It’s a pleasure to be here.

Kornik: Tom, as an author, lawyer, futurist and former Federal Bank regulator, how do you see money evolving in the digital quantum age that we’re entering?

Vartanian: Yes. It’s a great question, Joe, because I’ve been studying money now for, it seems, most of my life and I’ve written about it extensively, at least in the first two books. It’s interesting. Money is constantly evolving, and it relates to the economy, to the cultures and to the people that we become. Interestingly enough, even in this country, we’ve only had a national form of currency since the 1860s. So, it’s not like we’ve had dollars all of the history of the world. These things are relatively recent, in a historical sense. In terms of what I’ve looked at it in money, and the things that I have seen, which includes digital cash, smart cards, money, credit cards and all the like, what I wrote in my book 21st Century Money, Banking & Commerce is that money tends to gravitate towards four different categories that need to be there for people to accept the money. The first is cost. It can’t be costly to use. So, when we pick up a dollar bill, there’s no cost to using that dollar bill. Second of all, it’s got to be convenient to use. People don’t want to go through a lot of steps to be able to use money. Third, the public must have confidence in the money. If they don’t have confidence, eventually they’re not going to use it; and fourthly, and these are the four Cs, there must be a consistency to the value of the money. If the value jumps all over the place, consumers aren’t going to want to use it.

Kornik: That consistency piece brings me to my next question, which is around cryptocurrency, which has been not consistent in its value. Where do you land in the cryptocurrency debate? Do you see this sort of a viable financial development, hoax, or something in between?

Vartanian: I sort of see it as all of the above, depending on your perspective. If you look at my four Cs, cost, convenience, confidence and consistency, I think cryptocurrency fails all four, and that’s important, right? Because at the end of the day, if you’re trying to use something as money and it doesn’t have the backing of the Federal Reserve or a government entity, you’ve got something that is more of a wish and a hope than actually a form of money. I tend to think that cryptocurrency is never going to be money. It may be an investment. It may be a security. It may be a commodity. I don’t ever think it’s going to be money because, first of all, how can you use something that maybe worth $50 in the morning and $100 in the evening? Right. You’re not going to take that vehicle to the supermarket to buy a loaf of bread. It's got lots of problems, but look, at the end of the day, I’m a big believer in allowing people to invest in things where they lose their money, and if people want to invest in computer code that somebody somewhere threw out into the universe and said this is a cryptocurrency, God love them, but I think the problem we have here is that the government has missed the boat in terms of letting this grow into a $10 trillion business, whatever it is. Whether it’s Las Vegas or it’s actually some important development in the financial services. The government has let it grow into a $10 trillion industry. What I mean by that is, there’s $3 trillion of cryptocurrency out there. There’s $3 trillion of synthetics and derivatives built on that cryptocurrency, and there’s $3 trillion to $4 trillion of leverage and margin in that business. You add all that together, that’s about a $10 trillion business, which is about the size, a little less than the size of the U.S. mortgage market, and the U.S. market mortgage is highly regulated. I think it’s fair to say there’s relatively no regulation of cryptocurrencies, and that’s the big problem we’ve got right now. We’ve got a big part of the universe in the financial services system completely unregulated.

Kornik: Right. I was going to ask you about that. How do you see cryptocurrency and digital tokens impacting financial regulation and deposit insurance?

Vartanian: When it comes to regulation of cryptocurrency and deposit insurance, you really got to step back and wonder where we’re going to go in this digital economy to come up with a better regulatory system. What I mean by that is, the regulatory system we have today was built between 1932 and 1940. It’s the same system we have today. It’s been altered, it’s been modified, but essentially, it’s the same system of banking securities, mutual funds that was set up between 1932 and 1940. And I can guarantee you that there’s nothing about today’s economy that looks like 1932 and 1940. So, we’ve got a regulatory system that I have argued is terribly out of date, terribly misfocused, and at the end of the day, focused on only a small portion of the financial services business.

For example, one of the things I argued in my book is that when the banking regulations were set up and we ended up with this bank-centric sort of financial regulatory system, banks were about 95% of the financial services system in the 1930s. Today, if you take banks and their deposits and compare that to mutual funds, hedge funds, insurance companies, and all the money consumers throw in that direction, including cryptocurrency, you’ve got a banking business that’s about 30% to 35% of the financial services market. What does that mean? It means we’re focusing 100% of our regulatory prudential resources on 30% of the market. Makes no sense. So, looking at crypto, I think the fundamental problem crypto has, if we begin to regulate it, is that it is the number one choice for criminals, terrorists, fanatics and creeps. Right? It has enabled crime in all forms, from terrorism to child pornography, to hit a different scale completely, and so there is nothing out there that we’ve ever seen like this, and we have to decide whether or not we want a system like this to proliferate when it is increasing the scale and scope of crime dramatically. I mean, there’s no doubt that technology enhances the quality of our lives, but the scale of the damage that can be done is also monstrous.

Kornik: How about central bank digital currencies? We’ve heard a lot about them. Certainly, there’s a race for digital dominance as governments try to maybe perhaps use the shake up in the monetary system right now to maybe gain an advantage. Where do you see central bank digital currencies factoring into the future of money over the next decade or so?

Vartanian: Yes. It’s a great question because a lot of countries are running out there to do it, and the United States is lagging behind. I think the concern is, should we be lagging behind? I think it’s got to be the answer to the question. I think the Federal Reserve board concluded after a pilot program through the Federal Reserve Bank of Boston, that yes, it’s a good thing to lag behind here so we can see all of the warts and the problems in the system. The folks at the Federal Reserve Bank of Boston were working on this. I know and I’ve known some of them for a while, asked me to give my views. I did give my views and I said, “Look, there’s two threshold issues when you’re dealing with CBDC. First, what’s the overall economic impact? Because it’s going to change the way money moves. It’s going to change liquidity. It's going to change capitalization. So, what’s the impact?” What I referred them to were the 1980s when money market funds took over the market, and for those who were around then or don’t remember, in 1982, interest rates hit 21%. Banks were still paying 5% interest on deposits until they were deregulated around that time, but what happened was necessity was the mother of invention; money market funds began paying a market rate. So, when I was General Counsel of Federal Home Loan Bank Board, we were dealing with 1,500 failing thrifts from a lack of liquidity to an interest rate risk problem. You could see the money just draining out of the banking and savings and loans system because money market funds were paying 12%, and banks and savings and loans were paying 5%. So, you’re not going to stick around even if it’s FDIC or FSLIC insured for 5% yield when you can get 12%. So, the money just flowed out of the system and overnight, we were remaking the business of financial services in America and partly because of that, partly because of the interest rate risk, and partly because of the asset quality risks that emerge in the 1980s, we lost 3,000 banks and savings and loans. And there wasn’t one moment, as I recall, that I dealt with the Federal Reserve Board and all of our failing savings and loans at that time. Nobody considered the global impact on the economy from moving from money going into bank deposits to money going into money market mutual funds.

Now, I raised that only because CBDC could have a similar impact, depending on who holds the accounts for the CBDC. For example, Joe, if you can open up an account at the Federal Reserve Bank and you could use CBDC and you don’t need an intermediary bank, that changes the business of banking overnight. Where do they get their deposits? How do they make loans? Who’s making loans in that environment, right? It’s just a mammoth change in the market that could occur, and the question I always come back to is: what do we want our intermediaries doing, how important are intermediaries, and what is CBDC going to do the future of our intermediaries, meaning banks?

The second issue I’ve raised, and I think this issue is also stuck because I know several folks at the Fed have given speeches; several governors have given speeches about these issues since I’ve written about it, and that is, I thoroughly believe the Fed could do a CBDC tomorrow from a technological point of view. I don’t think that’s the problem, but I don’t think they should do it until they can guarantee it’ll be 100% secure. Because it will be the most sought-after thing online by any hacker on the universe once it goes live, right? Every hacker will be drawn to hacking United States Federal Reserve Board’s CBDC. There could be no more attractive target to anybody. So, if the Fed can’t guarantee the security because a breach in that system would be horrific. If the Fed can’t guarantee security, they shouldn’t do it. I’m pretty sure they can’t guarantee 100% security.

Kornik: I’d be curious to your thoughts just to where you think this all - how this all plays out in terms of CBDCs, cryptos, all those emerging technologies? Take me out to 2040 and tell me what kind of world we live in financially.

Vartanian: I think, Joe, the principal problem is this. You can’t stop technology and you should never stop progress. We’ve got to have progress as human beings. That’s the good part of the equation, but what I’m concerned about is if the scale is changing in terms of the balance. Let me give you an example. When I started in banking in the 1970s as a regulator, the maximum amount that you could steal from a bank was about the amount you could put in two valises and throw in a van waiting outside. Today, the amount is unlimited. There’s $4 billion of crypto being stolen every year. That’s probably more than all the bank robberies in the history of the country. So, the scale is changed. The scale of damage that can be done by these things has changed, and my prediction is that if we don’t get together with all of the other democratic countries of the world and begin to impose rules that control and channel technology to make sure we stay in charge, and you can argue about who’s “we” in that, but to make sure human beings, to make sure benevolent countries, to make sure democracies stay in charge of where that technology goes. I think the combination of AI, facial recognition, the internet of things and quantum computing is going to encourage the criminal elements of the world. It’s going to empower less powerful nations to do things and punch way above their weight. So, unless we start setting the rules now for the way that this will affect us geopolitically and financially in the future, I think rolling the dice on our financial future with all of the things, these things, these technologies are going to be able to do, is pretty risky. I think we’ve got to stay in charge, and we’ve got to drive the bus if we want a future that serves us.

Kornik: Well, Tom, thank you so much for your time today and those insights. Fascinating discussion. I appreciate it.

Vartanian: Thanks, Joe. It’s a pleasure to be here with you.

Kornik: And thank you for watching the VISION by Protiviti interview. On behalf of Tom Vartanian, I’m Joe Kornik. We’ll see you next time.

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future of money, and I’m happy to be joined by Nish Dharmaratne, Managing Director, Global Head of Product (Payments, Liquidity, and Digital Solutions) for GTS Westpac. She also is a board member for the Australian Payments Network and an advisory board member for Women in Payments. I’m pleased to hand off interviewing duties today to my Protiviti colleagues, Director Ruby Chen and Senior Director Rupesh Mahto. Rupesh, I’ll turn it over to you to begin.

Rupesh Mahto: Nish, so good to meet you again. It’s always a pleasure to talk to you about what’s happening in the payments world. Thanks for doing this for us.

Nish Dharmaratne: Thank you, Rupesh. Thanks for the opportunity to join you and Ruby today.

Mahto: So, Nish, as you are at the center of payments, there has been so much impactful changes in the payments landscape over the past few years in Australia. I can name a few. Like real-time payments, using NPP, Osko, and now PayTo. There have been strong advancements of mobile app payments. There have been great developments in open banking and how to make payments frictionless using the infrastructures that we have developed over the years in Australia. My question to you is, what’s next? What’s going to change in the next three to five years?

Dharmaratne: That’s really a good question. I’ll break that into a couple of parts. In terms of trends, clearly, there are trend-setters and trend-setting, and opportunities that’s plenty. What is really interesting, Rupesh, is in general the payment volumes have been growing. As we all know, the way in which the Australians are making payments have changed, but the most important point is the way in which consumers, particularly individuals, the way they have started adopting into the new payment solutions. What is most interesting is also younger consumers, between, say, age 18 to 29, are the highest adopters of mobile devices. So, the demographic and the flavors are changing, which is also, obviously, helping to set the trend.

I think we are also picking up a number of global trends. Obviously, the wallet usage of mobile wallets has picked up. It’s part of a very tech savvy consumer who wants to make the payments. Whether you make a payment here in the Australian market or overseas. What is also interesting to see is the decline in cash. So, there has been a 90% plus decline in the cash usage in the last—again, in the last decade also and very small population of institutions using cash for various very specific payments now. So, if you will think about it, the overall trend is people are becoming more and more savvy with payments, which wasn’t the case in the past, because average consumer would walk into a bank branch most likely and discuss their payment methods. If they are making a payment overseas or if they are making a payment to buy a house, there are very specific requirements to meet. Now things have become extremely merged into a very, very digital experience. So, the Australian Banking Association, they prepared a report around digital wallets. One of the points that came up in that is about 746 million was the usage of digital wallet total usage in 2018. It has gone to a staggering 93 billion by 2022. So, a lot of these were based on people are registering their cards into the digital wallet which is now standing to be about 15.3 million registrations of mobile wallets. So, that’s clearly one trend which is—I feel that the consumer choice and consumers are making decisions.

The second one is payments going real-time really, really, really fast. We make about 650 billion worth of payments every day. Most of you, and Rupesh, you mentioned, is that the Australian real-time payment system, which is also called New Payments Platform, NPP, it has grown since its launch back in 2018. Today, this payment process is about 1.3 billion transactions and $1.5 trillion worth of transactions. It is still not at the 100% usage. If you compare with the 650 billion we make, it’s still—only a fraction of it has moved to NPP. As you rightly called out, the new functionalities or overlay service that are getting built on top of real-time payments. Things like PayTo, which is equivalent of a request to pay service in other markets, is actually going to change the game really, really quickly next year. We feel that there are not only banks at play anymore because usually we have four major banks and about 20 other tier two, tier three banks, and then there’s about hundreds of credit unions and smaller agencies that provide banking services. But when you look at the NPP there are a hundred payment providers connected with NPP. They vary between fintechs, new ventures, up and upcoming companies that are providing different parts of the payment value chain. So, the reach is higher because it reaches about 90 million customer accounts, and the depth is getting better because of the different types of solutions. All these hundred providers are wanting to provide to the market. So, I feel that the second trend, as I mentioned, is how fast can real-time go, it’s going to go really, really fast.

Mahto: I totally agree. The payments which was quite invisible in the ecosystem has started becoming quite visible to our end user. My question to you is, from you, wearing a Westpac hat, how are you taking care of end user experience as a key differentiator in your role?

Dharmaratne: There are literally two camps as far as the Australian market is concerned. The larger institutions, banks like ourselves, and then there are institutions that are—that have been investing through various investments into fintechs, financial technology. Now, there’s a lot of collaborations going around, but at the same time, we are all used to batch-based payment systems. What it means is we accept the file from a customer and we process two times a day and we are done by the end of the day if possible. The customer then gets the money in day two or day three. Now, that really has changed in the last few years anyway because of the introduction of APIs and host-to-host systems being in a mature stage anyway. What is really interesting about the technology is if you look at the way in which the banks themselves, put together just the banks, invested 28.5 billion from 2005 to 2022, and this is also ABS statistics I’m sharing with you. What that means is, banks have invested eight times over to their technology. So, that clearly says that if you are an institution which is not cloud native, not on cloud, has legacy infrastructure, you got to move and you have a plan to move to cloud. If you haven’t started using latest technologies like APIs and now AI, et cetera, you’re going to be lagging behind.

So, all of that investment is really going to make the customer experience better, because the customer is looking at a lifestyle choice when it comes to payments. They don’t want to make a different decision when it comes to a payment like—a good example we all know, ride-hailing through an Uber or through any other service provider. You do not want to be able to think about their payments. You just want to get to—from point A to point B. Get out from the taxi. Someone else is going to take care of the payments. What is really important for the consumer is, what does that mean from a loyalty and rewards perspective? So, consumer experience on one side. The more digital it is, the better off we will all be. But also, how that’s going to get connected to something that’s going to monetize for the consumer? It’s going to be really interesting because not everyone will be able and has the economics to be able to provide a reward or a loyalty every time you use a service. But consumers, and especially the demographics I mentioned earlier, the 18-to-29-year-olds that are entering the workforce and spending, will expect that user friendliness, will expect that reward, and will expect to be loyal to the brand if everything works fine.

The other part of your question, Rupesh, was around—I want to share an experience and an example with the new feature we are building on a New Payments Platform called PayTo. PayTo for payers is already live. That’s a request to pay service for those who are not familiar with the market. That’s going to be end-to-end digital. What it means is you literally walking into a merchant or let’s say your gym. You request—the gym wants you to pay $50.00 a month. There will be an electronically or digitally created mandate that gets accepted right across from the merchant’s bank to your bank, and then you will accept through the banking app or through the banking channels. That’s going to happen within two to three seconds. True, it hasn’t come into the market fully yet. We are all launching that in the coming year. It will reach some maturing because we are working with a number of institutions, particularly the biller organizations to help them to understand this is going to be the new way of collecting your receivables. This is going to be the new way of collecting—faster collection. So, let’s work together. That’s going to be a really, really interesting customer experience, end-to-end digital.

Ruby Chen: Hi, Nish. It’s so great to be able to interview you. You talked about emerging trends, somewhat the user experience. I was so mesmerized by the new PayTo, which sounds so fascinating. Now, we’re moving on to risk and governance, a topic which is equally as important, I think. So, as we move into new and enhanced digital experiences around payments and the transfer of money, what type of risk, governance, and regulatory standards do you think is necessary?

Dharmaratne: Good question, Ruby. I will take the question in reverse order because I think it’s important to set the context in terms of regulatory, then governance, and then I’ll talk a little bit about the risk. So, regulatory standards. The Australian system or legislation has not been reviewed for the last 15, 20 years. The Check Act goes back to the 1980s, 1990s. The Payment Systems Regulatory Act, which talks about payment systems regulation was back to 1998. There hasn’t been any revision of these legislations for a very long time. Now, this really links back to the announcement and the strategic payment modernization plan that the government and the treasury is keen to implement in Australia. What we’ve actually done is we already started consultancy on the payment systems regulatory act, and there are a couple of discussions happening in terms of feedback of how to go about this change.

What does that mean? As you know, with the plan, we are looking at phasing out checks in 2030 and also looking at a way to reduce the batch-based system called BECS which is a batch-based exchange system for low value transactions. We’re thinking of looking at an organized way of phasing that out as well into the future, quite similar to the checks timeline as well. So, I feel 2023 and 2024 is going to be a very, very exciting time for us with the changes that are proposed through these legislative reviews that are taking place now.

The second part of the governance and regulatory standards is, we will expect also some level of payment standards body to be set up and that will then take care of some of the work we are doing today on enriching messages, ISO 20022 standards, and the things we need to do even around fraud, et cetera, is all going to be part of the standards that we expect through a standards body. That’s going to be a piece of work that the industry is going to work towards.

The last part about the governance is licensing. Australia has been a very free market led by demand and supply of consumer choice, consumer rights prevail over many things. But we’ve never had—other than the standard banking licensing regime, we’ve never had a payment service provider licensing. So, you do find a lot of the global brands and global providers who are in this market doing extremely well providing the services, but there’s not much of governance going around it. So, the second part of that really, Ruby, we expect that the governance is going to get better, obviously, for the betterment of the consumer.

Now, let’s talk about risks, because I think the biggest risk at the center of all of the risk categories is fraud and scams. This is really a huge, huge area that the banks, all of the participants, including the government, is really keen to look at some solutions or enhance the existing capabilities that we built. So, the Australians put together—lost about 3.1 billion from scams last year. Mind you, that’s just the reported number. So, the common types of romance scheme scams, lottery scams, money transfer scams, even grandparent scams, who would think, right? So, consumer protection therefore is top of mind for the regulator, government, and ourselves as banks. So, the government through the federal budget, they backed a package of $86.5 million to be able to combat scams and online fraud. On top of that, major banks already established means of fraud checking, payment verifying, and we ourselves at Westpac we have payment verification service offered to the customer when they set up payers in the online banking channel. So, this risk area is a huge area for us. There’s also word that the industry bodies are looking to implement a common confirmation of payee solution that will get discussed in the coming months as well. So, there’s a lot of focus and attention. Everyone is doing their best but frauds and scams continue to be a challenge for many Australians.

The second risk, which I think is really important, is the cyber risk. That is not uncommon to any market anywhere in the world. Cybersecurity, an enhanced means of contingencies in the event of a cyber scenario, is something that the prudential regulator is very keen for all regulated entities to implement and make sure we have the contingency plans to support our customers.

Chen: Another area that is of very big interest to me is women in payments. So, you served on a few boards and you’re the advisory board member for the Women in Payments organization in Australia which reflects your passion around this area. What are you views towards the role women can play in driving the future of payments industry or ecosystem? Why do you think it is so important to have more women involved in shaping the future of the industry?

Dharmaratne: Yes. I think this is the hardest question of all of it. The others are pretty easy given—in the midst of building and delivering solutions to the market. This one I never thought as anything that is—differentiates a person as a female leader driving through changes. Actually, it’s a very good question, Ruby, because when I look back, and I’ve been in the banking for 30 years, and when I think about payments, payments were never in the forefront of banks. Banks were busy lending. Banks were busy taking deposits. I, myself, has been a balance sheet specialist for the early parts of my career. So, I became a payment nerd much later or mid-career. Maybe it’s a midlife crisis, but I moved over more towards payments on the last probably 10 years or 12 years of my career. As I said, when you look back in the banking, ages ago, payments was really—payments could be in the technology area who is just helping you with technical customer payment files or exchanges between banks, or managing when there’s a job failure on the technical side of things. Or, the other career path around payments was just in operations. Basically, there were many systems but all the systems did not talk to each other. There are a lot of manual operations. Therefore, lots of females tend to be more on the operation side as opposed to the technical side. You could almost see that a large part of the technical payment technology side was dominated by males, and I’m making a very general comparison here, but operations jobs were females.

Look around now and you could see that, if at all, equal or more participation from women in payments-related services. That’s really, really interesting because I think it’s a bit like women in technology, but women in payments itself is something that has—we have evolved over time. I think women have been much more learned, much more educated, much more willing to take risks in their career, chosen career paths. That helped to be where we are today. The other thing that is really important is the number of new ventures or financial technology company or startups that women do play a key role.

Now, I’m gender neutral around these things because all types of diversity is really, really important. Diversity brings the best of—diversity of thought, in particular, brings the best when people collaborate and it’s essential during—an area like payments which needs a lot of ideation and innovation, and people need to be working together. So, all perspectives are extremely important. If you’re passionate and you want to do something, now there are many more tools and organizations and support groups particularly for women. I do mentor a couple of female talent in the market. They are very, very excited of what payment services and payments combined with technology together is going to create even more, bigger opportunities. So, a whole lot more to see.

Chen: Thank you so much, Nish. That concludes our interview questions. It’s so great to have you with us today.

Dharmaratne: Thank you, Ruby. Thank you for having me. I really enjoyed this conversation.

Chen: Great. Thanks, Nish. Now, back to you, Joe.

Kornik: Thanks, Ruby and Rupesh, and thank you, Nish, for those insights. Thanks for watching the VISION by Protiviti interview. For Nish, Ruby, and Rupesh, I’m Joe Kornik. We’ll see you next time.