Financial messaging body Swift describes its new business incubation unit Innotribe as "a big sandbox" that enables bankers to express their most creative and imaginative ideas without inhibition. Participants are encouraged to challenge traditional banking practices and consider a brave new world of possibilities.

However, on the final day of Swift's user group conference Sibos, Citi, one of the biggest banks in the world, jumped into this box with both feet and proceeded to kick sand in the face of seven skinny startups that had come to show off their new ventures.

The Innotribe conference stream featured a series of panel debates, the last of which was billed as a battle of Bank 1.0 versus Bank 2.0 as mainstream banks came face to face with the new wave of virtual currency providers and high-speed, online banking ventures. And despite all the talk of peer to peer transfers, social networks and decentralised currencies, it was the age-old topic of regulation and money laundering that delivered the decisive blow.

The session started promisingly enough for the challengers with seed investor Anthemis announcing that it had taken a stake in German digital bank Fidor, and social network HubCulture announcing a deal with Thomson Reuters that would make Ven, its digital currency, available on more than half a million institutional desktops.

But when Donald Norman, co-founder of fellow digital currency provider Bitcoin was questioned on how the decentralised peer to peer payment scheme could quell industry concerns about money laundering, a convincing answer was not forthcoming. Instead it was suggested that the topic was being used to create "negativity around new online payment initiatives."

So it was little surprise that when it was time for Citi's representative to step into the ring, the issue of money laundering and terrorism funding did not take long to emerge. "The threat of terrorism is real and money laundering is real," said Yobie Benjamin, chief technology officer at global transaction services, Citi. "These are things that on this side of the banking industry we struggle with daily."

Brandishing no less that eight mobile phones displaying the bank's range of apps, Benjamin also defended the lack of agility among large transaction banks, again citing the issue of regulation. "Citi has banking licenses in 149 countries and complies with all the regulations in those countries. So we are quite slow to move sometimes but when we do, we move with a lot of power."

Citi has been actively involved in the launch of Google Wallet, a mobile payments initiative developed by the global search engine, and Benjamin hinted that similar big ticket deals are likely to be announced in the coming weeks, sparking speculation that a relationship with Apple might be forthcoming.

Citi's online payments strategy is based around the provision of an API that can provide the processing backbone, as well as the banking license, for the likes of PayPal and other new payment providers. "Our goal is not to compete with PayPal but to facilitate them," said Benjamin.

PayPal was also featured in the session and it was a sign of the company's progress that it was, somewhat surprisingly, considered to be a member of the Bank 1.0 mainstream rather than a Bank 2.0 challenger. And while Darrell MacMullin, managing director of PayPal Canada, was able to demonstrate new pre-commerce features incorporating real-time inventory capabilities, online price comparisons and barcode scanning, the issue of regulatory compliance refused to go away.

"The pace of innovation is up here while the speed of regulation is down there so we have a real grey area," said MacMullin. "We have to find that balance between the two. New technology means that there are new test cases emerging all the time and we are working closely with the regulators because we do not want to see innovation stifled."

So who won the battle between bank 1.0 and bank 2.0? It is possible that it was not really a fair fight, given the respective weights involved. Perhaps next year's Innotribe session should focus less on the boxing glove imagery and Rocky soundtrack and examine how exactly the necessary partnerships between the new wave of peer to peer payment providers and fully licensed banking back offices will work in practice.

As HubCulture founding director Stan Stalnaker said: "These new emerging value types are not designed to threaten or replace existing currencies but to add more flexibility."