Wednesday, December 19, 2007

Commission prohibits MasterCard's intra-EEA Multilateral Interchange Fees

See the press release here to read a landmark decision of the Commission. It's main argument:
The Commission concluded that MasterCard's MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies.

Well, the discussion cannot be solved and Mastercard will not be able to prove it is right. But neither can the Commission. As I pointed out in an earlier post (ultimate paper on interchange fee by Brookings Insitution). So this is a power game, a legal game and a communication game at the same time.

We should note that at present the multi-lateral fall back MIF allows lots of smaller banks and participants to the Mastercard scheme. Those players would otherwise have to negotiate individually with all issuing banks. And that would be so costly that they wouldn't join the system at all. And I fail to see why the Commission isn't able to calculate those costs of negotation (and view the efficiency benefits of having a fallback MIF). Do they now really expect all members of Mastercard to use the next 6 months to agree bilaterally on new fees...?

Saturday, December 15, 2007

Paying cash more expensive than using the debit-card

Here's an interesting bit of research done in the Netherlands. All shops, banks and central bank have joined forces to evaluate the cost of payments with cash, when compared to debit-card. The results are that it has taken us in the Netherlands some 15 years to ensure that the full cost of debit-card payments are lower than cash-payments.

The research outlines that:
- full cost of payments in retail are down from 839 million euro in 2001 to 788 million in 2006,
- in 1992 a debit-card payment was triple as costly as a cash payment
- in 1998 the debit-card payment with PIN was roughly twice as costly as a cash payment
- in 2006 the debit-card payment is almost the same price as a cash payment (20-18 cents in retail-environment),
so that now, at the end of 2007 it's safe to state that the full cost of Dutch debit-card payments to merchants are lower than cash payments (on a per transaction basis).

As a consequence, the retailer representative organisations advise all merchants to use the debit-card rather than cash and to stop old habits that date from earlier days: the surcharging for use of the debit-card. Because other research by the central bank shows that still 20 % of the retailers surchagre an amount of approximately 23 cents for payment wit a debit-card.

So one landmark achievement is that over here in the Netherlands we have started to beat cash in terms of real cost.

Comes with it another interesting development. One fifth of the retailers surcharges 23 cents for a debit-card transaction that costs them 20 cents. Leading to a 3 cent per transaction profit. The bank-side of this equasion is that banks sell their debit-card transaction for 5 cents, while it effectively costs them 13 cents (see McKinsey reports in 2005). Meaning that debit-card payments have turned into a profit maker for retailers and a bleeder for banks.

This makes you wonder why it would make sense for banks to still subsidize debit-card payments to merchants with a one cent per transaction 'efficiency-stimulus' as agreed in the 2005 Covenant.

Friday, December 07, 2007

Single market review forgets better regulation principles

This recent single market review is interesting in many ways. We can see that the Commission is selling Europe to the citizen. And bashing banks is always popular, so we can see that happening now as well. Without awaiting the results of a consultation on a report (that finds no evidence base on the exisence of a switching problem) the Commission wishes switching services to improve. In doing so it jumps to conclusions and forgets it's own better regulation principles.

This is not the best way forward. Let's relook the earlier committments of Commissioner Mccreevy on this matter:
Ladies and Gentleman, this Commission is taking a more variable, more modern approach to regulation. Strict adherence to better regulation principles. Wide consultation. Full impact assessments to ensure that initiatives are fully thought through. Legislation only where clear benefits are apparent.
And let's now proceed to see the real-life case of user mobility in the retail financial services area.

1. In the white paper on financial services, the Commission set up an expert group to discuss user mobility.
2. After one years work, the group concluded that there was no evidence base and no agreement between different stakeholders on the issue: is there a problem or not.
3. Then, the commission sent out a (coloured) consultation on the report, which already had a spin on it; assuming that there was a user mobility problem. But, the positive news still was that the Commission claimed to adhere to better regulation:
In line with Better Regulation principles and as a follow-up to the Group's work, the Commission is opening a public consultation on the Group's report. Stakeholders are invited to comment by 1 September 2007. Comments should also address the impact of the Group's recommendations and suggest any other ways to improve customer mobility in relation to bank accounts.
4. To top it of however, without awaiting the results of the consultation, without doing any impact assessment whatsoever, the single market review heads for a specific direction (asking the industry to do national things on switching services) that should normally be the result of the analysis in the impact assessment.
5. Given that the results of this expert group do not at all come in handy (as it acknowledges the need for a solid evidence base), the work of the expert group is completely left unmentioned.
6. So now the Commission moves ahead, will undoubtedly publish a press release to take things a further step forward ('inviting the industry to come up with national solutions to switching') without due consideration to the real facts and developments in the market.

Interestingly: if the analysis is that switching is not a pan European issue, it's not up to the Commission to act. Similarly, if there is no impact assessment, it's not up to the Commission to do anything else than make one. But then again, the Commission seems to think: a scare tactic always seems to work with banks, so let's see if we can move them in a direction by threatening, even if we put aside our own principles and follow gut-feeling rather than facts and due process.

Unfortunately this fits nicely into an earlier grim picture that I sketched on the true better regulation approach of the Commission. Which essentially was that it is about lipservice more than true service to the citizens of the Community.

Sunday, November 04, 2007

Skimmers detected this morning

Nice article in newspaper: attentive customers discovered skimming device on an ING ATM. See also the two foto's:
foto 1
foto 2

Tuesday, October 16, 2007

Payments: The Clash of Banks, PayPal - 10.01.2007 - American Banker Print Article

Nice article here:Payments: En Garde! The Clash of Banks, PayPal. How to judge Paypal...?

Many EU observers often claim the e-money directive hasn't worked at all, allowing only 15 competitors market entry in 5 years. So hasn't it worked? Future will demonstrate how wrong those observers are. Paypal has used the e-money regulation as a stepping stone for it's current banking license in Luxembourg. And will now use the banking license to further skim the banking market.

Meanwhile banks struggle with legacy systems, legacy thinking and legacy regulators... so here's definitely a revolution in the making.....

Payments and Settlements News 53

Payments and Settlements News 53 is out now with:

News and events:
· Eurosystem – SEPA signing events at Sibos 2007
· European Commission – EU-Pay pilots launched
· ESCB - "TARGET2 is targeting start of operation"
· SEPA - European payment processors in interoperability pact
· European Commission - VISA fined for Morgan Stanley exclusion in the United Kingdom
· National Bank of Belgium - "The Single Euro Payments Area: SEPA"
· De Nederlandsche Bank - "Navigating towards SEPA: the transition to European payment instruments in the Netherlands"
· PCI Security Standards Council - administering PIN Entry Device (PED) Security Requirements
· NACHA - fee structure for Secure Vault Payments announced
· United States – Update on Revolution Money

Articles, speeches and reports:
· European Commission - "Improving the competitiveness of European card-based payments", speech by Charlie McCreevy
· Sveriges Riksbank - "The Costs of Paying – Private and Social Costs of Cash and Card Payments"
· National Bank of Belgium - "Financial Stability Review 2007"
· Suomen Pankki - "A qualitative study to identify factors that influence Finnish consumers to change their payment behaviour"
· De Nederlandsche Bank - "Overview of Financial Stability in the Netherlands"
· "Mobile Payment Models and Their Implications for NextGen MSPs"
· gtnews - "Prepaid Cards: a Payments Revolution"
· Innopay - "Understanding buyer and seller behaviour for improved payment product development"
· Fed Kansas City - "Complex landscapes: Mobile
· payments in Japan, South Korea and the United States"
· Fed New York - "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement"
· Fed Chicago - "Using Payment Innovations to Improve Transportation Networks"
· Fed Boston - "Consumer Payments Research: Industry Reference Guide"
· Fed Boston - "Mobile Phone: The New Way to Pay?"
· United States - "Why Once-Soaring Contactless Payment Has Lost Some Altitude"
· Reserve Bank of New Zealand - "Payments and the concept of legal tender"
· Bank of Japan - "Payment Flows for Settlement of Foreign Exchange Trades: Japan's Experience since 2002"
· Reserve Bank of Australia - Payments System Board Annual Report 2007

Zaypay, a new 'Paypal voor mini-payments'

M-payments service provider Mollie will enter the market with Zaypay, a payment system for small valure payments (below 1 euro). They view themselves, according to this Emerce article as the 'Paypal for mini-payments' and will launch next month. All non-regular payments (sms, 0900, Wallie etc) will be supported as well as iDeal.

Wednesday, October 03, 2007

Elf arrestanten lid van Oost-Europese groep

Het Parool - Archief

Elf arrestanten lid van Oost-Europese groep
Skimmerbende opgerold PAUL VUGTS

AMSTERDAM - Met elf arrestaties heeft de Amsterdamse recherche dit weekeinde een belangrijke tak van een professioneel opererende bende 'skimmers' opgerold. Deze afdeling van de Oost-Europese groepering verdiende met pinpasfraude dit jaar aanzienlijke bedragen.

De recherche volgde de groep al geruime tijd. Het nu opgerolde onderdeel van de internationale organisatie is in elk geval verantwoordelijk voor inbraken in zes tuincentra, bouwmarkten en wegrestaurants in Amsterdam en wijde omgeving. Waarschijnlijk moeten ook inbraken elders in het land aan de bende worden toegerekend.

Monday, October 01, 2007

The beginning of the end: blocking payments for gambling...

Quite interesting both the US officials (Treasury and Fed) see proposed rule here and the Dutch government seek to stop 'unlawful betting practices' by demanding the banks that execute the payments to block those.

Well, if we go down this road and allow our governments to dictate which payments which customers may send/acccept (and instruct our banks to act accordingly), we may as well make the Treasuries our single national payment institution. This is what in my view will happen.

First the rules will be targeted to situations to which no one can protest: companies that sell child porn. This will get the first round of regulation off the ground.

Then the question will be: can we also stop payments to/from betting companies? Which is not so easy: in the Netherlands all non-Dutch government agreed betting (from abroad) is viewed as illegal. But that is a political judgment call, stemming from the fract that our government earns money from some of those companies that it has provided a betting license with. With a little luck, you also get this second round of rules agreed.

Third, we will see how it's not the national government prescribing to block payments to/from specific companies/customers, but local police officers or DA's. And they'll also be allowed to automatically fine the users that try to make payments to those companies that are considered blacklisted. Because those users are doing something illegal too....

Now, while this last scenario appears politically impossible now, it won't be once we're used to the first two interventions.

It is quite bluntly a disgrace that politicians and policymakers so improperly and so recklessly invade our privacy and dictate our and the banks' behaviour. If the bottom line is that police officials are not sufficiently equipped to catch crooks... fine, provide them with more resources. But don't try short-cutting it with using tools/means that will only end up backfiring at some point in time.

Or as Kant would say it, put yourself in the position of the other and question yourself once again if the proposed ruling is fair to all involved...

Friday, September 21, 2007

Postbank puts link to Virus Remover from Kaspersky on its web

The attacks on banks continue in cyberspace. And to such an extent that Postbank found the need to warn its users to check their PC and use the Postbank Virus Remover by Kaspersky Lab. Apparently the virus listens for the inlog-code and later on asks for tan-codes to be used in transactions.

Well, we've come a long way since in 1995 or 1996 first virtual demonstrates that it was easy to eavesdrop on the web. By now First Virtual is long gone and the eavesdropping is done professionally. And the importance of user education increases per minute.

Chipknip to disappear from manned-retail locations

Many papers and the national news discussed the ending of the Chipknip in manned retail loactions. Among them also Het Financieele Dagblad. All merchants are advised to just use the debit-card for low value payments, which is by now just as cheap as the e-purse (developed in a time when off-line payments were considered to be a smart way to circumvent the high telecommunication costs).

So, since the 10 years of its existence, the merchants didn't pick up the Dutch e-purse, which is partly due to the product characteristics. Consumers don't appear to like loading the card and keeping track of its balance. But then again, the use in parking, vending and catering niches is quite considerable. Th benefits of not having to collect coins at home for use in those machines clearly outlines the hassle of loading a Chipknip. So in these segments the Chipknip will survive.

Yet, we should also not forget the headlines of 10 years ago. Merchant lobby groups at that point of time explicitly stated that they were going to boycot the use of the Chipknip in the stores. Well, they lived up to their promise. It would be interesting to know if Neelie Kroes or any of her staff at DG Competition would also consider such collectively enacted boycots an abuse of dominant market position ?

Rabobank introduces challenge response token for the visually impaired/blind users

See this Techzine article: Rabobank will help the visually impaired by providing them with a bigger, audio-equipped device that acts as the regular challenge-response token that internet-bankers use. It's a sign that in mature e-banking markets (over 2/3rds of the Dutch now bank via the internet and pc) the tools are now being developed to serve and include the not-so-trivial target groups.

Tuesday, August 28, 2007

Mastercard to reconsider ad valorem based fee plan in UK...

See the website of the British Retail Consortium to read that Mastercard planned for a new approach to debit card interchange charging but was stopped by retailers...

In the UK retailers currently pay a fixed fee on debit card transactions regardless of the value of the transaction. Rates range from 6 pence to 18 pence, depending on which card it is and where and how the transaction occurs, but the fee on a £20 transaction is the same as for a £100 transaction.

For this new debit card MasterCard wanted to introduce percentage, or so-called ad valorem, fees. It wanted to charge a fixed fee of 3.5 pence plus 0.15 per cent of the purchase price.


It's intruiging: the attempts of debit card schemes to go for the ad valorem fee structures for payments where actual value (in terms of cost) does not influence the cost of the transaction....

Saturday, August 25, 2007

ABN Amro employees don't wish to be sold out to bidders...

See the RTL news that outlines that a huge ABN AMRO survey outlines that 55 % wishes ABN AMRO to be independent. And 39 % chooses Barclays over 6 % Fortis. So the labour unions will now ask the ABN AMRO Board of Directors to conduct an investigation into that independent scenario.

Again, we should recognize that even ABN AMRO employees may not have the full overview and details on the new situation and the mergers. They oppose to being split up. And I was just going to link to the ABN AMRO investor relations website to illustate that ABN AMRO has repeatedly split up and reorganised itself over the past years (without a lot of succes). And all the time the employees representatives did not ask their Board to self-reflect on the wisdom of such actions. But now they do oppose to outsiders that will do exactly the same.

Too bad that I can't make the whole argument right now, as the ABN AMRO investor relation website is completely down... ... which makes me wonder: would there be a silent take-over going on ... beginning as we speak with the website....?

Friday, August 24, 2007

How socialist save the capitalist ABN AMRO for Barclays...:

This week it appears as if everyone understands and has an opinion on mergers and takeovers in the financial markets. Members of provincial representative fora voiced their opinion that they thought ABN AMRO should not be sold to the consortium as that would incur too much risks. And similar tidings/thoughts come from the left-wing socialist party (former mao-ists) that even want to discuss the takeover stuff with the Minister of Finance (before the moment where he provides his statement of no-objection....).

While I myself know that the complexity of such a takeover is so huge, that one wouldn't want to consider meddling with it (let alone voice an opinion) it is intruiging to note in this analysis that left wing socialists now help out Mr Groenink in keeping an executive seat with the Barclays combination. Analyst Jeroen de Boer actually calls this a devils' pact.

It's a bit of media-logics here. A lot of people, representative organisations or politicians seek attention. So they choose a news topic (such as ABN AMRO) and then device an angle to ride-along on the news wave and be connected to the issue. One of the nicest examples in this respect: the organisation for the gay voiced their opinion on the merger and outlined that ABN AMRO should continue their gay-friendly policies. Completely off topic and highly irrelevant to the takeover debate, but absolutely brilliantly done.

The PayPal Blog: Observing Trends in the Payments Industry

Interesting article here on Payment industry trends on the PayPal Blog. Essentially the trends are:
- cash will lose out slowly
- convenience will make the customer chose for debit
- rewards are what matters in a saturated market.

Well, the first two are clear; I'm not sure about the third one. There's bound to remain a lot of national culture in payments. So the decisive factor in a saturated market can take a variety of forms, not necessarily being rewards. But for example the eco-image of the provider, the image of a brand, the actual customer service if stuff goes wrong, or perhaps price.

Still, an interesting article by Dan Schatt.

Time for e-invoicing...?

This Planet - Multimedia column by Arjan Dasselaar outlines that it is e-invoicing time and states that direct debits and paper based bill payments should quickly move to the musea. With e-billing and the e-billing standard developed in the Netherlands, the bills and payment orders slide into the customers e-banking environment to be paid whenever you wish as a use. No more revocations of direct debit, no more typing 16 digit payment numbers when doing bill payments...

Indeed, one could question if the direct debit mechanisms (developed in the 1960s, when computer time was not abundantly available) would today be designed if we would not have it already. The answer is most likely negative. The direct debit comes with a lot of uncertainty for consumers (you never know exactly the date of the debit nor the precise amount), there is uncertainty for the companies (you never know if consumers refund the transaction) and there is a lot of work for banks (you never know when consumers/companies are going to call to ask for information/refunds).

Meanwhile one can see the European Payment Council still betting on the direct debit to be used as of 2010. Which, if this would indeed work, would become a typical case example of path dependency. This means that although rationally a technical standard does not make sense, the fact that so many people are used to it, will mean it won't be abolished.....

Wednesday, August 22, 2007

Octopus had some errors in top ups .....

Dave Birch has an interesting case study on the Octopus system that apparently doesn't do its math completely well. It appears that quite some users have paid for topping up the card while in fact it wasn't. And the central bank has stepped in to take a look.

This makes me wonder. Our contactless system also works with the Octopus stuff. And quite recently Dutch students did discover errors in the system for single load cards.

Would it be possible that TLS now have the same error embedded in their systems or would the adaptation to Dutch circumstances have eliminated it...?

The Economic impact of the single euro area... ECB research

The fun thing of policy research is that it always gets you the desired result (as apposed to scientifc research where you seek out to dismiss a hypothesis. Last year the ECB set out to do some work on the economic impact of the single euro area. And now, the result is here.

The ECB has carried out in cooperation with the banking industry a SEPA impact study with the aim of enriching its understanding of the potential economic consequences of SEPA. Based on the quantitative and qualitative expectations of major pan-European banks, the study finds that a dual SEPA implementation phase should be as short as possible. In fact, a longer migration period would give rise to higher costs than a shorter period. It can furthermore be concluded that those institutions that embrace new technological developments, create new businesses and provide innovative services are likely to gain most from SEPA.

Well, that's of course the desired ECB answer (I guess deep inside they still stick to their former 2010 deadline for phasing out national payment products...). But it is by no means the whole picture. A lot more is happening then just a move to technological EPC-standards. Like the major impact of the Payment Services Directive. And the report outlines on that issue:
The scope and impact of the PSD goes far beyond SEPA, e.g. in terms of currencies, products and players. Overall, the banks shared the view that the PSD introduces rules with uncertain consequences on the payments business and their financial results. At the time of this analysis, the participating banks preferred not to commingle the pure SEPA impact analysis with a PSD analysis, as this might dilute the results and lead to unbalanced conclusions. The interviewed banks acknowledged that the main effects of the PSD stem from the extension of information obligations, shortening of transaction times, tightening of liability regulations for payment service providers, and more stringent processing of cancellations of transactions. However, at the current stage, the banks felt they were not yet well enough equipped to provide any precise estimate concerning the potential economic impact of the PSD.

Meaning: while the technical and migration stuff is already giving banks a headache, the implementation of new legal rules all across the board may be hitting the banks even harder. Thus undoubtedly raising the cost of doing payment business and thus raising the barriers for entrants even more...

Tuesday, August 21, 2007

Boober.nl peer to peer lending ordered to stop after half a year...

Webwereld announces that Boober.nl, a peer to peer lending site, must shut down as it requires a license for intermediating in financial services. But the website of Boober tells a different story and outlines that as of today it has a license (actually uses the intermediation license of one of its shareholders). Yet, the spokesman for the supervisory authority outlines that that won't work.

From a legal perspective, the shutting down of Boober is a bit of a no-brainer. I personally expected this to happen within a week or month from opening (see my previous posting here). Because whether you like it or not, the financial intermediation role is one that requires a license.

Yet, it took quite some time for the officials to move in. And that might be due to publicity, questions in parliament and supervisors that are anxious not to be characterized as being out of sync with todays society when they are blocking a nice democratic peer-to-peer lending initiative.

Only the older customer still wants the bank branch

See the ABA-website to discover that although branch banking still ranks first overall among consumer's usage, younger customers are continuing to choose the anonymity of their laptops over the human contact of a teller.

Banking at a local branch was the clear favorite of nearly half of those over the age of 55, but only 25 percent of those under 34 said they use branches most often. In fact, younger customers ranked branches behind online banking (30 percent). Older customers said the opposite with 47 percent saying branches are their preferred method of payment with ATMs (17 percent) and online (13 percent) trailing far behind.

Monday, August 20, 2007

First Data LBO may get banks into trouble

Very interesting article in Investment news here that outlines that the banks that sought to assist private equity firm KKO with the leveraged buy-out of First Data, may end up footing the bill themselves, due the current market developments:
When the $29 billion deal for credit card processor First Data Corp. was announced in April, it looked like another coup for New York-based buyout firm KKR & Co. LP and the banks, which stood to collect millions in fees from selling mountains of junk bonds and exotic instruments.

The trouble is that demand for speculative debt has dried up.

Even in the spring, “this deal looked like a bit of a stretch,” said Chris Donnelly, an analyst at Standard & Poor’s Leveraged Commentary and Data in New York. Now, he said, “unless the market changes drastically, the only question is how much money the arrangers will lose on it.”

Saturday, August 18, 2007

Single Market Review.... where are the real barriers to Europe....?

In the next months, the European Commission will publish its Single Market Review. It will be a stock taking high-level assessment and announcement of plans, undoubtedly seeking to charm the citizens into Europe by taking easy one-liners and ideas. The FD reports some of the top issues (conveniently leaked by the commission):
- energy prices,
- prices for mobile phoning,
- pricing of bank services.

It is one thing to devote all this attention to price levels and the conception that by regulation those should be harmonised. But it would be another thing to acknowledge the real root cause of insufficient competition in Europe: uneven, nationally inspired implementation of Directives in combination with national supervisors that interpret their competencies in a domestic manner rather than with the European spirit and legislation in mind. This same commission knows this, as they ordered some academics to writethis contribution to the Single Market. Which contains amongst many others the observation:
The adoption and transposition into domestic law of EU Directives is a necessary but insufficient condition for the well-functioning of the Internal Market. Although the SMP and successive Internal Market strategies have been aimed at creating a level playing field by providing a set of rules to be applied across the Community territory, some provisions have lacked clarity and precision. The result is divergent, occasionally even conflicting interpretations by different Member States, which often result in the distortion of competition. Problems resulting from an uneven application and weak enforcement of EU regulation have been highlighted by many respondents of a recent public consultation carried out by the Commission on the future Single Market policy.

Suppose you have a house with a number of rooms and one central heating system and knobs on the individual radiators in the room. And you note that the temperature in the rooms is different, whereas you would prefer it to be equal in all rooms. Would it be smarter to adopt another extra regulation to align these temperatures, or would it be more intelligent to order the government officials in the individual rooms to back off from the radiator knobs and let the central heating do its work?

I hope the Single Market Review comes up with a structural suggestion other than the 'better regulation' mantra, to solve that problem. Because national sentiments and rules and interpretations of domestic regulators are at the heart of the non-existence of a real Single Market.

SEPA: cost for the banks but income for others......

See the article in De Financiële Telegraaf that outlines that the boss of professional temp agency DPA Flex Group states that SEPA and MIFID are changes in the bank environment/regulation that will help boost income and profits for his organisation.

So if anyone thinks now is the time to do some stock picking and get ready for the rebound of the market.... that would be a sure bet or course.

Wednesday, August 15, 2007

PayPal - Pay later in the USA - undoubtedly the plan here in Europe as well...

Paypal announced earlier this month that they would start offering their US merchants the option to allow customers a deferred payment at the check-out. Thus tempting customers to buy even if they don't have the money (yet). In order to allow for this credit-mechanism, Paypal works together with GE-Money.

My guess is that somwhere in the next 12 months we will see this feature popping up in Europe as well. And that may be one of the reasons why Paypal chose to move from an e-money license in the UK to a banking license in Luxembourg. As a bank they can do credit; as an e-money institutions they don't have the same manouvering space (as well as more stringent liquidity rules).

By the way, Papyal has also just opened up a blog to keep in touch with the customers. As such they may be the first official bank to so openly embrace the blogging-concept. It may have it's dangers (particularly if Paypal would too often revert to their cavaet: we may, in our sole discretion, reject and delete any comments without notice if they are abusive, defamatory and offensive or for any other reason we deem appropriate), but on the other hand, better create a central blog-space for your own brand (and explanation) than have those autarkic bloggers and linkdumpers get the upper hand in the dialogue with users.....

Tweakers.net: virus attack on ABN AMRO

Although it is summer (or because it is summer...?) the news continues on internetfrauds. Tweakers.net noticed that ABN AMRO had sent out a warning to its customers to ask them clean up their PC with a specific tool.

Why don't those criminals take a long vacation...?

Two skimmers arrested in Zandvoort

Trouw outlines that 2 Roemanian skimmers of 16 years old were arested in Zandvoort, as they were carrying an old POS-terminal. The police told the machine was bugged to skim all information but hadn't been used. And the skimming appears to happen more frequently, the police state that there's not really a trend upwards. It's the regular battle against the crooks.

Meanwhile the representative organisations of retailers have a hard time explaining the press why it is that they insisted on being able to use terminals beyond their economic write-off period. Because it's those older terminals that are now hit by criminals and create a situation where the public may want to use cash rather than debit-card.

So now all the previous talks about bad things that might happen when moving magstripe card payments to EMV (including possible liability shifts), keeping terminals long on the counter and so on is sort of gone and the retailers organisations openly call upon the ministry of Justice to quickly catch all skimmers in order to maintain the trust in debit-card payments....

Tuesday, August 14, 2007

Ministry of Finance does not object to takeover of ABN AMRO by Barclays

An important formal step; a statement by the Ministry of Finance that they have no objections as to the Barlays takeover has today been taken. See the released statement (in Dutch) here and do note that this does'nt mean that the RBS consortium would not get a similar statement. I'm pretty sure RBS, Fortis and Santander will also get a statement of no-objection.

By the way, the statement comes with quite a wish-list of conditions for Barlays and it is countersigned by the central bank (on the request of the ministry of finance). Although the formal remark is 'notwithstanding the institutional responsibilities' it remains strange that the responsible Minister would want his advisor to sign his statement as well. So it does look a bit as if the Ministry of Finance is leaning quite a bit on the central bank expertise. Or, less poetic, in the case things might go wrong, it will also be the central bank that has to take part of the blame.....

Thursday, August 09, 2007

News on being overdraft in the Netherlands

the AD had some news on the overdraft behaviour of the Dutch. One third of the public is never in the red on its account. One third only sometimes. 17 % often and 11% always. The amount of money involved is about 8 billion euro; it's unlikely that (as the article stated) this full 8 billion wouldbe unagreed overdraft. It's more likely that a huge amount of that money is agreed lending via the payment account. But figures in this respect are scarce.

Tuesday, August 07, 2007

All on the Visa restructuring.. and the risks.....

This SEC filing contains all you want to know about Visa and its upcoming reforms. My personal favourite by the way is the risk section with main risks such as:
- Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenue, our prospects for future growth and our overall business
- If Visa U.S.A. or Visa International is found liable in the merchant interchange multidistrict litigation, we may be forced to pay substantial damages
- If Visa U.S.A. or Visa International is found liable in any of the cases brought by American Express or Discover, we may be forced to pay substantial damages.
- If the settlements of Visa U.S.A.’s and Visa International’s currency conversion cases are not ultimately approved and we are unsuccessful in any of the various lawsuits relating to Visa U.S.A.’s and Visa International’s currency conversion practices, our business may be materially and adversely affected.
- If Visa U.S.A. or Visa International is found liable in certain other lawsuits that have been brought against them or if we are found liable in other litigation to which we may become subject in the future, we may be forced to pay substantial damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability.
- Limitations on our business and other penalties resulting from litigation or litigation settlements may materially and adversely affect our revenue and profitability
- The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues.
- Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of payment cards issued, and could decrease our payments volume and revenues.
- Government actions may prevent us from competing effectively in the domestic payment markets of certain countries, which could impair our ability to maintain or increase our revenues.
- If government regulators determine that we are a systemically important payments system, we may have to change our settlement procedures or other operations, which could make it more costly to operate our business and reduce our operational flexibility.
- We face intense competitive pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Our operating results may suffer because of intense competition worldwide in the global payments industry.
- Our operating revenue would decline significantly if we lose one or more of our largest customers, which could have a material adverse impact on our business.
- Consolidation of the banking industry could result in our losing business and may create pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Merchants are pursuing litigation and supporting regulatory proceedings relating to the costs associated with payment card acceptance and are negotiating incentive arrangements, including pricing discounts, all of which may increase our costs and materially and adversely affect our profitability.
- Certain financial institutions have exclusive, or near exclusive, relationships with our competitors to issue payment cards and these relationships may adversely affect our ability to maintain or increase our revenues.
- We depend significantly on our relationships with our customers and other third parties to deliver services and manage our payments system. If we are unable to maintain those relationships, or if third parties on which we depend fail to deliver services on our behalf, our business may be materially and adversely affected.
- Global economic, political and other conditions may adversely affect trends in consumer spending and cross-border travel, which may materially and adversely impact our revenue and profitability.
- Visa Europe’s payments system operations are becoming increasingly independent from ours and if we are unable to maintain seamless interaction of our respective systems, our business and the global perception of the Visa brand could be impaired.
- As a guarantor of certain obligations of our members, we are exposed to risk of loss or insolvency if any of our members fail to fund their settlement obligations.
- If our transaction processing systems are disrupted or we are unable to process transactions efficiently, our revenue or profitability could be materially reduced.
- If we are not able to keep pace with the rapid technological developments in our industry to provide members, merchants and cardholders with new and innovative payment programs and services, the use of our cards could decline, which would reduce our revenue and income.
- Account data breaches involving card data stored by us or third parties could adversely affect our reputation and revenue.
- An increase in fraudulent and other illegal activity involving our cards could lead to reputational damage to our brands and could reduce the use and acceptance of our cards.
- Adverse currency fluctuations could decrease revenues and increase expenses
- Some of our financial incentives to customers are recorded using estimates of our customers’ performance. Material changes in our customers’ performance compared to our estimates could have a material adverse impact on our results of operations
- We have significant contingent liabilities for settlement payment of all issued and outstanding travelers cheques.
- Our brand and reputation are key assets of our business and may be affected by how we are perceived in the marketplace
- Our retrospective responsibility plan depends on several related mechanisms to address potential liabilities arising from the covered litigation, some of which are unique and complex, and if we are prevented from using one or more of these mechanisms, it may be difficult for us to fund the payment of a settlement or final judgment against us, which could have a material adverse effect on our financial condition.
- The shares of class B common stock that are held by members of Visa U.S.A. following the restructuring will be subject to dilution as a result of any follow-on offerings of our class A shares, the proceeds of which will be used to fund additional amounts into the escrow account necessary to resolve the covered litigation.
- Our governance structure after the restructuring could have a material adverse effect on our business relationships with our members.
- Following the restructuring, our relationship with Visa Europe will be governed by our framework agreement. This agreement gives Visa Europe very broad rights to operate the Visa business in Visa Europe’s region, and we have limited ability to control their operations and limited recourse in the event of a breach by Visa Europe.
- Our framework agreement with Visa Europe requires us to indemnify Visa Europe for losses resulting from any claims brought outside of Visa Europe’s region arising from either party’s activities that relate to our payments business or the payments business of Visa Europe, and this indemnification obligation could expose us to significant liabilities.
- We have granted to Visa Europe the right to require us to purchase all of the outstanding shares of Visa Europe’s capital stock. If Visa Europe exercises this option, we could incur a substantial financial liability and face operational challenges in integrating Visa Europe into our business.
- Our management team will be new and will not have had a history of working together.
- The restructuring is expensive and will require us to make significant changes to our culture and business operations and if we fail to make this transition successfully, our business could be materially and adversely affected.
- There is no existing market for our regional classes of common stock or for class B common stock and class C common stock into which the regional classes of common stock will be converted prior to our planned initial public offering, and thus we do not expect these shares to provide you with liquidity.
- The voting power represented by shares of our common stock may be limited because ownership of a significant percentage of our common stock will be concentrated in a few of our largest members.
- The U.S. Internal Revenue Service may treat a portion of our common stock received by a member of Visa International or Visa U.S.A. as taxable income.
- Members may incur tax liabilities in jurisdictions outside the United States, as well as in United States state and local jurisdictions, in connection with the restructuring and the true-up.
- The consideration that will initially be issued to members upon the closing of the restructuring is subject to reallocation and conversion.
- Anti-takeover provisions in our governing documents and Delaware law could delay or prevent entirely a takeover attempt or a change in control.
- U.S. federal and state banking regulations may impact our members’ ownership of our common stock.

Most interesting risk of course for us in Europe is to note the risk that Visa Europe becomes too independent. It's quite interesting that right now the fears that retailers try to increase among public policy makers, is that future Eu card schemes might become American owned.....

SanDisk and Philips join forces on cell phone payment via NFX

Tweakers.net had a post linking to this EETimes.com article that outlines that SanDisk and Philips join forces on cell phone payment:
Flash memory card supplier SanDisk Corp. has struck a deal with Philips Semiconductors to embed the Philips SmartMX smartcard controller chip in certain types of flash memory cards to allow them to be used for near-field communications (NFC) and in particular, when the cards are inserted in mobile phones, to pay for things.

SanDisk (Sunnyvale, Calif.) said the SmartMX would be embedded in TrustedFlash cards allowing consumers to use their phones as bus or train tickets and perform secure “contactless” payments and other contactless transactions by simply waving their phones near a contactless reader in a mass transit turnstile, checkout counters or drive-through windows.

TrustedFlash cards with SmartMX technology for NFC transactions are available to OEM customers in the microSD card format. SanDisk has started pilot programs and expects broader commercial rollout in 2007. The company did not state where the pilot programs are being run.

Monday, August 06, 2007

Fortis shareholders agree to share emission and ABN AMRO takeover

BNR Nieuwsradio reports that today the Fortis shareholders agreed to a share emission and to the ABN AMRO take-over. So ABN AMRO then published a statement that as of tomorrow there will be two competing bids on the table. One from Barclays and the other from the consortium with Banco Santander, Royal Bank of Scotland and Fortis.

And ABN AMRO also announced that it intends to hold an informative Extraordinary General Meeting of Shareholders on 20 September 2007 at 10:30 in 'de Doelen' in Rotterdam to discuss the offer by Barclays and by the Consortium of RBS, Santander and Fortis. The agenda items for that meeting will include a background to the public offers on all outstanding shares of ABN AMRO by Barclays and the Consortium, and the reasoned opinions of the Managing Board and Supervisory Board on those offers and the alternatives considered.

Quite an interesting meeting that will be.....

PS. Meanwhile today, the European Commission also cleared the merger between Barclays and ABN AMRO. So would the consortium get them to clear their initiative as well?

Sunday, August 05, 2007

Yes, there is an interbank compensation mechanism (interchange fee) for POS in the Netherlands

For some unknown reason, I noticed that quite some websurfers seem to be interested in the question whether or not an interchange fee (for POS) exists in the Dutch retail payment systems. Well, the answer is that there are interchange fees for:
- direct debits
- bill payments (acceptgiro)
- interbank usage of ATM's
- and an interbank compensation mechanism (not a literal fee) for POS.

As for the latter mechanism, the NVB explains in its reply to the competition report of the Commission:
From an outside view it may seem that the Dutch POS scheme PIN indeed operated or operates without an interchange fee mechanism. But this was and is not the case. In fact there has always been an “implicit” interchange fee till March 2004. Card issuers received the net financial result from the acquiring operation of the only acquirer Interpay/BeaNet, to cover costs on the issuer’s side. From the moment on that the sole acquiring by Interpay/BeaNet ended (March 2004) and individual banks became acquirers for POS transactions, an explicit cost based interchange fee from acquirer to issuer was introduced that forms part of the cost base for acquirers. The underlying interbank agreement was notified to the Netherlands Competition Authority (NMa). The NMa however doubted the necessity of a multilateral interchange fee mechanism. Therefore the interchange fee structure will most likely be redesigned and be replaced by a system of bilateral interchange fees. The discussions with the NMa on this topic are ongoing.

Now, why would this be interesting to the readers?

I guess that it boils down to the current hefty ideological debates on whether or not interchange fees would be necessary in payment systems. While the answer is a clear yes (most certainly to get separate initiatives all aligned to become interoperable and standardized) the regulators seem to forget about the evolution of payment systems. And wish to abandon interchange fees to the past. So they keep on continuing the myth that it is possible to do payments without compensation mechanisms and keep referring to the Dutch situation as an example.

Although every regulator might learn from studying and trying to understand the industry, they also do have a fundamental right not to take things for granted and the right to climb the learning curve from scratch by themselves. In that spirit, I would encourage those interested to start studying the situation in payments via the phone in the Netherlands. At present we have a number of initiatives going. Some use the phone and a voice-mail application, others such as Payter use NFC. And Minitix is a combination of both, while a number of trials is pending.

While the newspapers this week all announced that in the future we would pay with our mobile rather than with e-purse, let's imagine what will happens if all these initiatives grow. Suppose we end up with 3 types of schemes. The consumer and retailer lobby organisations will then say it is too messy and unorderly. You can't expect shop owners to accept all those schemes: they need to be interoperable. And consumers would also benefit from one m-payment technology rather than having to choose from three.

What will happen then is that the initiatives will work out some interoperability agreement allowing one application/device to accept all 3 schemes. But then there is the question: which scheme had the relation with the retailer and which with the customer. And how are the schemes going to be compensated for their efforts in building their customer base (which will now be accessible to all involved). Particularly if the market coverage of the schemes is different:
Scheme A: 30 % consumers ; 30 % merchants
Scheme B: 10 % consumers ; 60 % merchants
Scheme C: 60 % consumers ; 10 % merchants

The answer to this economic puzzle is of course an interchange agreement. Yet, if regulators would insist on forbidding it, they force the market into a situation where no single technology will serve the whole market in an interoperable way. Which is beautiful from a competition perspective, because there is lots to choose for all. But perhaps it may be less convenient from a customer and efficiency-perspective.

So if we would call interchange fees a 'hidden tax' the alternative is an 'open and visual tax' consisting of the burden for merchants and consumers to have a higher number of different, not-interoperable payment instruments in their wallets, on their phone's and on their pc, in order to be able to pay for all the purchases they'd like to do (and to be able to accept all the payments from consumers). That is in my view the bottom-line policy choice in the interchange debate.

And if it's the hidden cash we're after, why not start eliminating the hidden tax (or stealth tax that Dave Birch calls it) that is out there for cash?

Thursday, August 02, 2007

Interchange complaints are just a call for lower merchant fees..?

Here's an interesting article on the Javelin Strategy and Research site. It ends with the open remark that all the fuss about interchange payments, made by retailers could be merely those groups posturing for lower fees by whining about high charges for merchants and disruptive interbank agreements.

Now, if indeed all this hidden tax for merchants, interbank agreements and huge profit would be so terrible to retailers, why dont't they set up a retailer based card scheme....? Because in the end accepting payment with cards in a shop is a make or buy decision.

If you don't like the brands and fees out there, just do it better yourself. And then, when the argument comes that it would be impossible to reach all consumers with your single retailer card, or that it would become a messy world if each retailer would issue its own card: well, that would make one really understand what it is exactly that you as a retailer are paying for, when you decide to go along with bank issued cards.

Banks have solved a complex cooperation, coordination and reachability problem in the cards-space and do not just use their expertise for themselves (by limiting the interbank card usage to ATM withdrawals) but also allow their consumers/merchants the benefit of using that same card for paying in the shop. But then, when push comes to shove, all the users can do is be unhappy with the pricing (as if anything in the world would need to be provided for free).

So indeed, I would agree with the Javelin remark. It is high time for either a retailer based third card scheme in Europe or a more modest and less agressive approach by retailer lobby organisations.

Wednesday, August 01, 2007

Further 'summer news' on skimming.....

Summer is always the time when news is scarce and when journalist may be more quickly aroused. Latest news is that a one-man detective shop claims to be very well informed on the skimming practices of Rumanians and even states that the move to EMV is useless. The criminals would already be preparing for more advanced skimming attacks using blue tooth gear and all kinds of stuff. As it sounds scary and follows some regular news on skimming (and perhaps due to summer-days...?) the media tend to give the detective a lot of attention.

In the news for kids ('jeugdjournaal') the detective, Mr Engelsman, poses as an expert on skimming. The fun part is at the end by the way. After having explained that criminals will be eager to skim, he proposes a solution: shops should identify their customers by additionally checking their credentials (passport etc.).

Well, it only takes another criminal 'expert' (Mr Frenchmen for example) to explain to the public that one can buy a fake id for as cheap as 10 euro. So that so-called solution of additional id's would not solve the 'security problem' in shops. And upon closer inspection one would be able to see that the statements of the private detective are mostly a shuffling of public statements, news shows etc on skimming.

So in the end the relay attack gets recycled once more to hit the summer news here....

Tuesday, July 31, 2007

UK banks under fire for overdraft penalties..?

The Dutch AD.nl has the news that there will be test case before the UK courts as to overdraft penalties. This relates to Tom Brennan's litigation on that matter. Despite an 80 minute judgment, rejecting his arguments he will take the matter up with the High Court.

AD also referred to the last week's announcement from the Office of Fair Trading that it will push for a High Court declaration to find out whether the unfairness rules contained in the 1999 consumer contracts regulations applies to overdraft charges.

Viral commercial by Postbank to promote speed of payments

Since today Postbank has a link on its website to a special viral site with the name snelgeldovermaken.postbank.nl, meaning paying fast with Postbank. It shows a teacher that wishes to pay icecreams but hasn't sufficient funds on the account. And in order to pay or the icecreams she calls you; the viewer sends some virtual money and voila, the kids can have their icecream.

Interesting example. And completely accurate. Actually I did this same trick with my brother who also has a Postbank account. Last year I asked him to get a specific coat in his town, as it was sold out in my hometown. So when he found my coat was still available in the shop, he phoned me and I transferred the money via Postbank; 10 seconds later he paid for the coat in the shop, using the money I just sent him.

Whether or not the viral will work is to be found out. Theory has it that payments are a complete and utter dissatisfier, so no one is getting hot about payments, unless something goes wrong. Becoming more happy because of a super-fast payment may appear to be neat now, but in this always online world, the feeling will soon wear off. Then again, let's wait and see the spin-off.

Sunday, July 29, 2007

Brussels agrees on roaming regulation and closes competition investigations ....

Sometimes, the news comes in bits of pieces and only makes sense if you put the two together on a later date. Take for example the EU regulation to establish more modest roaming fees for mobile operators. At last the mobile industry stopped battling the initiative, understanding that it wouldn't make sense, given their pricing practices in the consumer domain.

And then a couple of weeks later, the Commission suddenly announces that it drops the competition investigation for mobile operators. Quite unusual as the FT notes:
The decision to draw a line under the high-profile cases is unusual because EU competition regulators rarely stop such inquiries without either securing a settlement or imposing a fine.

So where was the deal/settlement...?

My guess is that one and one makes two. The agreement between Commission and mobile operators clearly was that if they stopped resisting the roaming regulation, the Commission would stop the competition investigation in roaming.

Now, let's compare that deal to the situation in the banking sector. Already for 5 years there is the regulation that bank chargs should be equal (whether paying inside or to another euro-country). Which is effectively worse than the current roaming regulation (that allows for some higher prices in cross-border phoning). And at the same time there are still all kinds of threats and rulings to be expected with respect to interchange fees (the bank's equivalent of roaming agreements). With no one ever considering to drop those actions...

So why would it be that the Commisison continues to the debate on interchange rulings and interbank practices while completely dropping the roaming investigation?

My guess is that the Commission and EU Member States' governments, rationally distinguish between industries that are making them money and those that aren't. Any government would of course be more likely to be friendly to an industry that makes/has made you a lot of income (by buying some air/frequencies to do phoning) as opposed to an industry that is constantly ripping you of income (by killing cash seigniorage which is a nice source of government revenue).

Perhaps just another one of those cases of Schizophrenia?

Saturday, July 28, 2007

Payter™: another nfc-phone payment pilot aiming to become a product

See the Payter™ website to find out that:
- Payter is a new pre-paid nfc-phone payment application,
- which will start as a pilot in Rotterdam,
- where pilot-participants use a special Nokia phone that they get on loan during the trial,
- and surfers can preview a slick demo,
- but currently no one can apply, due to massive sign-up (as it says on the website).

So, we have a C1000 trial being postponed as well as this pilot not marching on. And Rabo's minitix being also able to do NFC-payments. So these are definitely interesting times for innovation.

If we realize that there were some 6 years between the first trial with an IC-e-purse (Woerden, 1990) and the first product (Chipknip,1996) my guess is that we will be well beyond 2012 before we will have a standardized nfc-phone payment system in the Netherlands. That is, unless retailers will want to boycot this product as well...

DNB helps ABN AMRO by withdrawing supervisory action

See the newssite nu.nl to find out that DNB has withdrawn its supervisory measures with respect to ABN AMRO (see also the previous post and explanation here). In doing so they release ABN AMRO of a grip that would have otherwise also been a burden to the new buyer(s) of ABN AMRO.

This new buyer could well be the RBS-consortium. Rumour in the Dutch press has it that even ABN AMRO itself is now slowly distancing itself from Barclays (who announced this week that they would draw in some Chinese banks to increase their bid). But then again, Mr Groenink also suggested that the RBS bid would have been based on incorrect and old data of the wholesale market for ABN AMRO. To which the consortium replied by explaining that it was ABN AMRO who had given that data in the first place....

Meanwhile pension funds massively regain ownership of their Fortis shares that hey leased out to equity funds. This is all in order to prevent them to bid/choose wrongly during the shareholders meeting of Fortis. So the thing that might happen is that those funds would block a sale to the consortium by blocking the Fortis shareholder vote.

Well, that's the workings of a free market in all its beauty..... ;-)

PSP Global Collect sold for € 200 million

See the (paid access) FD-article. Global Collect is a Payment Service Provider, born out of the need to collect magazine subscription fees worldwide. This service used to be an inhouse service for TNT Post. But is was spun off and sold for € 14 million two years ago. And now it's been sold again for € 200 million to private equity firm General Atlantic.

GlobalCollect processes and reconciles payments for KPN, Skype, Nike, HP, Apple and so on. It's turnover was € 23 million in 2005 and € 37 million in 2006. And its net result last year was € 5 million. Lehman Brothers advised during the sale of GlobalCollect.

I'm curious if they would ever imagined this price to be paid....

Thursday, July 26, 2007

Paypal Netherlands has 1 million customers

This article in BN/DeStem reveals that Paypal has 1 million Dutch customers. The article compares the features of the bank-based iDEAL payments system and Paypal. Essentially the main difference is that Paypal has international payment/acceptance features (with customers/merchants being able to both received and pay) while iDEAL serves mainly domestic Dutch transactions allowing customers to pay merchants but not to pay each other. Furthermore Paypal is fully webbased, with a lot of software controls to secure payments, whereas most banks secure the iDEAL payment with a bit of hardware or a separate sms-verification effort.

If the personell ads were something to go by the Paypal efforts should not be underestimated. They will be building a base here and will remain to have their international and peer-to-peer advantage, even if iDEAL would become a European standard. So there appears to be quite a sustainable advantage for them.

Wednesday, July 25, 2007

Central Banks and Payment Instruments: a Serious Case of Schizophrenia

There's an interesting article out there: published by IDATE, Institut de l'Audiovisuel et des Télécommunications en Europe. It's written by Leo van Hove from Belgium and concerns the dual role of central banks. I can only read the abstract, but it sounds quite interesting:

Central Banks and Payment Instruments: a Serious Case of Schizophrenia
This article analyses the competition between cash and payment cards against the backdrop of the dual role of central banks - as issuers of cash and as institutions with a mandate to foster the efficiency of payment systems in general. It is argued that this dual role results in a number of policy dilemmas, namely concerning pricing, traceability of banknotes and the choice of denominations of coins and banknotes. On a general level, the article argues that central banks should place greater emphasis on improving the efficiency of retail payments and less on protecting their self-interest. More concretely, the article repeats the suggestion - originally put forward in VAN HOVE & VUCHELEN (1996) - that the ECB should place the upper limit of its banknote series at EUR 50 instead of EUR 500. It is also argued that policy makers should explicitly foster the use of cost-based pricing and in particular create a legal environment that makes it possible for commercial banks to start using it.

Monday, July 23, 2007

ECBS 5th progress report on SEPA: from concept to reality (and right back again...)

Last Friday the European Euro central banks (ECBS) published their fifth progress report on SEPA: from concept to reality. My direct response after reading it was that the title suggest a realism that the report completely lacks. That's why I would redefine the title as: From concept to reality with the EPC and right back to the concepts with the Eurosystem.

The report contains many pages of statements, desires, objectives, recommendations that are mainly addressed to the payment industry: banks, EPC, national migration organisations, card schemes, processors, 'infrastructures' and can be summarized as 'please hurry up with the EPC-work and do include a lot of extra goodies while you're at it'. It also urges public authorities to ensure that regulation and legal clarity is quickly provided, so that the payment industry quickly knows the rules of the game (and whether or not there may be an interchange fee in the future).

The report claims to be based on a gap analysis between what banks and EPC deliver now vis a vis the requirements of a successful SEPA. As such the report is a 180 degree turn from good old central banking traditions. Usually, the central banks would do some solid analysis and explain that the market would work well and no intervention is necessary. And they would do without the political dimension. But not this time.

The reports is a above all a political document with a number of inconsistent and questionable statements. Of course there is the now well familiar statement on a third card scheme that ESCB considers necessary given the existing 'duopoly'. Quite misplaced one could argue, as the ESCB has nowhere near the competencies of a competition authority.

Also, suddenly the EPC (which does bank-bank standardisation) is required to do an end-to-end security threat analysis for credit-transfers, e-payments. And ACH's are required to abide with a newly developed set of criteria for sepa compliant infrastructures.

There should be a though and quick time schedule for moving to SEPA and those who don't wish to migrate should be forced. And the domestic debit-cards only (remember the Postbank announcement) are no longer allowed to exist after 2010. And while all this happens prices may not rise, which by the way may well be monitored by the central banks.

Another nice one. There is no formal position on interchange fees (Eurosystem is neutral) but the report does day that existing geographic interchange fee structure may only exist in a conversion period, not in the final SEPA-end game. And, by the way, all changes in the interchange fee arrangements may not have as a result that consumers suddenly choose more inefficient means of payments. Meaning that if banks would -hypothetically- eliminate the interchange fee and ask direct fees from both consumer and merchant, this would not be OK for the Eurosystem, because it would drive the customers to cash rather than to electronic payments.

So in sum: this doesn't make any sense any more other than political sense. the European central banks are no longer objectively analysing the world; they just join in the political game and produce papers that they think may get them a good press.

So, would this be the right time to remind the Eurosystem of its formal statute and of the difference between the goal and the means to achieve a goal?

As for the goal, we can read in article 2 of the ESCB statute that the primary objective of the ESCB is to maintain price stability. So that is all the stuff about keeping the interest rate and € exchange rate stable. In doing so, the ESCB shall support the general economic policies in the Community and it shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources....

Now article 3 states that in order to maintain this price stability, the actual tasks of the ESCB are:
- to define and implement the monetary policy of the Community;
- to conduct foreign-exchange operations consistent with the provisions of Article 111 of this Treaty;
- to hold and manage the official foreign reserves of the Member States;
- to promote the smooth operation of payment systems.

One could ask: why all the involvement in retail payments? Whether or not banks do SEPA will not imminently impact the interest rate nor price stability in Europe. So that would justify a bit of distance rather than the current involvement.

But then again, it is of course possible to reverse the order and state that the main objective of the ESCB is to promote smooth operation of payment systems and price stability also. Thus, by making the means an end in itself one could try to justify an ECBS role in retail payments. Still the tax payer may have a hard time understanding how one would really think that the objective to not have price rises in retail payments stems from the ESCB-task of price stability or fits the goal of preserving the value of the euro.

What the tax payer might understand is the concept of commercial expansion or institutional drift (where companies and regulators wish to dominate their respective markets and increase their market beyond original boundaries). And one could argue that the ESCB is now taking things a bit too far now with their continued and expanding involvement in retail payments. They are drifting out from their original territory into the domains of prudential supervisors, the European commission, local legislators and competition authorities. And while some of the involved policy makers at other institutions may raise the eyebrow, nobody is effectively stopping them.

What's also interesting? The ESCB don't apply their own one-SEPA-size fits all-reasoning to their own product: cash. In the cash area they go out of their way to explain that they are unable to harmonize cash rules in Europe:
At the same time, it was underlined that the Eurosystem does not envisage developing a “one size fits all” cash supply system. The different national economic and geographical environments need to be taken into account and the process of convergence will require some flexibility regarding customer requirements, cash infrastructure and transitional periods for implementation.

And finally, the Eurosystem leave the pricing of cash undiscussed. Shouldn't the ESCB be the first to ensure and announce that all over Europe all commercial banks should change their pricing for cash (under priced and free in most countries) in such a manner that we really have an efficient allocation of resources?

Well, I guess the old style ESCB would do so. Unfortunately the new style, politically sensitive ESCB hushes the subject under the carpet.

Thursday, July 19, 2007

Paypal results are out...

See the files here:

PayPal had another exceptional quarter, with accelerating Total Payment Volume (TPV) and revenue growth. PayPal’s Merchant Services business recorded outstanding results, as PayPal expanded its global footprint to new geographies and currencies during the quarter.

PayPal net revenues totaled a record $454 million in Q2-07, a growth rate of 34% over the $339 million reported in Q2-06. Global TPV was $11.69 billion in Q2-07, a 32% increase from the $8.86 billion reported in Q2-06.

PayPal Merchant Services contributed $4.92 billion globally to the $11.69 billion in global TPV in Q2-07, representing a 57% increase from the $3.13 billion reported in Q2-06.


PayPal reported a transaction revenue rate of 3.70% for the quarter, a transaction expense rate of 1.12% and a transaction loss rate of 0.29%. Interesting benchmark for those starting a business.

Old pin-terminals to be replaced to prevent further debit-card fraud

Parool has the news that criminals have now succeeded in manipulating a specific kind of terminal in order to skim all the data. It's an older breed of terminals and Currence, scheme-owner for PIN, has issued further guidelines and encourages shop owners to quickly replace the terminals.

The news comes at interesting times. Retailers are not keen on replacing terminals. They wish to use them as long as possible. And all kinds of replacements come with a lot of fuss, such as they kicked a couple of weeks ago on the liability shift that comes with EMV-compliant terminals. Due to previous political fuss, banks in the Netherlands even promised their retailers that they would not be unduly forced to replace terminals; thus extending the end date for full EMV-migration to 2013.

Now, what would be better for the Dutch society: retailers that keep on being pennywise and use terminals well beyond their life-span (with higher chances of skimming fraud and all involved inconvenience to their customers) or a more quick replacement of terminals by retailers, helping out in preventing fraud?

VEB-shareholders withdraws request to replace board/commissioners ABN AMRO

In the news at BNR Nieuwsradio is the news that the association of shareholders (VEB) withdrew its request to appoint three independent commissioners at ABN AMRO to ensure a proper bidding procedure. This comes after further discussions with ABN AMRO and after having received some further assurances as to the way in which ABN AMRO will judge the two bids.

The request to do a further investigation if there was no mismanagement still stands though, so the court stuff is not entirely over.

Monday, July 16, 2007

Trial with phone payments delayed

See this article in Eindhovens Dagblad to find out that a trial to pay with mobile phone at C1000 super market has been delayed. The technology is not entirely ready and the partners in the trial (NXP Semiconductors, Rabobank, KPN, RFID Platform Nederland en LogicaCMG) have not agreed to their cooperation and contributions. The main idea would be that the phone would be used intead of swiping the stripe. Also the revenue of savings coupons and empty bottles should be saved on the contactless application.

Payments in Europe: a Tower of Babel with Construction Problems

See this article by McKinsey on revenue structures for payments in Europe: a Tower of Babel with Construction Problems. The article looks ahead towards a situation where all countries in Europe will have a payment service directive implemented and transparancy for pricing will have to be increased (as the directive eliminates some revenue categories and demands high transparancy and cost-based pricing in payments).

McKinsey analysis outlines that there are two kinds of markets/business models in the EU:
- markets that focus on maximizing payment revenues by levying significant fees. Spain and Italy are the main examples. The United Kingdom and France also fall into this group, owing largely to their sizeable incident revenues.
-markets that focus on reducing the cost of their payments by maximizing the efficiency of their systems or by moving customers to an optimal payment mix. The Benelux and Nordic countries are in this category.

This is not to say that the profitability of any given market depends on the category to which it belongs. Some revenue-focused markets, such as Poland, lose money because the high fees on cashless payments cannot compensate for the losses made on cash transactions. Nordic markets, by contrast, are among the most profitable in Europe, even though their fee levels are relatively low, because the use of cash and cheques has been successfully reduced and overall efficiency of the payment system is high.

The analysis of revenue structures in Europe shows that three countries - Italy, the UK and Spain - together generated profit of €16.5bn, or as much as the whole of the EU9. Germany and Poland, by contrast, showed losses of €1.7bn and €0.7bn. respectively. All countries made losses on transactions and accounts, excluding balance revenues, showing that payments are a heavily interest-focused business.

And what the future will look like is quite unknown. While the trend to more cost-based pricing is clear, it is also clear that a number of important rulings/rules as to interchange fees should be made definitive next years. Without that, it is impossible to build new panEuropean schemes (direct debit or cards). And with too much business uncertainty floating around, the industry can't be expected to move in any direction.

So while it is clear that the payment industry is heading for a new equilibrium, it is quite unclear what this equilibrium will look like in the near future.

RBS-Fortis-trio raises bid for ABN Amro to 71,1 billion euro with 93 % in cash

See the article here where it is described that the Fortis trio will keep its bid at 38,40 euro per share, even when there's no more LaSalle. Analists generally appreciate the offer, the share price for ABN AMRO now rises. Yet there is the condition that ABN AMRO should not sell any more assets.

Of course ABN AMRO is now studying the offer. Which contains the condition that ABN AMRO should not liquidate any further major assets. But ABN AMRO may still also decide to sell Banco Real (no share-votes required, as we now know), thus making themselves unattractive to Banco Santander as well....

To be continued...

Sunday, July 15, 2007

Answers to MP-questions on liability shift

While in considerable parts of the world chip and pin (and liability shift) is underway, the Dutch developments are a bit slower. Our move to EMV is however well discussed within the National Platform on Payments, in which in 2004 parties concluded that you cannot reasonably do a liability shift if there is no EMV-compliant terminal/infrastructure available.

With some new EMV terminals coming on the market, EMS decided to start moving towards including a liability shift in the retailer contracts (for credit-card payments). And Dutch retailers, that are keen on making every penny possible in negotiations, thought it would be a good idea to whisper some questions into the ears of an MP about how incorrect this liability shift thing is. And that the actual agreement in the National Platform would have been that rather than having a range of EMV-terminals in the market, it would be necessary for more than one terminal-provider to be active in the market. And only then would there be a liability shift.

So this week Minister of Finance answered to these questions by explaining that he had indeed been made aware of the contents of the letters of EMS to the retailers. Yet he did not wish to confirm the retailer interpretation on 'agreements in the national platform on payments'.

The answer of the Minister of Finance is a delicate 'no, you're wrong' to MP Vos. Delicate because Minister Bos is the leader of the Labour Party, while MP Vos is one of the newcomers for that party in Parliament. And 'you're wrong' because there is a free market for EMV-compliant terminals right now (which will be further expanding quickly in the future) and because in today's society retailers and acquirers are free to conclude all kinds of contracts they like.

What he forgot to mention is that also in a formal sense a commitment not to introduce a price structure is impossible, because such an agreement would have constituted a price/cartel agreement. And the National Platform, by its statute, is only there to discuss payment developments and not to do price-bargaining or arrange for price-agreements for any of its members.

The answer of the Minister is that given this freedom of contract and all other variables in the credit-card game (retailer segment, segment specific controls etc), it is not by definition the case that retailers will charge the cost of the liability shift to consumers (and I would add that it is similarly unlikely that they will pass on revenues from the liability shift and translate it in a lower price level, due to lower fraud costs...).

So, the one question that remains is: is the retailer strategy to continuously do public price bargaining by asking questions via MP's in parliament an effective one, or does it in the end just demonstrate penny-wisdom?

Supreme Court allows LaSalle sale: RBS consortium renews bid and another court case for ABN AMRO underway

Friady the 13th turned out to bring bad luck for shareholders association VEB (making it a lucky day for ABN AMRO). The Dutch Supreme Court overturned a previous decision of the Enterprise Court (that blocked the LaSalle sale). And BNR reports that the RBS consortium is now considering to renew their bid for ABN AMRO (not counting in LaSalle).

Meanwhile the labour unions and the Personell Board of ABN AMRO ask Barclays the same committment as was given by the RBS Consortium: no forced resignations/labour cuts. But while the RBS Consortium dares give this assurance, Barclays only wishes to quickly specify its plans (refusing to give a job guarantee).

Add to this that the the Barclays payment for ABN AMRO shares will be done largely in their own shares, as opposed to the cash offer by the RBS consortum, and the picture becomes quite clear. The RBS Consortium know what they're doing and see added value to their businesses. As such they are willing to bet serious money on it and lend money in the market for this pro-active bid. Barclays is not willing to bet externally funded money on it and will mostly try to recoup its money by cost/labour savings of the new combination.

The bidding game is not to end quickly by the way; new court cases and filings are underway where shareholders, personell board ABN AMRO and labour unions will join hands to petition an investigation into the policies of ABN AMRO management and board of supervisors. So the whole bet is going to last beyond a long hot summer.

Thursday, July 12, 2007

Rabobank wishes to increase market share in cities

See the webarticle here. Rabobank (historically being strong in the rural areas) has announced that it wishes to increase its market share from 15 to 20 % in the cities. To this end it will open new outlets and further expand its terminal/atm network in cities, pop-centres, train stations etcetera.

Monday, July 09, 2007

Supermarkets encourage use of debit-cards at POS rather than cash..!

Television programme website Kassa picked up on the news that supermarkets will further encourage the use of the debit-card for small value payments at the point of sale. The news comes about one year after the publication of the Mckinsey report on profits/loss in the Dutch retail payment sector.

The basic idea is that retailers stop charging a fee at the point of sale. This happens in 1 out of 5 shops, where the retailer charges 10 to 25 eurocents for the cost of debit-card payments, which actually cost them 5 cents to have it processed by the bank. So already one year ago, during the publication of the McKinsey results, the Dutch central bank suggested to remove those signs at the counter that announce the debit-card surcharge to the consumer.

At that point in time, the retailers did not wish to let go of this revenue source. But now, with all kinds of cheap POS-package offers and subsidies available to retailers, it is a good thing that they now publicly subscribe to the insight that cash payments may look cheaper than they really are (with all handling and checking labour involved). And that it does indeed make sense to not charge for debit-cards payments the point of sale.

Saturday, July 07, 2007

Dutch consumer not aware of the real prices...

Interesting article here outlines that the Dutch consumer actually buys on his/her price perception rather than the real price. Research of OC&C Strategy Consultants, covering 4500 participants in 5 countries shows that the Dutch (in contrast to their reputation of being penny-wise) are the worst choosers on real price. In the Nehterlands, the price perception is about 15 % apart from the real prices, with some sectors showing a discepancy of even 30 %.

While the OCC Research was done in physical retail stores, it does hold for financial services as well. Research done by CapGemini (presented mid june) shows the same effect. Consumers perceive a bank or bank service to be cheap, while the reality may be different.

This does put last weeks mini-media-hype on retail payment fees in perspective. There was bit of uproar as if banks had announced that prices for retail payments would rise, while the only thing that happened was that an analysis was presented on the effect of the Payment Services Directive. And that analysis outlined that from an analytical perspective there would be more transparancy in pricing; most likely to be percieved by the public as price hikes.

So, now it is clear that for the Dutch, the perception counts more than reality, the banks might just as well want to consider announcing that prices will fall....?

Monday, July 02, 2007

Students discover software security error in public transport tickets

Interesting news from the Amsterdam University where students in the open source project checked if the disposable contactless public transport ticket (OV Chipkaart) could be used again. And yes, the secutiry was insufficient and it was possible...

The breach was reported to Translink and proved to be valuable. Also the education programme itself proved once again the usefulness of open source and independent public evaluation of software. The research was done in the OS3 programme, where OS3 stands for Open Standards, Open Software (which extends Open Source) and Open Security. Together these three components define Open Technology.

Dutch central bank closes last cash-outlets....

A couple of days ago, the central bank closed its last cash-outlets. See the press release here. This marks a period of 140 years during which the central bank started out as a single office in Amsterdam, then on demand of politicians expanded its role as a provider of cash until it had a whole bunch of local offices.

And then, deciding that all this stuff be left to the market, it closed down its branches. So now the money couriers in the Netherlands must all drive to either a bank money center or Amsterdam (to deposit cash). Funny thing is that the nearby option for Maastricht banks to deposit their euro's in Aachen or Brussels is not allowed by the central banks......

... those same institutions that claim that banks have not achieved a sufficient harmonisation in European payments are unwilling to harmonize their own cash processing rules out of fear for job loss in their own house.

Some Europe this is.

Dutch pride: foundation to improve the Netherlands as a place for financial business

In the slipstream of the pensioning of one of the directors of the prduential regulator (AFM) and of the bank association (NVB) a bunch of hot shots in banks, insurance companies and regulators including the Ministry of Finance thought it would be a good idea to promote the Netherlands as a place for financial business. And parliament asked a bunch of questions on this, to which the Minister of Finance replied here.

Essentially it is a nice idea, but also too little too late. The fact that ABN AMRO becomes a take-over victim is more than telling the real state of things here. The Netherlands may not really be the best climate for doing financial business. And most certainly one could advice other banks not to enter the payments market, in which margins are even negative. So the foundation may be active in the area of education, it would surprise me if they would really eliminate the essential barriers that exist (mostly in the form of useless or inconsequent government overregulation).

Voca and LINK merge and launch pan-European clearing service

See the press release here to discover that the newly formed company, VocaLink, will provide domestic and international transaction services to banks and corporates. And at the same time, VocaLink is launching Europe’s first independent pan-European payment service (€CSM partnership) in partnership with 10 banks from across Europe.

In addition to core transaction processing services, banks may benefit from the development of new transaction services that include Corporate Access services, Direct Debit Mandate management, Payment Exceptions management, AML and OFAC compliance as well as non-SEPA payment processing.

So there's another move on the processing side.....

Barclays offer delayed while Fortis personell board agrees

See the ABN AMRO Press Room for an update that outlines that Barclays will be filing the required reports a bit later. This is due to the regulatory processing at AFM. But it comes in handy as it now delays the final moment to offer documentation to after the verdict of the Supreme Court.

Meanwhile the Fortis Personell Board has given a positive advice as to the further next steps in the bidding of Fortis.

And those who go down the Dutch streets will see bill boards and ads all over the place. A part of it is from Rabobank, and says: We remain the same as always. And another part is by ABN AMRO and states that whilequite some things will change, their service will remain the same.

Sunday, July 01, 2007

Trade unions denounce governance and management policy ABN AMRO in petition to enterprrise court

See the nrc article here which outlines that the trade unions denounce the policies of board and management of ABN AMRO. This vision is identical to that of the association of shareholders (VEB) and just as the VEB the trade unions request an investigation into the board and management policy and governance at ABN AMRO. Their argument is that by selling of LaSalle, the board didn't properly take into account that the RBS-constortium does give an employement guarantee, while Barclays does explicitly not give such a guarantee.

By requesting the enterprise court to hold an investigation into the ABN AMRO policies, VEB and trade unions have used on of the few approaches available that will allow the Enterprise Court to uphold its previous verdict in the LaSalle case (obligation not to sell) yet on different grounds (bad governance). So it's look as if its going to be a long hot summer after all...

Friday, June 29, 2007

Dutch migration & transition scenario for SEPA published

See the article here and the transition plan (in English) here.

Essentially it describes that Dutch banks will slowly start moving towards SEPA without committing to a firm deadline. Banks stress that they will not give in to political pressure to phase out instruments quickly, but prefer a gradual migration allowing time to judge developments and develop alternatives for current domestic products. In 2009 banks and stakeholders will have a further look to determine the exact future of the domestic products. For the debit-card system PIN, this means that it will stick around for some more years; thus allowing a smooth transition. Both banks and retailers explain to the media that they're happy with this decision. And the same goes for bill payment mechanisms as acceptgiro and the e-purse Chipknip.

Meanwhile the retailer lobby against banks and credit-cards continues with a new set of questions in parliament, this time about the liability shift that accompanies the migration to EMV. And once more the whole SEPA-developments are misused by retailers to complain about regular price shifts and incentive structures in the market. It is getting to become a bit boring, although one must applaud the retailers' lobbying power (considering that over the last months I think there have been three instances where almost literal retailer complaints were fed to MP's to demand a reply by the Minister of Finance).

Banks in the mean time try to explain to the public that yes, due to the new regulations in payments (which demands more clarity in pricing structures) there will be visible price increases in the future. But they refuse to be blamed for this, given that - as the Minister of Finance explains - it is the desire and effort of all EU politicians and EU parliament to increase efficiency in payments by means of more transparent, cost-oriented and transaction based pricing.