Monday, April 30, 2007

'Legal threat' by BoA over ABN bank sale... a bit too obvious?

The ABN AMRO take-over turns out to become just as legal a takeover as the Antonveneta's takeover earlier. BBC NEWS reports that Bank of America is reported to be threatening one of the biggest lawsuits in history if its deal to buy LaSalle Bank from ABN Amro falls through. And in addition to the breach of contract claims against ABN Amro, it is also being reported that a claim for "interference" would be made against the RBS-led consortium.

To better understand all this, let's recap this consolidation-merger-take-over history for ABN AMRO.

1. ABN AMRO underperforms and gets a wake-up call by TCI asking for a split up and such
2. The Dutch bank supervisor (central bank) informs the public that it isn't pleased with TCI
3. ABN AMRO quickly speeds up its contacts with Barclays to prevent hostile take-over
4. The Dutch central bank tells us it is pleased with Barclays
5. Fortis, RBOS and Santander join the bidding game as the second bidder
6. The Dutch central bank tells us it finds the RBOS-consortium a bit risky
7. The Ministry of Finance reassures the public and EU Commission that it will consider all takeover bids on an equal footing, when deciding on the requested statement of no-objections,
8. ABN AMRO quickly sells LaSalle, thus becoming less attractive to the RBS-consortium
9. There is no statement whatsoever by the central bank/bank supervisor
10. Shareholders vote in favour of a lot of TCI-motions but are angry at the sudden sale of LaSalle;
11. ABN AMRO slows down the RBS-consortium in its disclosure request
12. A shareholders union (VEB) takes ABN AMRO to court for having sold LaSalle, the hearing occured last saturday; the judge will be ruling this Thursday
13. And now Bank of America informs us that it will go to court if the sale of LaSalle is not effected (note that the talks over the sale only lasted 4 days).
14. While the RBS consortium has lined up its financing.

Let's be clear: the Bank of America statement may be ABN AMRO inspired. Bank of America is a (partial) white knight, helping out ABN AMRO in a complicated take-over setting. The fact that they also consider an interference claim against the RBS consortium is quite telling in that respect. And in doing so, the Bank of America raises the stakes for the judge in the Netherlands that this week has to rule over freezing the sale of LaSalle to Bank of America. In my view this may be a typical ABN AMRO inspired move (remember how they moved in legally towards the central bank of Italy).

My personal guess is that this legal threat will terribly backfire. You don't want to influence a judge so obviously. And the legal threat is especially risky in a context where as a buyer you have only spent 4 days considering a bid on this bank. Because no serious bank in its sound mind would be bidding so carelessly and quickly for another bank. One always wants to check if there are no dead bodies in the closet somewhere. One may wish to consult the supervisor and/or shareholders. And all the stuff that would come with really assuring a due process. In fact, given the demonstrated care as to the process, one might even argue (in a legal sense) that - certainly in todays banking reality - the 'sale' can not be considered to constitute a real/proper sale. And my guess is that, pressured by the Bank of America threat, the judge in the Enterpise Court may perhaps be ruling that the 'sale' was not a true 'sale'.

Of course the judge has got to have strong nerves when freezing or undoing the Sale of LaSalle. But doesn't it appear odd to only allow 14 days for competing bids on LaSalle and to agree to a 200 million USD terminating fee if the original deal doesn't substantiate? And another thing: why haven't we heard anything from any one of the involved regulators. The Dutch central bank has been noticeably silent on this transaction. As have their oversees collegues. But wouldn't any significant spin-off of bank company activities require a further investigation by the supervisors as to changes in risk-profiles and such?

Questions, questions.... and another interesting week ahead....

Sunday, April 29, 2007

House Financial Services Committee hearing on credit-card practices

See the website of the House Financial Services Committee to view a webcast on the hearing on credit card practices. The chair of the committee announced that a second hearing will be held (first week in June) with all bunch of regulators. Late May the FED will publish a revision of disclosure rules for credit-cards (I think its reg E).

Keyware partners with RBS to increase acquiring competition in Belgium

See the article here to find out that Keyware acquired BRV NV in a move to expand its processing of card transactions from retailer cards (Aurora and PASS for Cetelem), Diners card to Visa and Mastercard. It will use BRV's Visa and Mastercard license. And is bound to also compete for the debit-card transactions. Leaving the Belgium market of currenly 716 million transactions in the hands of players such as the Bank Card Company, euroConex, Europabank, Keyware and First Data.

E-gold founders indicted

Ian's Financial Cryptography log mentions that: e-gold founders are indicted and explains a bit of background. Nothing new here and nothing personal either. US Cops and government are all around with this anti-gambling, anti-money laundering, anti-terrorist, anti-everything rage. They did so with ABN AMRO as well.

In doing so the US firmly succeed in driving business away from their country for the sake of a good feeling. Because crime doesn't stop if you only pick out the obvious or nearby examples. It is a consequence of culture as well. And the source of all this bad stuff is of course the US culture (which has spread around the globe for quite some years) that values the pursuit of money, value and hapiness as a core constitutional value.

So the US is essentially fighting itself, which will be an eternal battle of no cultural change occurs simultaneously. Meanwhile gambling sites focus on EU markets, ABN AMRO sells it's US branches of LaSalle in response to being fined, large companies leave the New York Exchange, making the whole of US a puritan reservate and the remaining whities the indians of the future?

Thursday, April 26, 2007

Elderly just as often online as the young (but differently of course)

Automatisering Gids reports that the elderly people are almost just as often online (58 % a day) as the teenagers (61%). Elderly use e-mail a lot (96 %), browse a bit (60 %) and sometimes chat (25 %). While teenagers use MSN (95%), e-mail less (82%) and browse a bit more (75%).

Unisys introduces new Open Payments Platform for banks: cooperates with Clear2Pay

Unisys issued a press release, outlining that they've developed a service oriented architecture to help banks migrate their current processing to a new platform. It should work fine with all kinds of technologies and database platforms. Interesting part is that Unisys has also decided to become value-added reseller for Clear2Pay. This confirms Clear2Pays prominent position.

While the news may appear to be a bit techy, the consequences are clear. We're heading towards an open panEuropean market, with open technology solutions that help achieve low costs for banks. Quite a bit different from the old days where IBM was the main provider of integrated proprietary hard/software.

Danish Electronic Payment Slip digitizes current paper-based billing

PBS reports that as of this week the Danish public can opt-in for digital billing. This means that rather than current conventional bills (to be typed over in e-banking applications) the digital payment order will already be placed in the e-banking application. Effectively a similar solution as the so-called Digital Bill concept of the Dutch banks.

If this turns out to be a succes, would there also be a case for not using direct debits (child of the 1950s batch processing era) any more?

Wednesday, April 25, 2007

13,000 a day switch banks in backlash over penalty fees

The Daily Mail reports that 13,000 a customers a day switch banks in backlash over penalty fees. Apparently competition in the UK is heating up:
Record numbers are switching banks as anger mounts over penalty fees and the big five battle to win new customers. As many as 12,700 customers a day will dump their current account provider - around 2.29 million have done so in the last six months. The rate is increasing, according to a survey by, with an extra 453,100 moving accounts in the three months to the end of March, compared to the previous quarter.

So much for the good old consumer unions complaints that banks don't compete and switching is difficult. Practice tells a different story (although check bouncing fees are a bit of an odd thing; we don't have them here in the Netherlands and don't misuse them to generate income).

Accidently, while browsing around this item, I also stumbled into this interesting Money Blog. With a horrible story on how Barclays treats/cold calls its customers. Which might suggest they indeed are a good fit for ABN AMRO.. ;-)

The battle for ABN AMRO continues: bid from Fortis, Santander and RBS

While last week mr Wellink, the governor of the Dutch central bank (also bank supervisor) really annoyed the EU commission by stating that he found the combined of Fortis, Banco Santander and RBS as quite risky (more than the Barclays bid), the three have decided to do their bid on ABN AMRO. So, as can be seen in the press-release, the bidding continues...

And in reply to the statements of Dutch central banker Wellink, we can read the following:
The Banks believe that execution risk would be lower than in a transaction with Barclays. The Banks already have significant presence and experience in all of ABN AMRO’s main markets, and also have proven capabilities in delivering transaction benefits from large-scale integrations and IT conversions, underpinning their ability to manage and integrate ABN AMRO’s operations

Meanwhile, the Minister of Finance has made it clear that the central bank only has an advisory role on the merger. See the information here. Still, we should note that there is a significant difference between the neutral English version of the press releases and the Dutch version. The English version states that advice of the central bank will be sought:
Dutch law requires the government to issue a declaration of no-objection for holding or increasing a qualifying holding in Dutch Banks. If a request for such a declaration is made in a case involving one of the five largest Dutch Banks, the Minister of Finance decides on the request in cooperation with the Dutch Central Bank.

A decision to grant a declaration of no-objection shall also take into account the necessity of warranting the sound and prudent operations of the financial institution concerned as well as the transparency of the proposed structure of the financial institution. The Minister shall in this regard seek the advice of the Central Bank.

But the Dutch version (here) states that the Ministry of Finance will decide on the statement of no-objections, when positively advised by the Dutch central bank. This can either be a bit of uncareful translation or a bit of careful communication to different audiences. Could it be that the Minister of Finance wishes to assure the Dutch readers/public that it will follow the positive central bank advice (support Barclay) meanwhile suggesting to non-Dutch readers that it will decide independently (while taking aboard the advice of the central bank)?

As a reminder, we should note McCreevy's statements on the central bank behaviour. See the article in the Herald last week:
However, former Irish finance minister McCreevy leapt to the Scottish bank's defence yesterday through Oliver Drewes, his spokesman. Drewes said: "All bids should be assessed in a non-discriminatory way."
So are the English-reading public indeed now lulled to sleep with a neutral and non-discriminatory statement of our Ministry of Finance while the Dutch get a more informative wink as to the Ministries of Finance real position?

DNB working paper shows that substitution of cash lead to 200 million cost benefit for society already with several hundreds more coming up

See this working paper of the central bank on cash usage and its subsitution at the point of sale for debit cards. It outlines that between 1987 and 2004 the use of cash at the point of sale in value terms diminished from 75% to 46 %. Thus saving us all in the Netherlands an amount of 200 million euro. And the good news is that there is still room for improvement. The researchers (Jonk and Kettenis) consider a number of scenario's to conclude that it is possible that in 2015, the value of cash-payments at the point of sale constitutes only 20%. This would be the case if a further promotion and use of pos-terminals occurs.

The latter thing: further use of POS-debit at low-end merchants, is most likely to happen. Banks and retailers have joined hands and used a public RFP in order to ensure that 'smart and simple' POS-market propositions will be developed for low-end merchants and retailers that until now do not have pos-terminals. This has resulted in ten offers/packages for POS-terminals/packages where merchants have plug-and-lay functionality and aggregated fees (all-in-one fee for telecommunications, authorisation and terminal use). See the website smart packages here (in Dutch: slimmepakketten).

The authors estimate the financial benefits for society of this further trend at several hundreds millions of Euro.

Tuesday, April 24, 2007

Payment Services Directive agreed in European Parliament

The EU-websites are sometimes incomprehensible to browse, but ALDE has some news detail to confirm that today the Payment Services Directive was approved in the first reading of European Parliament. With the ALDE comment:
This is not a price regulation directive, but it should make payments cheaper through greater competition and through greater transparency.

The official press announcement of EP can be found here and is a bit worrying:
MEPs have adopted a legal framework designed to make cashless payments – such as card transactions, bank transfers and direct debits – simpler and cheaper, paving the way for the creation a single Euro payments area. A deal with the Council means the legislation will enter force at this first reading stage, giving the banking industry the time it needs to meet its 2010 target.
The European payments industry – banks, clearing organisations and others – have committed themselves, with the EU’s support, to changing all of this by 2010. The single euro payment area project should mean that bank transfers, direct debits and similar payments will be made through a new European system, with domestic and cross-border transactions being made in the same way at the same speed. It will also mean payment card systems converging on a common standard, so that cards from all over Europe will be accepted all over Europe, without extra fees or technical barriers.

What worries me is the conception of a new European system. We may need quite some time explaining and educating that there is not going to be a new European system as such. In the old days banks used to build those 'systems' and clearing houses for domestic markets. But nowadayes banks agree on core standards and interoperability agreements, leaving the market to determine at which processor and through which technical system and clearing house the payments will go.

Another concern is timing. Banks will in the next years have to change systems to new European standards for credit-transfer and direct debit. But the PSD is supposed to be implemented in member states at the end of 2009. So the two efforts will coincide. With the implementation of PSD-changes taking precedence (as a firm legal obligation) over the self-planned gradual change-over to European products, we may expect the actual roll-out of panEuropean products to go less quickly than initially planned.

Which is in itself not a problem for the market. We should recognize that the 2010 deadline quoted by parliament was formulated somewhere in 2002 (most likely chosen on the basis of the assumption that in 2008 the PSD would already be implemented). So my guess is that we will have a wide panEuropean availability of new products, based on EPC-standards, by 2012.

Monday, April 23, 2007

EU becomes domestic reality: ABN AMRO and Barclays announce agreement on terms of take-over by Barclays

See the Press Release here to find out that:
- the Boards of ABN AMRO and Barclays jointly agreed on 'merging' their organisations, (eufemistic terminology for what constitutes a take-over by Barclays),
- Barclays will be the holding company for the combined group,
- ABN AMRO ordinary shareholders will receive 3.225 ordinary shares in Barclays ("New Barclays Shares") for each existing ABN AMRO ordinary share (the "Offer").
- the combined group (with its headquarters in Amsterdam) will have a UK corporate governance structure with a unitary Board,
- the UK Financial Services Authority ("FSA") and De Nederlandsche Bank ("DNB") have agreed that the FSA will be the lead supervisor of the combined group.
- Bank of America Corp has today agreed to acquire LaSalle Bank Corporation ("LaSalle") for USD21 billion and is expected to complete this acquisition before completion of the Offer.

This is quite a defining moment in time (at least for the Dutch and ABN AMRO). While policy-makers tuned in to 1992 as the starting date for an European marketplace, truth of the matter is that it took about 15 years for this ideal to become reality. But as of now it is quite clear that domestic markets no longer are the boundary for players in the market. Yet, I am afraid that the payment-policy elite of the Netherlands may be bound to continue reasoning from a domestic perspective.

As if to illustrate the above, today is also the day when members of Dutch parliament (quite obviously prompted by retailer-lobby organisations) started asking questions in parliament on the competition in payments and on the possibilities of price increase as a result of SEPA. This shows that retailers succeeded quite easily in (hijacking and) narrowing down complex policy discussions about European payments markets into an ordinary Dutch price-rebate discussion for merchants.

I hope that it's only a couples of years that we will have to live with a time-lag and perception lag between banks on the one hand (that already live in a competitive European market reality) and domestic policy makers, lobby groups and parliaments on the other hand (that persist in framing all issues back to old-style-domestic interventions and questions). And that the old-style domestic school may at one time start to understand that the only price-guarantuee that one can legitimatically ask for, in a democratic society, is the price-guarantee deliverd by true international competition.

Sunday, April 22, 2007

Continued retailer battle in the US via the competition authorities

See the news-article onn National Retail Federation website. It shows how regulators call upon state legislators to do something about credit-card interest rates. Effectively this may not really be about policy any more.

It appears as if the existence of competition authorities is creating a new battlefield for businesses. Which is to hurt any other business by complaining and having them investigated by the competition authority. Even if the claim fails, one will have won by damaging the image of the other company and by having them allocate resources to lititgations/competition discussions, thus increasing the cost base. We may have seen a similar thing here in Europe in the beer-brewery market. Belgian based Inbev provided information to the EU Commission which then fined the breweries. And The Belgian-based InBev group received no fines as they provided decisive information about the cartel under the Commission’s leniency programme.

So what may become a serious problem in the future is that regulators that do not understand the workings of the market, may be fooled by some in the market into believing that a situation of non-competition occurs, while effectively there is nothing going on. But if you're cunning enough and having a cartel-buster (bound to view cartels everywhere as a part of his job description and goal in life) you can do damage to competitors or other stakeholders in the market.

So while we are already used to an increased number of litigations in society between players themselves (consumers, companies, governments) we may also face an increasing number based on administrative and competition law. I am not sure if that will really be productive, especially not in a situation where the Commission effectively not just wishes to fine the companies themselves but also states that all those damaged must be compensated too.

Small bank BNG continues and prolongs outsourcing to Ordina

See this article (in Dutch) which informs us that Bank Nederlandse Gemeenten (BNG, with a lot of municipalities as customers) chose to outsource their payments and support ICT to Ordina for a period of 10 years rather than the intended seven. A signal that it is quite likely that the SEPA-move will lead to a number of small banks outsourcing their systems (because they don't want to bothered with al upcoming changes in reachability, regulation an what have you).

First Data security chief calls for changes in security standard

See this article in information news here that outlines that:
First Data has a hard time becoming compliant with the Payment Card Industry Data Security Standards (PCI DSS). First Data has spent quite some money on compliance initiatives to lock down systems from hackers trying to gain access to the constant stream of credit card data that passes through the company's massive systems. Mr Mellinger of First Data calls it an uphill battle since attacker methods are growing in sophistication and attacks come in so many forms.

Deadlines have been set for merchants to prove compliance by the end of the year. But so far industry estimates show that more than 60% of merchants fail to meet the current standards. Thus, Mellinger, who developed the precursor to the current PCI DSS rules, is calling for an overhaul to eliminate subjectivity and ease restrictions to get more merchants to meet the standard. "I would rather they set the bar lower and then raise it once more merchants have complied," Mellinger said. "The more people we can get compliant, the better off we are."

Mellinger is also calling for a PCI DSS status directory in which compliant merchants and processors are publicly listed. Opponents say such a directory could be used by hackers to find vulnerable companies to attack. But Mellinger insists that it would reward businesses that are compliant and get others to move faster on compliance projects.

Well, life ain't always easy if you want to move transactions around. I think some day we will look back on this and actually be astonished by how we did it old-school style (with hardly any protection at all).

Friday, April 20, 2007

Lost in transactions: LogicaCMG report on reachability SEPA

See the LogicaCMG website here and download the report lost in transactions. A survey done by LogicaCMG established that:
35 per cent of all retail banks (33 per cent in the “pure” eurozone excluding Sweden and the UK) anticipate problems in the correct addressing and processing of SEPA payments through banks and intermediaries. Perhaps optimistically 44 per cent expect the problems to ease over time when domestic payments volumes migrate to SEPA schemes. But 48 per cent expect the situation to stay the same during this process. In addition, 17 per cent of the banks surveyed expect difficulties in identifying the correct intermediary routing information for receiving banks, accepting that there will be operational failures.

A headline figure for the operational costs to the industry could reach between €650 million and €1.3 billion per year. This is based on conservative estimates of STP rates and payment volumes, together with the banks’ own estimates for cost of failed transactions – as evidenced by the survey.

Well, it looks as if LogicaCMG are not just investigating this for fun or for the public good. They are also among the first to address the concern that they raised themselves. Because it accidentily happens to be the case that they set up, In cooperation with, the so-called SEPA Directory. This SEPA Directory will:
- improve straight-through processing for SEPA transactions with comprehensive, premium-quality data you can trust,
- route payments with ease with a complete, granular BIC11 database,
- enrich payment instructions with IBAN to BIC validation and lookup.

Contactless transport card has a delayed launch mid 2009

See the article in Dutch: Automatisering Gids: explaining that deputy Minister of Transport (Huizinga) has this week told Parliament that the introduction of the contactless chipcard in the Netherlands will be delayed, putting quality before speed of introduction. Apparently there are still quite some problems.

One of those I noticed last week. One passenger had used the new contactless card for use in the subway, then switched to the tram. But that passenger also had to change to the paper-based strippenkaart to pay for the tram. Which led to quite a bit of noisy complaining in the tram. So there's one customer that's not going to be happy with the delay.

It's going to be interesting to see when the public and parliament will begin to realize the practical implications of the societal cost-benefit analysis of the introduction of the OV-chipkaart. The main benefit is less queues and speed of inchecking/checking out of public transport. And a bit less of unpaid transport. But the public will have to pay (more) for having this payment instrument. So the public and political sentiments are bound to worsen as the introduction proceeds...

Thursday, April 19, 2007

Dutch Competition authority moving in on large banks lending... but does so with an completely outdatet mindset

This week the Dutch competition authority has entered the larger banks (without notice) to demand information and archives on price setting in lending for business customers. See the FD-articles (login required; in Dutch). But it is an interesting case they're after. Let me try to explain why.

In older days (more than 20 years ago) the banks used to work with the so-called PD-system. PD stands for Promesse Disconto (Interest Rate for Promissory Notes) and that was an interest rate set by the central bank. Banks would determine the rates on commercial loans by means of a surplus percentage on the PD. So they would agree on an interest rate of PD+1 for example (meaning that if the PD changed, the interest rate for the customer would also). And in this old situation (with no Basle II, with little computing power at hand and little market segmentation), it was not uncommon that for certain classes of companies, a bank would use a similar surplus-rate. So companies would generally face quite similar loan levels. And you could indeed consider the market to be quite homogenous.

Now, today, having had the monetary changes in Europe towards the Euro, there is now mainly the European central bank rates that can be used as a reference rate. And since the changeover to Euro most large banks have devised a system where their local treasuries determine and set a so-called basis-interest rate for their own bank. This rate setting is done based on the ECB interest rate and the liquidity portfolio. So generally, when the ECB moves, the basis-interest rates of large banks are also bound to move (one a bit earlier than the other, but just as with the rain: after it starts, everyone will at some point in time unfold the umbrella).

Now it looks as if the Dutch competition authority has so little understanding of the loans market that they mistakenly still think the old system of 20 years ago is still in place. They appear to be looking at the moves in basic interest rates of banks (set by individual treasuries) and see this as an indication of no competition in the market for loans to businesses.

What are they obviously missing....?
- they think the interest rates displayed by banks (whether basic bank rate or rates for specific loans) are the final ones ; effectively those rates are merely the starting point for negotiations with the companies,
- they forget that we now have something as the internet and a large liquidity in the market, with a lot of banks all competing for the companies;
- they overlook the advances in technology leading to a more differentiated bank assessment of companies
- they forget that banks individual liquidity/risk profiles may be different due to the Basle II implementations chosen, as a result of which it is impossible to assume that as a starting point the cost of capital is equal for all banks
- Bizzner; the new internet based bank from Rabobank; is an initiative that by its sheer existence does not allow banks to extract margins out of this market. Likewise, they overlook the availability of private equity and other sources of funds for companies.

So here we see a nice example of policy intervention and policy analysis based on dogma's from the old world and from the academic books of quite some years ago. And I would personally be quite surprised if they find anything wrong. They didn't find problems in the area of savings (as reported a month ago). And they won't for lending.

What's interesting is that if indeed the basic banking knowledge of our competition authority is as outdated as it seems, they will also be unable to properly assess todays market practices and reality. So they'll spend our tax payers money to discover that they miss the proper expertise and really can't come to terms with the facts they find. I image they will then device a tactical retreat like: stuff was wrong at several banks, but we are going to be so kind not to pursue the matter any further, now that banks have explained what they did and made some adaptations.

And my take on this... ?

Considering that reputation and money are earned slowly and lost quickly (as they say in Spain I believe), it would be best if, at the end of the factfinding, the competition authority would also have the decency to spend a considerable amount of money reparing the damage they do to the image of the banks involved.

Wednesday, April 18, 2007

Dutch banks publish statement on SWIFT data transfer

Yesterday, the Dutch banks published an advertisement in all newspapers on the SWIFT-case. This is the result of a silly debate between data protection authority and banks on this issue.

A silly debate because essentially there has not been a breaking of rules by the banks, nor by SWIFT. There has indeed been a lot of political arousal, but that is not the same as breaking the law. And politicians should be so smart not agree rules on the one hand (obliging banks to cooperate with the police) and play stupid on the other hand (be angry if the banks live up to those rules).

Monday, April 16, 2007

ABN AMRO confirms receipt of joint letter from three parties, but also

See the ABN AMRO press release. There is a new bid around on ABN AMRO, this time from RBOS, Fortis and Banco Santander. But ABN AMRO is not likely to go for that trio, given that those companies wish to pay in their own shares (which, as we all know is a bit like printing your own money). So ABN AMRO is not interested and published its results ten days earlier, leading the AEX index to reach staggering heights today.

This is an interesting consolidation phase that we are now experiencing. Spring 2007 will not only make the history books for its wheather heath records but also for the start of the real transformation of domestic to EU-banking. Interesting and historic times these are indeed.

Trustworthy Computing Resources: the internet battlefield

On the page of the Trustworthy Computing Resources there is a scary article on the Internet battlefield. Containing a nice and complex graphic with all kinds of attacks. With the conclusion that:
it’s clear from the diagram that there is no silver bullet that will address all issues. The threats (spoofing, pharming, phishing, DNS-hijacking etc) are continuously evolving and blended together by the Bad Guys to form new attacks.

These issues call for a strategy which makes it easier for users to assess whether they are on the correct site (i.e. stronger mutual authentication) and moves away from using shared secrets to authenticate (e.g. username and password).

Sunday, April 15, 2007

First Data to compete with Banksys this year

See this article in and find out that First Data will start competing with Banksys this year for point of sale transactions.

See also this older ePaynews story: that outlines that Euronet Worldwide has won its first deal to provide SEPA (Single Euro Payments Area) compliant cross-border transaction processing in Central and Eastern Europe. The Leawood, Kansas-based processor has signed a multi-year contract with Austria's OMV Refining & Marketing, which operates a network of petrol stations in Central Europe.

So the signs of further competiton and consolidation in the processing market are all around.

Error in software discontinues services for Shell en Visa

De Stentor reported that due to a software glitch, 35 Shell gas stations in the Netherlands were forced to close shop; after having received the wrong software update from head-offices. It's a bit like the NS-glitch that affected Postbank customers earlier this week. Or the typical Friday thirteen hitch that hit VISA's card processing last week (see BBC-article).

Some other errors occuring in the US lead to PaymentsNews Linda Elliot commenting on the dependence we have on transaction systems and the necessity of being constantly alert:
Businesses who based at least part of their value proposition on fault tolerance in the past should be studied by those new comers who offer compelling services, but have found that always-on service requires finesse, precision and constant attention.

Tuesday, April 10, 2007

ECB calls for greater financial integration in eurozone (and forgets cash)

The ECB has published its first report on financial integration in Europe. It also has a chapter about SEPA. Which contains the usual mantra's on SEPA and again focuses on the situation for all kinds of payment products except the most important one: cash.

It's becoming a habit for the ECB and the ESCB to keep on stimulating the private sector in making the Single Euro Payments Area happen. And to throw in academic observations as a part of being active in the EU policy debate on the fragmented retail payments market. Now, why is it that once again they leave out their own role in the cash domain?

At present, banks can not send their bank note transporter to another cetral bank than their own. So while it would make more sense for a bank in the South of the Netherlands to send its value transporters to Brussels, the ECB/ESCB requirement is that they send it to Amsterdam. And even if the car would be allowed to deposit money in Brussels, the technical requirements for doing so would be different than those in Amsterdam.

So if the ECB/ESCB would really be keen on making SEPA happen, why don't thy start doing so for their own product: cash. While they are apparently completely unable to harmonize their own internal cash deposit standards and cash transport rules, they keep on insisting that banks do achieve such a thing for their products. Making it quite likely that in 2010 there will be harmonized payments in Europe, but still no progress in the cash domain.

It does look a bit as if the European central banks wish to maintain their monopoly and income on cash and thus effectively only pay lipservice to the goal of more efficent payment services... doesn't it ?

PBS signs agreement with China Unionpay (CUP) to accept their cards in the Nordic countries

See the PBS press-release to find out that PBS has signed an agreement with China Unionpay (CUP), China’s largest card company. China Unionpay is the issuer of the CUP card, which is found in the pockets of 1.3 billion Chinese, making it the equivalent of Denmark’s Dankort. The agreement means that Danish, Swedish, Norwegian and Icelandic merchants who have entered into an agreement with PBS on the acceptance of international cards will be able to accept the CUP card in future. (..) From the autumn 2007, Chinese cardholders will be able to use their CUP card in over 30,000 shops in Denmark, Sweden, Norway and Iceland that have entered into an agreement with PBS on the acceptance of international cards.

I recall that China Unionpay also had an agreement in the Netherlands with Paysquare, as apart of the move where CUP extends its international network of countries and merchants which accept the CUP card. A logical move given the expected increase of Chinese tourists to Europe.

Monday, April 09, 2007

Report of SWIFT Findings by Canadian Privacy Commissioner

See the Executive Summary - Report of Findings (April 2, 2007) of the Privacy Commissioner of Canada. Finally there is one data protection authority with a clear view and judgement, stating that data provision by SWIFT to US authorities is not a problem and occured within applicable frameworks:
As for compliance, the Commissioner determined that SWIFT had not contravened the Act when it disclosed personal information to the UST. The Act allows for an organization such as SWIFT to be able to abide by the legitimate laws of other countries in which it operates, and an organization may disclose personal information without knowledge or consent in response to a subpoena issued by a court, person or body with jurisdiction to compel the production of information. Recognizing that multi-national organizations must comply with the laws of those jurisdictions in which they operate, she reasoned that an organization that is subject to the Act and that has legitimately moved personal information outside the country for business reasons may be required at times to disclose it to the legitimate authorities of that country. The Commissioner therefore found that the exception to consent that allows for such disclosures applied.

Meanwhile SWIFT have published some further Board decisions describing their follow up:
- achieve Safe Harbour Status,
- increase contract transparancy,
- adapt the global infrastructure, so that EU data protection concerns will be met.

Sunday, April 08, 2007

Life as a Cybertwin chatbot.. a test

I'm now considering to bring the thoughts of this blog into a Cybertwin chatbot. It's available for test drives here. SEPA and interchange fee are however the only subjects it is now able to respond to ..... ;-)

Friday, April 06, 2007

A retrospective on the introduction of prices in Norway

Here is quite an interesting retrospective article on the introduction of pricing for retail payments in Norway. The article provides an account of the transition from free services to direct pricing of payment transactions, and the benefits of the transition. The focus is on actual events in the period 1970–1993. Yet, the authors rightly conclude that Norways high usage of cards is due to this direct pricing structure.

If we look at developments in the Netherlands in that same period, we can see a public policy debate around 1970-1973 on retail banking and the benefits of accurate pricing. Yet, due to the competitive pressure of the Postal Giro (offering payment services for free to consumers) there was no way that the banks would introduce direct pricing for payments. It was only at the end of the 1980s (when Postbank was privatised) that a new effort was set up; starting with the direct pricing of business customers (eliminating former value-based pricing structures). That worked out fine, although Postbank maintained a free-service package for small companies.

Then, a couple of years later Rabobank and ABN AMRO introduced direct fees for consumers. This helped quite a lot in terms of steering the public to more efficient payments. But Postbank did not join the effort, so after a number of years, Rabobank and ABN AMRO gradually withdrew their direct transaction pricing. Leaving us all, at this moment, with a hybrid form of pricing for the consumer. Banks generally sell packages or charge annual card fees, but real transaction charges are mostly levied by retailers (commission at the point of sale if debit-card payment is below 10 euro), utilities (extra fees if people choose inefficient and more costly bill payment methods rather than direct debit) or web-companies (charging a 10 euro extra if one chooses to pay with a credit-card).

In comparison with Norway, the Dutch do use the debit-card a lot, but as long as the retailers keep in place their outdated pricing for low-value POS-transaction (a thing that made sense in 1990 when direct telecommunication costs were very high) we will not be able to get at the high usability numbers of Norway.

Technical mishap at Equens makes Postbank clients suffer

BN/DeStem reported on April 3 that Postbank clients were unable to pay wih their debit-card at the offices of the railways, gas stations and so on. This unavailability originated at Equens where an unattetive system operator made an error. Which meant that all payment authorisations to Postbank were off-line until 8.30.

A friend of mine reported that the situation at Utrecht Central Railway Station was quite interesting. All automated ticket machines were out of use and people just stepped in without buying a ticket. Which makes one wonder about liabilities. Would the railways now be able to recoup the unpaid tickets at Equens..?

Payments and Settlements News 47

The 47th Payments and Settlements News - P+S-N is out and contains some interesting stuff that I didn't yet cover here:
- Denmark/Norway – Merger of card processing operations of PBS and BBS
- Voca and LINK announce intention to merge
- Latvia – Launch of the internet-based e-money scheme iNauda
- Philadelphia Fed – "Prepaid Cards: Vulnerable to Money Laundering?"

Tuesday, April 03, 2007

MasterCard sheds light on (low) SEPA awareness

See this article in Banking Business review: MasterCard sheds light on SEPA awareness - Banking Business Review to find out that awareness on SEPA is quite low with the public:
Throughout Europe, fewer than one in 10 (9%) debit cardholders have heard of SEPA, suggesting that a great deal more can be done to promote the concept. Awareness is especially low in the Netherlands (2%), France (3%), the UK (5%), Germany (5%) and Belgium (8%). In contrast, in Poland, the newest European Union member, one in three (29%) recognize the term 'SEPA.'

Now, why would customers (have to) care about SEPA anyway?
It is a policy concept rather than a new and shocking product reality. Already at this moment we can pay cross-border in a proper way and use cross-border ATM's and POS. The fact that there will be some technical tweaks and improvements here and there and some legal adaptations in contracts is really not that worrying or great news for the public. SEPA is not going to be a world shocking innovation but merely payments as usual with a bit more of a European twist.

And as for the public debate on prices and possible changes in price structure: the recent CapGemini report noted that last year prices in Europe went 2 % down and that price structures are increasingly geared to stimulate efficient payments and discourage inefficient payment methods. So that's nothing to be really worried about either.

And why would policy makers (have to) care about SEPA?
What should be our concern is that so many policy makers today are so overly involved in this SEPA-concept and so much aware. Effectively with a Payment Service Directive forthcoming, we can now see the gradual emergence of a panEuropean market with converging price levels, similar legal rules and similar standards. Which from a rational policy perspective doesn't call for any more or less attention than any other European market (for vacuum cleaners, dvd-players, washing machines or what have you). Still there is a lot of fuss being made by all kinds of regulators, consumer organisations and retailers, as if this market would deserve special further attention.

In my view SEPA doesn't really require this overdose of policy attention, although I do understand the emotional rationale. Having been ignored and arrogantly treated by banks throughout the 1980s-90s decades, European regulators were emotionally fed up and rationally right to call upon the banks to improve cross-border payments in 2001. But what surprises me is that the emotional thrill and feeling of 'it's payback-time for the banks' doesn't seem to wear off with time. Regulators remain overly emotional and sensitive to the sector, with consumers and retailers playing and reinforcing those emotions to the benefit of their own interests. Meanwhile the former arrogant bankers have been replaced by a different and cooperative breed.

It's a fine line they're walking here, because at some time the cooperative breed of bankers will just have to conclude that their counterparts are unreasonably emotional and that there is no room for a rational evidence-based debate on the retail payments market.

Take for instance the non-sense discussion on user mobility. I don't see policy makers argue that it is quite worrying that research shows that consumers switching rates for washing machines are low and an indication of a lack of competition in the market for washing machines. And that is because everyone understands that you buy a washing machine for the long run (10-15 years) and obliging the consumer to change washing machines every 3 years for the sake of increased competition is a silly thing. Yet replace washing machine with the word bank account, and suddenly all is different. Which shows that it's the emotions that are clouding the rational judgement here.

In sum: todays regulators in Europe appear to act as if the work on SEPA (Single Euro(pean) Payment Area) is not just that but also a case of SEPA: Sheer Emotional Political Angryness. My humble suggestion to them would be that they treat the work on SEPA in the spirit of SEPA: Sober Evidence-based Policy Analysis. Because that would really help Europe.

Monday, April 02, 2007

KKR Is in Talks to Acquire First Data

Wall Street Journal reports that KKR Is in Talks to Acquire First Data:
Kohlberg Kravis Roberts & Co. is in late-stage negotiations to purchase credit-card and payments processor First Data Corp. for more than $24 billion, people familiar with the matter said, marking the latest in a string of leveraged buyouts of established U.S. corporations.

KKR was hoping to make an official announcement over the next few days, these people said. The exact purchase price couldn't be learned yesterday, though two people described the price as a premium of at least 20% to First Data's market capitalization of about $20 billion. As in any large-scale negotiation, talks could falter at the last moment, ...

Quite interesting move.

KKR is especially known here in the Netherlands for its buy-up of retailer KBB Vendex. They've really reshuffled the internal deck. So the chains are now also accepting credit-cards for example. And major cash cow Hema is also going to be sold pretty soon. That does make one wonder where the KKR-deal with First Data would go.

Would KKR wish to divest all recent First Data acquiries:
- Gesellschaft für Zahlungssysteme mbH,
- Austrian Payment Systems Services, the national processor in Austria
- EuroProcessing International, a leading card processor in Central and Eastern Europe
- The card processing unit of FinecoBank in Italy
- Delta Singular Outsourcing Services, a leading payments processor in Greece
- TeleCash , Germany ’s premier network services provider or continue the strategic path?
- POLCard, largest Polish card issuer/acquirer.

or would they continue buying...?

Sunday, April 01, 2007 a bit of analysis and forecast then?

The hype nowadays is all about helping regular folks become a bank and make loans. Or in the Netherlands: And the fun bit is of course that people are very keen on outsmarting those big bad banks. Now, let's have a look at reality then and assume that I have two options for putting 500 euros of my money aside. One option is to throw it at a mediocre internet savings account at a real bank which gives me some 3 %. So at the end of the three years, I end up with € 546.

Now let's assume that I split up the 500 euro into 10 bits of 50 euro and that Prosper is not charging me anything for their service. I lend my money to a bunch of 10 people who offer me interest rates of 5, 8, 7, 9, 3, 4, 11, 12, 6, and 7 percent and promise me to repay after three years. On average this gets me a 7,2% return and after three years I end up with about € 608 euro. Sounds great.

That is, if you forget about the odds. Because chances are that one out of those ten may not be able to pay or repay you. If for example you would assume that the highest borrower (12 % interest) is bailing out after year 1, I end up with almost exactly the same amount of € 546. And with two out of the ten failing me as I provider of money, I end up with € 508 (worse then with my mediocre Internet savings account).

Now, with all this cold rationality one would expect Prosper not become such a hype. And one would expect a bit of analysis explaining that any mediocre bank is on average a better risk taker than you as a would-be bank can ever be. So fun as it might be, you will in the end financially be better off with a bank rather than with Prosper.

But, here's the catch. While financially it may indeed make more sense to put your money in the bank, the thing the bank can't do is explain the destination of your savings money. The bank does'nt give you the sense of feel-good, fun, usefulness for society if you move your funds there. And Prosper does. It allows the lenders to engage in the fun/usefullness of what lending money is all about. One has to evaluate the borrowers proposal, the borrowers position and decide whether or not this borrower can be trusted or, whether or not one doesn't care if the money's gone, given that the borrower has a charitable cause (or a nice face).

So what Prosper provides to the public, is not so much the hard financial benefit in saving/lending but the human factor involved on the lending/savings production side. And my personal guess is that people are actually more than willing to pay for being personally involved in determining where their savings money goes. Which means that they won't care if their money doesn't make as much as with any mediocre bank. So that's the real reason why Prosper will be a succes. The consumer wishes to pay (or suffer financial loss) to be a producer him/herself.

Now, let's take the crystal ball to look some 10 or 20 years ahead.
I imagine that we will see:
- banks allowing their customers to direct their savings to specific borrowers (identified by names and life stories or generic characteristics),
- some customers that choose money for their money and go to banks with their savings, and others that use Prosper to choose for return on investment in terms of personal engagement rather than financial revenues,
- some priviliged target groups (low interest student loans, provided by governments) may use up their priviliges and borrow to the fullest extent for a low interest fee while lending out for a bit more (leading in some cases to actual further debts by having unsuccesfully acted as a bank),
- the public, starting to better understand the financial intermediairy role of banks in society,
- the public starting to appreciate (after having unsuccesfully tried to outsmart banks in financial terms) that banks actually do quite a good job at this savings/lendings business.

So do check back here in 10 or 20 years and we'll evaluate this prediction.

ABN AMRO intensifies campaign to inform customers about viruses and risks

See this press release of the ABN AMRO Press Room to find out that this week's phishings expedition resulted in 4 people activating a virus and allowing a man-in-the-middle attack. Criminals immediately exploited the vulnerabilities by executing urgent transfers. ABN AMRO immediately compensated these four customers and have now taken the urgent-payment-transfer offline. Furthermore ABN AMRO intensifies its customer awareness programme with five rules:
1- check the lock and the ABN AMRO certificate,
2- always check the actual payments via the PC
3- never open e-mails from someone you don't know
4- only install software from trusted sources
5- protect your pc with a virus-scanner and a firewall.

Let's hope this helps.

Fighting Cash Not SEPA: six golden rules for the war on cash

GtNews has this SEPA-article by McKinsey:
Fighting Cash Not SEPA: How European Banks Can Win With Debit Cards

Containing the following golden rules for the war on cash:
1- the stakeholders must agree that substituting debit cards for cash is beneficial to society (This consensus will be hard to reach, as the parties involved do not agree on the true costs of cash and the other payment instruments involved).
2- the debit product must be enhanced.
3- acceptance of debit cards must be vigorously promoted, both in terms of personal acceptance of cards and in the world of remote commerce (mail and telephone order, e- and m-commerce).
4- Banks must develop segmented card offerings,
5- Cash needs to be priced appropriately.
Today the pricing of cash is not in line with its costs. Consumers and merchants in most countries do not pay the real cost of cash, and so merchants and consumers have no reason to reduce their use of cash. One problem is that there is no clear ownership of cash. Another challenge is that governments often position cash as a public good - to be offered free by banks - thereby inhibiting an economic debate on cash versus other instruments.
6- Finally, we will need to see significant targeted marketing efforts to promote debit over cash.

The authors (Wouter De Ploey, Olivier Denecker, Mieke Van Oostende) conclude that only when all these levers are pulled, by all the stakeholders, will the war on cash be successful.