Saturday, December 31, 2011

Looking back on 10 years of blogging.....

These days it's about ten years ago that I started blogging: I set up the blog Retail Betaalgedachten to voice my views on the retail payments issues in the Netherlands. At that point in time a friend of mine had a personal blog, but I started to use blogs for my consultancy work, thus being one of the very early business bloggers in the Netherlands. So here's the bottle to celebrate...:



Blogging has been with me ever since those first days. The Retail-betaalgedachten became: Linkdump on Retailpayments that you are now reading. And of course, when setting up 11a2.nl, a representative organisation for e-money issuers in the Netherlands, I chose the blog as the main landing/reading platform of the website. And in addition I set up a personal blog on jazz in the Netherlands.

And now, last year marks the beginning of yet another blog, this time on the financial history of amsterdam/netherlands. It's a spin off of my passion to always take a historical approach towards analyzing todays issues in society and industry. So as of this year, every now and then you can read my views on euro-crisis, financial sector and payments on that blog.

And on that note I wish all the readers a very good new year !!

Monday, December 05, 2011

Six Pack becomes fivepack: T-mobile leaves NFC-consortium of Dutch banks and telcos

Tweakers net today reports that T-mobile is leaving the consortium of banks and telco's in the Netherlands. The sixpack consortium is also delayed in its plans (from mid 2012 to beginning of 2013) given the considerable market share that both the banks and telco's have. So they will go to Brussels to aks for exemption of competition rules.

Monday, November 14, 2011

Costs of fraud by phishing at banks doubles in 2011

The Dutch Bankers Association today starts a campaign to increase awareness of consumers that they shouldn't fall for the numerous phishing mails that flood their inbox. The reason is the fraudnumbers in banking. After the first half year of 2011, the fraud by onlinebanking had already succeeded that fraud over 2010 (9 million euro). And similarly, the number of phishing incidents in this first half year amounted to 2418 while over the whole year 2010 this number was 1383.

The NVB has also renewed the website VeiligBankieren.NL; a website that I personally helped come into existence in 2005, as it was clear that awareness on the risks of e-banking required timely communication. This still is the case and thus the campaign/trailer below was developed. It will air extensively the coming days. The commercial shows the physical equivalent of phishing and warns consumers not to open fake-mail from their bank.

Tuesday, November 08, 2011

Finnius conference on e-money

As some of you may know, I have had quite an interest in electronic money in the Netherlands in the past. And yesterday I had the pleasure of visiting the conference on e-money by Finnius. The conference was concise and clear with talks by Andries Doets on the regulation and a speech by the supervisor (DNB: De Nederlandsche Bank). This provided a good overview of rules, exemptions and clarified the role of DNB.

After the beautiful and energizing musical break (Duo Sottovoce) Casper Riekerk moderated a discussion that focussed on business models and the difference between paper-based and digital electronic money. The panel and audience agreed that the margins in the e-money/payments business are quite slim, certainly given the rule that the float cannot be used for other purposes (which happened when giftcards where still paper-based).

At the end, following a suggestion by DNB, the thought of setting up a representative organisation for e-money issuers in the Netherlands came up once again. So perhaps we will see a new organisation emerging as a result of this conference. Time will tell.

Personally I couldn't help thinking that quite a lot of effort by the supervisor is spent on values and amounts of e-money that are irrelevant, compared to the busloads of similar-type payments via mobile phones and Ov-chipcard (exempted from regulation). It is clear that both market and supervisors have digested and codified this exemption into their rules/system. So no one questions it (if anyone still remembers the history of this exemption).

But it remains a paradox for someone like me, who witnessed and joined the discussions on e-money dating from the rise of e-cash and Mondex. It was in particular the digital forms of pre-paid e-money that raised the awareness and need for legislation on e-money. Everyone got a head-ache when they thought of a situation in which money (and goods) were digital. Because this would create a situation in which central banks in the end will not know any more how much money is in circulation. And consumers might see their digital cash disappear if it was not secured properly.

So the headache lead to the legislation on e-money. And when introduced, supervisors decided to create an exemption for precisely that form of money that made us develop the legislation in the first place.

As such I think the whole e-money debate is quite an interesting casebook example of the Politics of the European Union.

Thursday, November 03, 2011

DNB releases results of survey how Dutch consumers pay...

Today, our central bank, De Nederlandsche Bank (DNB) released survey results on Dutch payments in 2010. It showed that in 2010 consumers in the Netherlands made 4.4 billion cash payments at checkouts (shops, caf├ęs and restaurants, petrol stations and at markets) and some 672 million between persons. So this creates an interesting benchmark for anyone doing studies on payments. If you wish to estimate the number of p2p payments in a country, just take about 16 % of the total cash transactions (but remain aware of cultural differences though...).

The study (only available in Dutch: here) also reveals that most Dutch consumers pay with the payment product that they prefer. So it appears as if everyone in the Netherlands is quite happy with the way we pay. Yet we should note that the scope of the study was limited to the classical payment products. Consumers weren't asked about their preference for strippenkaart, the payment means for public transport:


I would bet that when asked, many would prefer to continue using the strippenkaart over the OV-chipcard with its cumbersome operational flaws and failures. But as of today consumers have no choice, because the strippenkaart has been taken out of circulation. Paper tickets are now only available in trains but the National Railways are planning to scrap these at the end of 2012.

Wednesday, November 02, 2011

The cultural side of payments: Hofstede provides an interesting picture

One month ago I had a meeting with two American visitors that wished to know more about the history of payments here in the Netherlands. And as they had just arrived and had no time for the Walking tour on the history of Dutch payments we discussed those topics over a cup of coffee and lunch. And of course we came to discuss the Why-question. Why is it that the Dutch seem to be more keen on cooperating in the area of payments than other countries?

Of course there are a number of historical reasons. And one might argue that the Dutch are of a more cooperative nature given that they have to battle the water cooperatively, but it's hard to substantiate this. But then I realized that Geert Hofstede had done quite some work differences between cultures. And the funny thing is: if you chart his data, you can indeed see that the Dutch score high on uncertainty avoidance, long term orientation and low on masculinity and power distance.


So there you have it. The reflection of our cultural mindset that stimulates us to choose cooperative solutions when developing and organizing payment methods and systems. This is not to say that everything is and was collective here in the Netherlands. But in the long run there is a strong tendency to cooperate on standards.

Friday, October 28, 2011

Interesting paper on best practices for Payment Regulation

As I browsed through the programme and speakers of the E-MA conference on e-money I noticed that Rhys Bollen would present on regulatory issues. And upon googling I discovered his dissertation on best practices for Payment Regulation. Although I haven't finished reading it yet, I think it's quite a good read that deserves further attention.

Thursday, October 27, 2011

E-money: an innovation revisited...

I think it is fair to say that technology and payment innovation occurs in several 'rounds'. It's sort of a boxing game where enterprises seek their niche in terms of consumer/company services but also in terms of regulatory niches. This holds true in particular for the domain of e-money.

Some fifteen years ago (I feel quite old when writing this) the buzz was all about Mondex and e-cash: two new e-money schemes. The development of these schemes coincided with the increased use of the Internet as well as the use of mobile phones. And there was a lot of debate on which rules to apply. Should e-money issues become banks or not. I remember setting up a specific branche-organisation (11a2: here's the old website) and conference on that specific issue.

While in this first round it appeared to be the case that anyone using digital coins for consumer payments needed to be regulated similarly, it turned out in a later round of regulation that some industries, notably telco's and transport companies, succeeded in convincing the regulator that their consumer money was not the same as the consumer money in banks. And this lead to a reshuffle of all kinds of regulations to allow for this.

The regulatory developments of 2011 essentially mark the conclusion of this second reshuffling round of regulation on e-money. And the industry has adapted in the meantime and is now looking forward to the new challenges, as we see the further development of mobile phone's, tablets and many other exciting new opportunities for e-money.

Should anyone be interested in the current state of affairs of the European e-money market or regulation I would warmly advise to sign up for the e-money conference of the Electronic Money Association (EMA). All players are there and all topics are on the table.

Tuesday, October 25, 2011

And there goes Bitcoin sinking...

These days reports are out about the sinking value of Bitcoins and we see users worried about it. And so we see yet another social/payment experiment forget that it takes quite a robust design to get a payment system going. Enthousiasm and technology are important, but no enough.

See also my previous post here.

Wednesday, September 28, 2011

NFC project by Dutch banks and telcos: six pack

Since some time, work is on the way between the three big banks and telco's in the Netherlands on payments with NFC. See the report in the NFC as of July and as of September. The project is named six pack by the way and time will tell if it really deserves that name...

From NFC:
The banks have agreed to put the NFC payment applications onto SIM cards the telcos will issue, so they likely have agreed to some type of model in which banks would rent space for their payment applications on the telcos' SIMs. Bol declined to discuss models. ING has been designated to speak for the rest of the partners, a bank spokeswoman said.

There are still many unanswered questions for the project, however, especially how the parties will jump-start contactless payment, since a contactless-payment infrastructure is almost nonexistent in the Netherlands. Much of the discussions among the banks and telcos the past 12 months have concerned how to get contactless terminals rolled out, NFC Times has learned. Bol said the rollout of EMV payment in the Netherlands means merchants will have newer point-of-sale terminals installed, which can more easily be upgraded to accept contactless.

But the banks and telcos still have to convince merchants to accept contactless and, according to Bol, the banks have no plans for a separate contactless-card rollout that could use the same terminals. Banks may issue contactless cards separately, however, and ABN Amro is trialing cards.

Tuesday, September 27, 2011

Financial History of Payments... separate log

A couple of months ago, I opened a new weblog, dedicated to the financial history of payments, banking and Amsterdam. So for those interested in the old times, do have a look at my weblog on financial history here.

Tuesday, July 05, 2011

Latest oversight framework of the ECB: the institutional drift continues and the blind spot for outside-payments increases

Today, the ECB published updated standards for oversight of payment and settlement systems. And once more I found it quite interesting to observe this big institution increase its span of control and policy-reach in a process which is called institutional drift. Which is a scientific term for: just grab something that is within reach of what you're doing and see if anyone can stop you. If not, you just expanded succesfully your territory. Which is the fuel and drive for any organisation or institution of course.

The distinctive example of institutional drift, worthy of further scientific exploration (if ever a political scientist would wish to do so), regards the vague term: 'oversight' on payment systems. And in this blog I am giving some clues as to a possible lines of reasoning and research.

1. In general it is of course a good thing that central banks, in their role as an important local government institution keep an eye on the developments in the payments and securities sector in their country. Some central banks at some point in time called this: 'oversight'.

2. And should anyone wonder if this is the same as supervision: it is not. Supervision is formally described and delegated in general laws and supervision law. Oversight on the other hand is a self-invented word of central banks. Yet there are always some generic words in the central bank law that vaguely refer to the job of central banks to promote smooth payment systems.

3. This promotion of smooth payment is of course relevant given the role of a central bank as the settlement bank for active banks in its country. But in time, central banks have started using the terminology and words in bank law to increase their action radius. So they started becoming involved with national retail payments, not being a real supervisor, but sort of acting as such and using complicated terminology as oversight to disguise (in some countries) the lack of a strong legal basis. So we have a mixed bag of central banks in the EU, all claiming to also do oversight, with some of them having a real legal basis, and others not having it really.

4. Enter the European central bank, more than ten years ago. In a quest for a bigger role in the universe, they found the oversight function to be of relevance and started drawing in this territory. Which brought them in conflict with some local central banks that said: 'Hey, ECB, hands off our local retail payment systems and oversight, that is a local matter, not a European matter'. But then again, over time such a stance can't be uphold, due to the centralizing powers of any power centre. So the ECB's role in retail payments oversight got bigger and bigger.

5. So over time we could witness the Dutch local central bank publish and use 'oversight'-standards. The ECB got involved in cards-standards. Which was a strange move, upon which the Dutch Bankers Association also commented:
1 The Articles 105(2) of the Treaty and Articles 3 and 22 of the Statute of the European System of Central Banks and of the European Central Bank (ECB) at best provide a legal basis to publish or enact regulations with respect to gross-settlement systems that are directly relevant for the functioning of the money market. We note that the scope of the proposed oversight framework for CPS extends beyond this domain. While we recognize that analytically the proposed framework (or any other payments oversight regulation and measures of the ESCB) may perhaps be considered ‘in line’ with the statutory tasks of the ESCB, we are of the opinion that such an extension lacks the required legal basis. Additionally we note that it is only remotely related to the primary tasks of maintaining price stability.

6. Still, this verbal slap on the hand by the NVB made no impression whatsoever, and so we can witness the European central bank pursuing the quest for retail payment oversight. There is a catch however. The ECB conforms to the definition of payment instruments in the Payment Systems Directive and thus leaves a whole range of thirdparty instruments as OV-chipcards or e-money on mobile phones out of their scope. So here is an interesting blind spot.

7. If we take the spirit of the ECB document as a guidance, aren't mobile phone money and pre-paid cards (and possibly all other new kinds of payment mechanisms) effectively the instruments that most require some form of oversight? And aren't those the systems (rather than the ones of banks) that have the best record in making the money of consumers effectively disappear? Contactless card may be more prone top operational errors (the Dutch system is) and money on mobile phone is notoriously gone due to unrequested reverse billing via sms and what have you.

8. So what I find intriguing is the mixed message the ECB is thus sending. On the one hand they wish to increase their hand/policy area to fit all the world of payments into their remit. So with an not-legally based word as oversight they conquer the retail payments world. Yet, they carefully seek to steer clear from instruments that may be too complicated or are too tough to handle.

9. Which leads me to my final questions. Who asked for this? Who is paying this? And is anyone in Europe holding the ECB responsible for what they are doing in the area of retail payment oversight? Are they being evaluated by some other organisation than just themselves? And is this what the European citizens or European Parliament wish the ECB to do (rather than leave this to local central banks)?

Saturday, July 02, 2011

Fed issues rules to debit card interchange...

After a lot of thinking, the FED issued its rules for debit card interchange. Essentially they've outlined the borders beteen which the outcome in the market is acceptable. And it's a smart solution for a tricky debate, because at some point it looked as if the FED didn't really knew what they were up to.

An interesting element is that 3 party networks are excluded from the regulation (which is legally inevitable). And that a sort of competition appears to be forced upon the issuer. In any case, the markets reaction in terms of increasing share price was quite clear. Although it might also have been the short-squeeze in US treasuries that did the trick.

Friday, July 01, 2011

Dutch Ov-Chipcard gets instructions from parliament

This week was the last week of this seasons parliament sessions in the Netherlands. And our parliament has a tendency, of late, to increasingly focus on details and incidents, rather than strategy and policy. Thus, responding to consumer dissatisfaction, the Dutch MPs approved a decree in which TransLinkSystem, the builder of the public transport chipcard, is ordered to simplify the check-in, check-out system.

Upon check-in the system deducts a big amount (sort of bail) from the pre-paid purse and only if check-out functions properly, the system returns the money (and deducts the fare price). This doesn't work properly so if somehow the machines don't work properly you quickly run out of cash and are forced into the hassle of phoning/contacting customer service to get your money back. There is even a separate fund that Translink owns, in which money resides which should have been claimed back due to these operaitonal errors. It's the money of customers who are unaware of the errors (they may have enabled the autoload function that fills up the purse from their bank account and they may not really check their accounts that well).

Additionally, there's going to be a change in governance for the ov-chipkaart. MPs decided to install a governing board that is responsible for design and customer features, reducing Translink to the mere processor of the scheme.

Well, as with most of MP initiated ideas, we'll have to see if this will fly (and how.....).

Tuesday, June 14, 2011

And another nice example of attempted internet-fraud....

It's not always nice to be subject to Internet fraud. Last weekend I heard about a couple that had their hotmail account hacked. And I asked for the example at hand. The result was that suddenly, their friends and family got the e-mail below. Which evidently was a scam (asking for a quick money transfer) but still got some of their friends fooled.

So for prevention purposes I thought I better put the e-mail on the web. So be warned, don't fall for this !!


I am sorry i did not inform you about my trip and I do hope that you receive this email in good health. I am presently in Great Britain,London to be with my ill Cousin. She's suffering from a critical uterine fibroid and must undergo a hysterectomy surgery to save her life . I am deeply sorry for not writing in our usual language or calling you before leaving, the news of her illness arrived to me as an emergency and that she needs family support to keep her going, I hope you understand my plight and pardon me..

Hysterectomy surgery is very expensive here, so I want to transfer her back home to have the surgery implemented there am wondering if you can be of any assistance to me with her hospital bills including ticket fees, I need about €2,300(euro)) to make the necessary arrangement; I traveled with little money due to the short time I had to prepare for this trip and never expected things to be the way it is right now. I'll surely pay you back once I get back home, I need to get her home urgently because she is going through a lot of pain at the moment and the doctor have advised that it necessary that the tumor is operated soon to avoid anything from going wrong,she is currently taking care of at the Intensive care unit of the hospital and currently I am with her in there and i am restricted to make or receive any calls due to the patients in there but i have access to the Internet.

I would appreciate anything you can do to help me,i promise to repay the money back to you as soon as I get back home safely with my cousin. Please if you have a western union office around you send the money to my name and address below, i know this is not in your budget now but i promise to refund the money to you as soon as i get back home and have access to my account.

Name: Anon. Ymus
Address: 70 Margaret Street
London W1W 8TF
Great Britain

I await your mail as soon as possible so that i can be able to receive the money today, Please let me know any information given to you after sending the money or preferably scan the receipt of the western union money transfer so that it will be safer for me to receive.

Please I await your early reply
groet XYZ (wife of ANON. YMUS)

Saturday, June 11, 2011

Bitcoin.... dubious payment mechanism

Every now and then, Bitcoin keeps on popping up in posts (including mine). At first I only looked at the technical bit, but I've come to understand that essentially the amount of coins issued in the system will be fixed. Furthermore, in terms of governance, there is little known about the developer and designer.

So that leaves us with a payment instrument with:
- security by obscurity, both in technical and governance terms,
- uncertainty as to legal rules/jurisdiction applied,
- a limited amount of coins to be issued.
And let me be clear. All of the above mean that it is unfit for use and essentially only an activity that may somehow benefit or amuse the owner.

So, we can be brief about what it is. If presented as a solid payment mechanism, we must officially consider it a mere scam, designed to fool some subcultures in this world to believe that there may be something as a free unregulated worldwide anarchistic form of money that can work. History shows that while some of these systems may work for a while, they will never work for similar time periods as regular currencies do, and the reason for that is the lack of governance, security and legal underpinning.

To illustrate this in a simple way. Bitcoin has a fixed amount of coins. Now imagine a country with a limited amount of money available. This country cannot sustain the use of a limited amount of coins to pay for ever increasing trade and a growing economy. Unless it has a central bank monitoring the amount of money in circulation in relation to economic growth. But Bitcoin doesn't come with a central bank, so the coins will continue to increase in value until they become unpayable. As such it has all the characteristics of a ponzi-scheme. Which means: the last owners of IUOs will pay for those that have exited early.

[Update June 13, 2011: I've come to understand that in technical terms the scheme is open and transparant, yet I'm still struggling with the monetary and governance side of it. And it does take more than pure trust in technicalities to get a payment system to survive.]

Tuesday, May 31, 2011

Lessons from (Dutch) payment history

Around the year 2000 I was working on both my historical research about the development of payments in the Netherlands and in the payment policy department of the central bank. As a result I started to gain some more insight into the 'unchangeable' dynamics of the payment industry. I summarized these in a presentation that I gave on the First European Financial Cryptography Conference in Edinburgh. You can download the presentation here.

The location in Edinburg was very historic by the way. We were in the library, if I recall correctly, the library of the former parliament of the city. And we were in the hometown of John Law, a famous payment innovator, who was born in Edinburgh and at one point in time wrote: Money and Trade considered (with a Proposal for supplying the Nation with Money). Being asked to provide a key note speech, it seemed appropriate to me to refer to John Law, both in the title of my presentation as in the caveat at the end.

Overlooking many centuries of payment history, my main conclusions were:
1 - Payment techniques travel along with trade,
2 - as did John Law:
3 - The most efficient model is the centralised (giro) model . .
4 - but religion/legal rules determine local specifics of instrument use
5 - Kings and governments always want a piece of the action
6 - Country specific instruments only work with a fair deal of trust
7 - Security must be learnt - the Dutch banknotes
8 - Convertability into ‘real value’ is essential but not essential
9 - Accepted because confidence in the ability to respend it
10 - Any payment is in itself quite uninteresting to the user
11 - The payment product is a hygiene factor
12 - User risk depends on more than technical security
13 - Operating a payment system can be very profitable
14 - Respect existing deeply rooted traumas and successes
15 - Interoperability has never been a major problem for end-user
16 - Reduce the number of messages in payment protocols
17 - Don’t overvalue anonimity
18 - Multifunctionality won’t work with more than 1 organisation
19 - Critical role for government and the large retailers
20 - How to make new payment mechanisms work ?

And while all this took place at the second floor of the library in Edinburgh, his original book, as sent to parliament, was downstairs. What really made my day is that afterwards, when I went down, the librarian was so kind as to allow me to have a look at the original book, Money and Trade, that John Law sent to parliament (despite the fact that the library was officially closed and it was officially her free Saturday)

Monday, May 30, 2011

ING eliminates legacy savings accounts

ING is these days kicking out all old savings accounts. Among those, the infamous: Rente, Plus and Sterrekening. These were the first savings accounts of the Former RijksPostSpaarbank that merged with the Postal Giro services (PCGD). The accounts were linked to the giro-account and worked as the savings account with the same number. And the names of those accounts was symbolic of course:
- Rente
- Plus
- Ster
creating a acrostichon for RPS, so that the name RPS would live a long time after the merger.

Until this year that is, because the technology of the 20th century is not just that flexible in the 21th.

Thursday, May 26, 2011

Moving to EMV-based ATM and POS-transactions.... it's the small things

It's the small things in which you can see that in the Netherlands we're moving slowly to EMV-based transactions. At the ATM's we now need to press OK after entering the PIN-code. That used to be a quicker interface with merely the pincode and some other buttons. And at the POS the difference is more clear. With some shops, there's a band of plastic on the side of it so that you can't swipe any more. And in the internet-banking domain, we now don't see an amount which is directly debited. No, we can see that the amount paid is reserved, because the basis is now a Maestro payment, developed for the international payments (and thus: first the amount is reserved and later after clearing/settlement it is considered to be finally debited).

All in all I think that January 2012 is the date on which we should have moved over completely to EMV. I'm curious to see how the large retailers deal with that. Because they are the ones that really will see a slowdown in payment, given that the consumer cannot swipe, enter PIN and put his debit-card back in the purse (to finally only press OK somewhere). The consumer now has to press his OK at the end of all counter-calculations, while the card is still in the POS-terminal and that is going to be a different routine.

Tuesday, May 03, 2011

Serious trouble for Rabo with DDOS attack

Yesterday was the day that Rabobank was attacked by a DDOS. It took them more than a day to solve it, and they still warn the public that there may be hickups. As far as I recall, this is the most serious DDOS that we've encountered in the Netherlands. Earlier this year, the banks informed us that in 2010 the direct financial damage of attacks on e-banking in the Netherlands (trojan horses etc0 amounted to 10 million euro (five times more than the 2 million in 2009). So banks and police will remain alert and govcert will be glad that it could be of use to the banks.

Monday, May 02, 2011

Ocassional error with pre-paid card: prisoner withdraws half a million euro

Funny story on nu.nl today. A prisoner who received a pre-paid debit card (ensuring that he would never witdhraw more oney than on his account) was accidentally provided with a card without a spending limit. So over time he kept on withdrawing up until a total of almost half a million euro..

Thursday, April 14, 2011

History (of e-money) repeats itself... central bank alert on crowd-funding.... and (still) missing the real issues in the market..

One of the major challenges for central banks and supervisors is to appreciate new technologies and to decide their policy stance on the subject matter. Currently we are witnessing a case of 'history repeats itself' here in the Netherlands, as the central bank, DNB, has informed the public that it will look out for instances of crowd-sourcing. They mean the situation that a group of people pre-pays the production of a book (tenpages.com), film or anything else. And suggest that this is the equiuvalent of attracting deposits (a bank activity), which therefore warrants a closer look by the supervisor.

I dare to disagree and would suggest DNB to reflect on their policy stance and take a closer look in the mirror and in their own recent history (of electronic money). When the first instances of e-money occured (on chipcards: Mondex and in software: e-cash), central banks were keen to quickly state that this was needed to be subject to bank supervision. This resulted in a clash between supervisors and European Commission (that wanted to stimulate competition and that viewed the vision of supervisors as protective). With the Electronic Money directive as the result, that outlined that issuers of e-money (regardless of technology) needed to be subject to supervision.

Since then, we have seen a number of initiatives with respect to e-money, varying from Paypal (now a bank) to Wally, global payways and what have you. Here in the Netherlands (just as in the UK) a separate organisation was set up to represent those issuers of e-money: http://www.11a2.nl. And whoever takes the time to read through their website will find out that the central bank itself was inconsistent in their supervisory approach. In principle, anyone issuing electronic money, was to be subject to bank supervision. So that would also apply to the digital funds, used for mobile phones and digital mobile services. Yet, in response to the lobby of mobile operators, DNB (and later even the European Commission) created an unequality in the market by saying... e-money should be supervised, unless it's e-money for mobile operators. And some more years down the road, they also used tiny holes in the E-money directive to not supervise the Dutch public transport company Translink, with all the requirements of the e-money directive.

Let's review the developments and arguments once again. The main issue here is: who's paying for what? Is the transaction that I am doing a prepayment for a specific good, or is it the purchase of a digital amount of money (or coins, or beenz or what have you) with which I can purchase a wider variety of goods, even goods from someone else than the person to whom I made the prepayment. In the case of crowd-sourcing on tenpages.com, it is clear that the customer does not prepay for any book, but for a specific book. So to call this deposit taking would be silly and no banking laws should apply. Yet, the central bank/supervisor seriously wants to delve into this issue, by going for crowd-sourcing.

Now let's take a look at the situation that I purchase a digital fund: to use on the mobile phone or in public transport. It looks to me that this is so close to money, that you would want the supervisor to take a good look at it. And since 2000, there have been numerous incidents in the Netherlands with a whole range of providers and users of these digital tokens. Over and again, the mobile operators have developed codes of conduct, rules, call centre's and what have you, to make sure that the unasked  provision of paid sms's (reverse billing) would not lead to phone users who suddenly see their phone-money disappear. While the level of annoyance has changed over time, the essential bottom line is that if treated as regular payment mechanisms under the current European Payment Legislation (Payment Services Directive) these services could not exist in this form any more. And a similar thing holds true for the transport company translink. They made a technical system in which the security is insufficiently guaranteed and money is deducted too easily from consumer accounts and cards. So there is actually a real case for concern by the central bank/supervisor. Yet, the supervisor sticks to the old adagium that these do not fall within the definitions and are thus not subject to supervision.

If we further evaluate the role of De Nederlandsche Bank, as a supervisor, we can see they failed big time over the last years, as they didn't succeed in properly monitoring DSB Bank, De Hoop and Icesave (all banks failed). For that reason, parliament has been digging into the topic and the Ministry of Finance and DNB have promised it will organise a change in culture, a change in approach. At the core of this change, we should expect a more self-critical approach in which policy stances are not developed in line with the managerial group-think or in response to lobbying by important stakeholders in the market, but as a result of an assessment of what is at stake essentially; trust in payment systems and any entity providing payments or banking services to the public.

While DNB tries to convince the public over and again that times have now changed and they have reinvented themselves with a new organisational culture, their unchanged policy stance on e-money issuers demonstrates that this is far from true. And although none of the exempted e-money issuers have caused a failure, big enough to worry parliament and society, one might view the current troubles at the OV-chipkaart company, as another demonstration of the failure of the current (failing) supervisory approach by DNB. It is stunning to see that DNB seeks to further investigate legally irrelevant crumbs of crowd-sourcing while missing the leaking boat of OV-Chipkaart/Translink company that is in everyones face nowadays and while ignoring the undermining spinoff that is created by phone companies that handle money (and customer complaints) with a different quality level than justified.

So this leaves us with a public opinion, parliament and Ministry of Finance believing things are now proceeding nicely and on track with DNB as a re-invented, more focused and less obedient supervisor, with the evidence of the opposite being ignored. It is interesting to see when this will further evolve. My guess is that eventually we will see a white washing scam where an actual terrorist attack appears to have been funded by money which has been transferred by mobile phone services (using anonymous top-up cards in country A to demand empty 'premium services' from country B). Yet, by that time, there will be no one around who is politically relevant today, so that means our future politicians can then blame the former politicians, ministries of finance, and supervisors.

And the world keeps on spinning.

Sunday, March 06, 2011

Back to the future with peer to peer coinsystem for the internet... or merely a scam?

It's not clear to me whether BitCoin is a serious system or merely an interesting way to create money with people who still believe in these kinds of systems. Non-centralized payment systems with digital coins in my view have a tendency to not be possible/workable. So I'll leave it at this pointer only to find out in some 15 years time that I may have misjudged the new paypal here... ;-)

Thursday, March 03, 2011

Rabobank will start with mobile payments via Ideal

See the press release here and discover that Rabobank will use its mobile banking app also for Ideal. It is announcing that this is an experiment, to be the first Dutch bank to find out how this works. This going-for-it-alone-approach might raise a few eyebrows with other banks and Currence though (scheme owner of Ideal). Yet, it is only an experiment, so other banks may benefit from skipping part of the learning curve...

Friday, February 18, 2011

Interchange fees: do the FED know what they're up to...?

I've just read the FED's speech on interchange fees. Most striking, in my view, was the conclusion that this is a complex issue. Now, the FED are good thinkers, and if they say something is complex, it means that even they can't make something out of it. So if I read the text below with that in mind:
In light of the novelty and unusual complexity of the issues raised in this rulemaking effort, my colleagues and I are very interested in reviewing the full range of comments offered on our proposed rule and are reserving judgment on the terms of the final rule until we have the opportunity to benefit from these comments.

This just looks as if the FED are saying: Sorry, but even we don't know what to do here. So my guess would be that they go for an easy, less controversial solution. Because in the meantime, I noticed in the SEC filings that Visa and Mastercard are already preparing for a large legal battle (and have agreed how to share the burden between them). And from the above, I reckon the FED is not looking forward to more complexit or novelty.

Saturday, January 29, 2011

Dutch contactless chip (OV Chipkaart) in trouble

Hello there again.

As you can see from the dates on the blog. I have been out for a while, taking a good number of sabattical years off and enjoying myself with other stuff than payments. But developments here in the Netherlands remain entertaining enough to take up some blogging. No too much, because I shouldn't overdo it.

Hottest news here in the Netherlands is that last week the OV-Chipkaart once again became the subject of media attraction as a tv program explained how to crack the card. A free program to increase the credit on the card became available and known through Geenstijl. And contactless card readers got sold out, even via the Internet.

So discussions in parliament and media once again occured and the province of Zuid-Holland decided to not completely migrate to the OV-Chipkaart but allow the old Strippenkaart to be used. And the Dutch Parliament did not wish to discard the whole project yet. Still, we should note that this is all not really new: already since 2008 the dutch newspaper Trouw decided to open a separate corner in their website for the 'Drama' of the OV-chipkaart.

Translink systems formally claim they can handle the frauds and point to the fact that also bank cards are prone to attack/fraud (forgetting to mention the differences in financial and technical impact). So thay play it all down. But we keep on discovering unintended or hidden consequences. For example: the sigar/tobacco shops that used to sell the strippenkaart found out sme serious financial impact of decreased visitors to their shops. And the new OV-chipkaart loading machines that some install in their shops, don't give as much kick-back as the strippenkaart.

Now, this is quite a nice time to have a renewed look at the cost benefit analysis of the OV-chipcard. Effectively the business case gets a bit worse, because there will not remain a lot left of the 'income' made by the reduction of fraud or 'grey' travel (possible with the Strippenkaart and assumed to be non-existent with the OV-chip). This is calculated as a benefit of between 380-500 million euro. Also the re-use of OV-chipkaart in other applications would give benefits of 100 million euro. So we'll be seeing a slow meltdown of the business case of the OV-chipkaart.

So while the business case is slowly fading into the sea, what in the end may make or break the card is the consumer-side of things. For example, right now, the handling of consumer complaints in case of forgetting to check-out, is near to disastrous. So there is not much of a warm feeling with the Dutch citizens with respect to this card. Also, in practical terms, the card doesn't completely do what its predecessor can. Try taking a group of people (of a school class of 14) to the ZOO and you'll discover the hassle soon enough.

It's a matter of time before we'll move on to the next generation or next system. And with this experience of a non-bank issuer/provider of payments means, perhaps the public will now more appreciate the quality of service that they are used to from their bank-issuer provided system.