Sunday, April 30, 2006

Highlights in Payment and Settlement news 37

P+S News nr 37 is out now with as highlights:
value of debit-card spending in the UK bigger than value of cash spending,
- table of contents of special issue Network Economics on payments,
- Paypal launches eBay creditcard,
- Cap Gemini report on World Banking.

Landmark speech by Swedish Governor of the Central bank on cash

At the BIS website I noted this speech given by Stefan Ingves, Governor of the Sveriges Riksbank, to the first meeting of the so-called cash management advisory board in Stockholm (26 April 2006). This board will meet twice a year to discuss cash-management issues in Sweden and its members are: banks, cash-in-transit companies, representatives of the retail trade, trade unions and authorities such as Finansinspektionen (the Swedish Financial Supervisory Authority), the police and the Swedish Work Environment Agency.

As a sort of kick-off for further discussion in Sweden, the Governor describes the situation in Nordic countries with respect to usage of cash and preferred pricing policy:
I think that we should ask the question of why Sweden has so many more cash transport robberies than other countries, not just other Nordic countries, but the majority of European countries. There have occasionally been suggestions put forward in the general debate that if one tried to reduce the use of cash in society, the number of transports to ATMs could be reduced. Given this, it is interesting to reflect on why we Swedes prefer to pay by cash rather than by card more often than our Nordic neighbours. The number of card transactions per inhabitant in 2003 was around 130 in Norway, just over 100 in Finland and Denmark and just over 80 in Sweden. There is no clear explanation for this, but one clue may lie in pricing. In Sweden, cash withdrawals from all ATMs are free of charge, despite the large costs entailed in cash handling. In the other Nordic countries, cash withdrawals are only free of charge from the customer’s own bank’s ATMs, which has led to a reduction in the use of cash.

Well, it's nice to find out that there are still central bankers that dare to include cost of criminality into the calculations of (social) cost of cash. And that they are not afraid to draw the appropriate (cost-based pricing) conclusions.

ECb to publish opinion on EU Payment Systems Directive (title 2 to be taken out)

TMCnet publishes a Dow Jones report explaining that the ECB will soon publish their opinion on the EU payment service directive (PSD). The ECB thinks that the PSD requires some amendments to avoid "diverging interpretations."

Despite numerous claims of both ECB and EU Commission that they are well aligned on all payment issues, it seems that there is a difference of opnion.

The ECB will soon urge the E.U. to make "explicitly clear that payment institutions may not use customers' funds during the limited time period that the funds are being transferred from the payer to the payee."

In addition, the ECB finds that the proposed directive is insufficiently clear as to
(i) what kind of activities payment institutions are allowed to perform and
(ii) whether they are allowed to hold balances with similar economic characteristics to deposits or e-money and grant credit financed by money received from the public.

The ECB also said that if the introduction of the directive were delayed, this could endanger the Single Euro Payment Area, which is planned for completion by 2010. So, rather than wait for the outcome of any prolonged negotiations, the E.U. should consider splitting the directive, "giving priority to adopting the parts necessary for a successful implementation of the SEPA".

Interpay annual report and lay-off announcement

Last week Dutch ACH/processor Interpay published its annual report. At the same time the Financieele Dagblad picked up on the news that Interpay needs to lay off 150 workers in the area of credit-card processing.

European reality now has Dutch banks seeking different processors than Interpay. So the irreversible steps towards the real open processor market in cards is now a fact for the Netherlands.

Other countries may follow, but not so quickly. So one again we can see that the Dutch show themselves to be the nerd of the class-room; always having the homework done as the first (....but last in line when it comes to picking the girls for the prom).

Friday, April 28, 2006

RBA Payments System Reforms for debit-carsds

RBA finishes its reforms in the cards market with the following measures:
- the adoption of a cap and floor on interchange fees in the EFTPOS system, with the result that these fees, which are paid by financial institutions that issue EFTPOS cards, are likely to fall to around 4 to 5 cents per transaction, from an average of around 20 cents currently;
- the adoption of a cap on the weighted-average interchange fee in the Visa Debit system, with the result that interchange fees in the Visa Debit system, which are paid to financial institutions that issue Visa Debit cards, are likely to fall to an average of around 15 cents per transaction, from around 40 cents currently;
- requiring the Visa system to remove the restrictions on merchants that require them to accept Visa Debit cards if they accept Visa credit cards, and that prohibit merchants from imposing a surcharge on Visa Debit transactions; and
- the adoption of a cap on the price that existing participants in the EFTPOS system can charge new and existing participants for establishing a connection.

And later in May, we will find out what parliament in Australia thinks about it. See also this link to the home page of the Australian parliament enquiry.

Monday, April 24, 2006

Paypal seeking alliance with Microsoft and Yahoo to counter Google-pay?

The Automatiseringsgids mentions that the Wall Street Journal discussed a possible alliance between E-bay/Paypal and Microsoft and Yahoo as to ensure that Google's ambitions don't go to Google's head. Or at least not to the detriment of e-bay's business. Apparently E-bay may consider moving part of its ad-business from Google to Yahoo/Microsoft.

Nine SEPA Essentials after conference on April 4-5

See this report by Innopay, outlining the results of a 2-day conference on ‘Payment innovation beyond SEPA’ (see also this previous post on the statement of the central bank at the conference).

The 9 SEPA essentials are:
1. Planning is on track
2. Evolution or revolution of infrastructures
3. The future of local card schemes
4. Public sector as a partner
5. Communication not only by banks
6. Regulation might not work
7. Legal Framework must stabilise
8. 'War on cash' will intensify
9. Next wave is e-SEPA.

Saturday, April 22, 2006

Fed won' t set interchange fees

Nice article here at ATM Marketplace News:
The Federal Reserve said last week it won’t intervene in the growing market of card interchange fees, now as much as $30 billion a year.

A Fed official said the United States’ central bank should not get involved in the conflict going on between the two major card companies, Visa USA and MasterCard International, and the merchants.


Speaking at Washington, D.C.’s Credit Union National Association Payment Systems Conference last week, Weiner acknowledged that the Fed has been asked by various groups to referee the ongoing battle. But, he said, the Fed would only intervene if a crisis or other emergency arises.

Wednesday, April 19, 2006

Online Fraud Rates Approaching Fraud Rates at Card-Present Retail According to 5th Annual Survey by Merchant Risk Council

See the ress release here:
The Merchant Risk Council (MRC), the retail industry's premier association for preventing online fraud, released today the results of its fifth annual survey of merchants. Two significant trends emerged from this study. Online fraud rates for merchants surveyed are now similar to the fraud rates of brick-and-mortar stores, and fraud spikes and fraudsters' use of increasingly sophisticated schemes keep retailers on alert.

Intel invests 5 billion yen in Tokyo e-money firm

MSN-Mainichi Daily News reports:
U.S. chip giant Intel Corp. said it has invested 5 billion yen in Tokyo-based Bitwallet Inc., which provides the 'Edy' electronic money service.
The companies will cooperate to make it easier and safer to make PC-based electronic money settlements, which are seen to increase amid growing popularity of Internet sales of music, movie and other digital content as well as goods. In fiscal 2005, 110 million transactions were settled via the Edy services, of which 2-3 pct were PC-based transactions."

Tuesday, April 18, 2006

DSB shakes up payments market....?

At the end of last year the DSB consortium (specialising in loans to consumers) received a bank license from the Dutch supervisor. And today it's penetration strategy for the banking sector was all over the news, including the NOS National news.

DSB president Scheringa gave an interview to the Financieele Dagblad to explain that it's strategy as of this summer would be to offer payment accounts to the public with the following features:
- interest rate of 3 % on the funds on the account,
- no fees for payment instruments,
- expansion of the bank branch network to ensure one branch within 15 kilometer of each citizen.

The main Dutch banks all react similar. This is not a sustainable business case for payments in itself; it is a penetration strategy funded by the extra income that will most likely be generated from additonal loans or mortgages provided to the new customers. So the customers will in the end somehow pay the price.

Of course this can be viewed as the standard reaction of any incumbents to competition. But even for the regular observer it is quite difficult to imagine how this business proposition (of which details are unknown) will be sustainable in itself.

The academic approach would be to combine the 3% interest with transaction fees that are based on cost price of the instrument. In doing so each customers pays for the price/cost of its own payments. Those who do a lot of (cheap) internet banking have some money left after one year. And those who use expensive payment instruments need to pay extra. Which makes for transparent business case as well as a transparent user experience (where users can decide themselves if they care about paying efficiently).

My take is that in the end (in 30 years time) we will have arrived at the academic ideal in all EU-countries. In the meantime we will see all kinds of models: package models, invisible pricing, the DSB-model and what have you. But as we slowly get used to paying for inefficient ways of doing business, we will eventually end up at the academic ideal.

Report on evaluation of the e-money directive

can be downloaded here, to find out:
Almost all interviewed stakeholders deem that there is an urgent need for clarification and to develop a clear understanding of which institutions, schemes and business models fall within the scope of the EMD, and those which do not. The most controversial issue in this context is the question of the EMD’s applicability to mobile network operators. Almost all Member States have de facto exempted these from the application of the EMD for the time being, but the justifications for this vary. A majority of Member States, as well as industry players, emphasised there is a need for further guidance on this issue. The national authorities in certain Member States also hold somewhat diverging views regarding the classification of a number of other products and schemes (pre-funded personalised online payment schemes, electronic service vouchers, and smartcards for public transport).

What's interesting is that it says that most member states have de facto exempted a group of players in the market. Isn't that a bit odd?

I may have missed some legal tutorials now and then, but I always thought it was the prerogative of parliament to determine the rules and exemption regimes and the duty for member states to stick to implementing the text as is. But apparently we now allow member states to not only implement but also de facto change the rules...

Phishers go for Rabobank

This article on Planet Internet describes that phishers attacked the Rabobank this weekend. The customers were re-directed to a site in Chicago; that site has been taken off-line immediately.

Monday, April 17, 2006

Edgar Dunn report on mobile payments...

See the report here. No estimates or data but qualitative conclusions:
- mobile payments will become a reality
- killer apps are micropayments, music, ticketing, vending, tolls, adult content etc...

Retailers continue demand for lower price

In the slipstream of the EU Commission, Dutch retailer Dirk van der Broek desires (in the Financieele Dagblad) that fees for credit-card payments should be halved in the Netherlands. This is quite a cheap publicity stunt. In the Netherlands we only have 50 million credit-card statements, mostly in sectors that deal with tourists (compared to 1,3 billion debit-card pos-payments).

If any merchant wishes to pass on the high-cost of credit-card payment to the consumer, he or she is free to do so (it is now 10 years since the non-discrimination rule was abolished). Besides, we are now heading for a Dutch future in which the cost of a payment is reflected more and more in its price. So there's no harm done if consumers are confronted with the price of the credit-card payment. This has the benefit that the user chooses payment instruments on the basis of a transparent insight in cost/price.

But Mr van der Broek apparently wishes to apply the Australian model: regulators diminish the merchant fees for credit-cards, retailers thus earn money, but do not pass it on to consumers. I find that a bit too much of a short-sighted approach. Then again, with the retailer wars that are now going on, it is an understandable retailr reaction.

Wednesday, April 12, 2006

Orange (pot) considers lawsuit against free market agents (kettle) that redeem Orange's e-money (black)!

As some of you may now, the e-money debate in Europe is not one of the best examples of proper policy thinking. While payments via pre-paid funds of mobile operators reach staggering heights (24 billion euro in 2004) the Commission still feels that the rules as to e-money should not be applied. The consequence is that no single user of a pre-paid phone can convert the pre-paid value into cash or money again. And this is in clear violation of the e-money directive.

Now, some free agents in the market fill this gap and use premium service lines to give the user its pre-paid funds back. In doing so they demonstrate that pre-paid funds of mobile operators can be used for payment to third parties (thereby fulfilling the definition of e-money of te e-money directive) and that these funds can be redeemed (a process which operators explain would be too costly to perform....).

Whilst these free market players demonstrate the illegality of the mobile operator policy not to redeem the e-money of their customers, Planet Multimedia reports that Orange Netherlands now even considers lawsuits against these companies. That's quite a bit like the pot calling the kettle black.

Commission sector inquiry highlights competition concerns in payment cards industry

As I mentioned before on this blog the Commission has now formally announced its interim results on the study of the cards market. See this Press Releases and discover how the Commission appears to seek a war on cards. Or, in EC-speak: we do a 'consultation' and will then make up our minds.....

Well, before engaging in this war, I sincerely hope that the Commission will also study the effects of regulatory intervention in Australia (see the posting here). Big chance that this messing with the fundamentals of business models leads to postponing investments and continued fragmentation rather than a speedy harmonisation across Europe.

Saturday, April 08, 2006

Report on retail payment innovations

has been published by ECB and can be downloadedhere. With the conclusion that there may be European harmonisation but national borders will still exist:
The answers to the last two questions showed a slightly controversial view regarding the integration of services across borders within and beyond SEPA. The statement that the majority of e-payment services will be offered cross-border by 2010 got an average ranking of 2.46 and the statement that national borders will still matter in 2010 got an average of 2.34. Standard e-payments like credit card payments on a virtual platform are mentioned by the providers as a niche for cross-border services that is already stable. It was commented by some providers that although no technological (internet and mobile telephones) barriers exist for cross-border services, there are national obstacles due to different frameworks (tax systems, legislation and national habits). Thus, it is not expected that the majority of e-products will be offered cross-border by 2010.

Phishers tricks and scams: surveys and little old ladies have a number of articles on latest scams:
- old lady asks for help on eBay as she is buying a wheelchair, but the Good Samaritan that uses the redirect in her mail loses login details
- here is a bank survey that will earn you 20 dollar if you respond quickly (which means losing your id-details)
- in order to verify some account details please phone our free 0800-service to ensure continued use of your credit-card

We will not be able to trust anyone anymore or take things at face value. So secure e-id from government is what we are heading for. And all the rest needs to be ignored.

Here we see how we lose humanity and human treats such as the good value of trust (which builds by giving it first and getting it back later) due to ubiquitous technology. I don't know if anyone ever predicted or foresaw this technology effect.

Thursday, April 06, 2006

Central bank director goes commercial...?

In a move which highly contrasts the good old central banker conduct, newly appointed DNB-director Klopper did not spend any time on regulatory or fundamental constitutional deliberations that we are so used from central bankers. Rather he gave this motivational (?) speech on 'Payment Innovation beyond SEPA'.

Do note the high frequency of the terms mobile (13) and contactless (9) in this speech. And do note as well that he seriously dislikes the product Chipknip (whereas his predecessors were keen to point out that Chipknip was by far the cheapest of all non-cash point of sale payments).

There is no mention of the need to make pricing of payments more transparent for costs in society to become as low as possible.... and no sign of the consideration that this means that essentially also cash should be priced rather than subsidized.

We may thus conclude that in this brave new (SEPA) world even central bankers are no longer central bankers. In this realm where the force of logic and analysis used to reign, the only concern now seems to be that the public will not like the conclusion of the analysis: direct pricing of payment instruments.

And if the above is a reflection of a general trend within central banks, it will not be the new payment instruments that will make central banks redundant in the far future (see Mervyn Kings prediction of some years ago). Rather this will be the result of annoyed politicians and citizens who are fed up with highly paid central bankers that acts as politicians while pretending to be central bankers.

Oyster roll out delayed

See this article:
"Computing has also learnt that Transport for London (TfL) has delayed trials of its Oyster e-money project while it works with the financial services industry and the smartcard operating consortium Transys to define the scheme's requirements.

TfL had planned to appoint a technology partner for the e-money project by the end of last year and commence trials in late 2005 or early 2006 (Computing, 28 July 2005).
Oyster e-money will allow commuters to use the smartcard to pay for low-value goods and services at newsagents, fast-food outlets, supermarkets and parking machines.

A TfL spokesman told Computing work is still ongoing and no major announcements are due.
"Our main focus is on finding the right way forward rather than hitting the timescale announced last year, he said."

OFT: Current credit card default charges unfair

See the press release and guidance:

Credit card default charges have generally been set at a significantly higher level than is legally fair, said the OFT today. The OFT estimates that across the industry this has led to unlawful penalty charges currently in excess of £300 million a year.

The OFT now expects all credit card issuers to recalculate their default charges in line with the principles set out in a statement published today and to take urgent action where needed to reduce the level of credit card default fees. The industry has until 31 May to respond to the statement. These principles also apply to default charges in other consumer contracts such as those for bank overdrafts, store cards and mortgages.

See the download: Calculating fair default charges in credit card contracts.

PayPal Launches Mobile Payments

This press release speaks for itself. See also

Monday, April 03, 2006

Wall Mart into banking; a plan not everyone banks on

Retailers become banks. Mobiles become banks. Paypal goes mobile.
What happens if boundaries of banking are at stake.
Read the viewpoints in this article in Kansas City Star.

Remittances: An opportunity for growth - the Albanian

And here is another remittance link in a long hype-like chain of events.

Sunday, April 02, 2006

Obopay Mobile Payments - A First Look

See this posting on Payments News which goes to show that the mobile phone will become what the payment card was. The one device to be used if you need to pay something.

From the sheer number of articles, white papers etc. is should by now be quite clear that in the future the (mobile) phone will be used either to pay using:
- the phone bill (pre-paid or postpaid)
- Paypal-accounts,
- Mastercard or Visa debit-cards
- Mastercard or Visa credit-cards
- regular bank accounts.

Too bad that, although we are now 5 years busy discussing whether payments via mobile phone may or may not constitute e-money, the European Commission still appears to be the opinion, that m-payments won't happen; as a result of which m-payments need not be regulated when operated by a mobile operator (nonetheless regulated if applied by anyone else in the market).

Saturday, April 01, 2006

Not an April 1 prank: Australian parliament to probe role of RBA in regulating the payment system

The visible and leading role of the RBA on the discussion of interchange fees is known among payment specialists all over the world. And it is taken as an example by many a regulator (among which the EU Commission) to model its own behaviour.

In this respect it is quite relevant to observe that parliament in Australia may fee that the RBA has gone too far. This article informs us that a powerful parliamentary committee that oversees the Reserve Bank of Australia is planning a two-day hearing in May dedicated entirely to the central bank's controversial deregulation of the nation's $60 billion payments system.

The decision by the standing committee on economics, finance and public administration to focus on one element of the RBA's operations is regarded as unusual. It comes amid suggestions from parts of the banking industry - which has lost substantial fee income from the RBA's reforms to the payments system - that consumers have not benefited and that the Australian Competition and Consumer Commission should be reinstated as regulator.


Australian Bankers Association boss David Bell said yesterday that merchants had been the main beneficiaries of the credit card reforms. But there was "little evidence" of merchants passing on their $500 million bonanza to consumers.

So, for those who model their behaviour on the RBA, it would pay to take aboard this development as well.