Report on changes in payment habits in Austria

See this link for the report on changes in payment habits in Austria.

July FED Kansas conference on Consumer behaviour in payments

See this page and beyond.

Ebay financial results and Paypal data

including Paypal figures can be found here.

Eurocommerce 2005 report: payments issues

See pages 38-44 in this report and discover that Eurocommerce find a fertile ground for their bank complaints at the premises of both European Commission and the European Central Bank. Furthermore they executed quite a proactive lobby on the Payment Service Directive.

Comparative report of European Competition Authorities (ECA) on competition issues in retail banking

In may 2006 the European Competition Regulators finished the study they started in May 2004 on competition issues in retail banking. To appreciate the report we should first look at what ECA is.

ECA is a united work force of the competition authorities of the EEA (European Economic Area) and EFTA (European Free Trade Area), which was established in Amsterdam in 2001. ECA aims to be an informal and pragmatic organisation which seeks to find ways, by means of discussion, in which competition policy and regulation can best be implemented within Europe—so-called ‘best practices’. ECA aims to improve cooperation between European competition authorities and to stimulate convergence of regulations and policy through discussion. In addition, its members jointly search for solutions to complex shared problems. Members meet at least once a year.

In sum: ECA is a new European institution. Whereas central banks, supervisors, governments have all kinds of European or worldwide cooperation organisations, the competition authorities did not have one. And, as a rule, in the first years of the existence of such institutions, all involved need to get going and warm up. Often one sees shallow reports in the first years, to become better over time, as the

So now the ECA published its first report on competition issues in retail banking. Although the title suggest a broad overview of retail banking (including provision of mortgages, loans, savings etc) it is effectively a study on competition issues in retail payments. And as a first report of a young institutions, this is quite a decent report.

Of course some analytical flaws/inconsistencies can be pointed at (especially when the mantra on bank concentration-competition is repeated) but as such it is quite a good effort. Essentially it provides a nice overview as well as the following recommendations:
1-improve customer mobility,
2-improve access & governance of payment systems by separating scheme rules from processing,
3-involve local competition authorities more in SEPA, as the competition effects of SEPA are too much overlooked right now.

There is not bound to be too much follow up for this report in the Netherlands. We have:
1- a fully operational switchting service for retail payments
2- separated schemes/processing (Currence/Interpay)
3- an competition authority: both the Chair and Secretary of this report are Dutch (which may by the way explain the nature of the recommendations).

United States Senate Committee Hearing on antitrust concerns for credit-card rates

See this page with information/links. Essentially this is the usual exhange of views where consumers and retailers protest and banks and card schemes try to explain why interchange fees are necessary for payment systems.

And once again the regulatory reforms of the Reserve Bank of Australia are taken as an example of improper intervention. Josh Floum, General Counsel and Executive President of Visa U.S.A. stated:
Three years ago, the Reserve Bank of Australia imposed artificial price caps on interchange fees set by Visa, MasterCard and another bank-owned payment system. The Reserve Bank cut rates by 43 percent, from 0.95 percent to 0.55 percent. The Reserve Bank did not regulate the price that American Express charges merchants or modify the internal transfer that American Express makes from its internal acquiring side to its issuing side (i.e., the American Express “interchange” fee). Nor did it benchmark the total price that merchants should pay to accept four-party payment systems to what American Express charges its merchants.

The regulatory intervention has had precisely the expected effect. Cardholders in Australia are paying more for payment cards than they did before through higher annual fees and finance charges. They are also getting less in terms of reward programs and other rebates. Merchants, meanwhile, have seen their cost of payment card acceptance drop some. But there is no evidence that they have passed this decrease in cost on to consumers in the form of lower retail prices. In fact, the Reserve Bank, which had promised that retail prices would decline as a result of its intervention, has given up trying to prove the existence of the promised decline.

While I feel that the Australian example is quoted too easily and a lot of sensible work is dismissed too quickly, the Australian case does highlight an interesting thing. Merchants do indeed cheaply attack banks on interchange fees and monopolistic behaviour, suggesting that retailers are the good guys and banks the bad guys. But all across the board however, they do not share the cost-benefits of lower card fees to consumers. Which could be qualified as just as monopolistic (and if so: forbidden)interorganisational price strategy as the one they claim to attack.

This is the same in the Netherlands. Since last year, Dutch retailers got a one cent discount for POS-transactions. But they continue to charge customers that pay small amounts with their debit-card a fee of 10 cents per transaction. If retailers were honestly interested in serving their customers, they would pass it on and reduce the extra payment charge for small payments to 9 cents.

So the real lesson here is that regulators, central banks and ministries of finance may want to be careful when leaning towards favoured underdog policy positions of retailers or consumers. Whilst these positions may coincide more with their own policy position (banks need to be disciplined to avoid cartel-behaviour) it does create a new form of regulatory capture. Essentially the regulators may thus back these specific partial interests in society rather than taking a societal point of view.

ING loses POS-debit-card contract Ahold to ABN AMRO

Yesterdays Financieele Dagblad reports that ING loses its contract for POS-debit transaction for Ahold to ABN AMRO. This accounts for about 10 % (125 million) transactions for the big retailer (Albert Heijn) but may account for 300 million transactions if we include other companies within the Ahold-form (Etos, Gall&Gall, ..). Rumour has it that the price of the transaction will be 2,5 eurocents per transaction. But non one kwows really, now that banks all compete for the retailers.

Of course the representative organisations of small retailers are silent while all this happens. Because they may have not done their constituency such a favour by demanding the split up of the acquiring-monopoly for POS (which resided at Interpay). By forcing all retailers to contract with the individual bank, the larger retailers can of course negotiate their lower prices while small retailers get stuck without purchasing power.

But small retailers can't and lose the benefit of the so-called 'scale-efficiency' of Interpay prices. This scale-efficieny meant that at the end of the year -depending of the total number of POS-autoristions (small and big retailers added)- they would get a discount on transaction fee. To my knowledge, neither central bank nor competition authority nor the small retailer organisations foresaw this effect.

Dutch banks follow APACS example with website on safe banking

The Dutch banks yesterday launched a webste which instructs consumers on safe banking. See the website www.veiligbankieren.nl and do notice that it is compliant with strict accessibility requirements, so as to allow all users/browsers to be informed.

The idea is not new of course. APACS already have a similar site up and running for quite a while. Still, it's a good thing that all basic saftey instructions are assembled on a single accessible spot on the Dutch web.

Commission takes on Cartes Bancaire

This press release clarifies that the Commission sent a new Statement of Objections to the ‘Groupement des Cartes Bancaires’ (CB) on 19th July 2006. In its new Statement of Objections the Commission takes the preliminary view that ‘Groupement des Cartes Bancaires’ restricted competition between member banks by adopting tariffs which hinder the issuing of cards by new entrants at a reduced price, thereby preserving the revenues and market shares of incumbent banks to the detriment of consumers.

IMHO this signifies that the Commission does not seriously believe that its sector enquiry into cards will get them anywhere. They know that the sector enquiry shook up the cards market, but getting so much criticism as to method and outcome, the Commission has decided stick with its old role: pursue violations of competition law on a case by case basis.

Why regulate banks and/or competition?

This pdf is an interesting piece of work of the International Competition Network (ICN) with an overview of arguments why regulation of banks occurs and what the role of the competition authorities should be. A tiny bit outsiders perspective, as one tends to see more often when non-industry supervisors take a bite in the banking cake, but generally quite good.

The ICN is a supranational coordination body, exclusively for competition regulators. What the BIS is to central banks, the ICN is to competition authorities. ICN started in 2002.

Increase in use of debitcard for Dutch low value payments

Het Financieele Dagblad reports (login required) that the Dutch increasingly use the debit-card instead of cash for lower value payments:
- one out of ten payment between 0-5 euro (increase of 66 %)
- one out of four payments between 5-10 euro (increase of 35 %).

Cash is really on the way out, although slowly.

Visa and First Data settle dispute..

See the posting on Payments News:

Visa USA and First Data Corporation have announced they have settled a legal dispute that has been pending since 2002 over the processing of Visa payment card transactions. According to the two firms, "as part of this settlement, First Data and Visa agreed to work together to build a stronger business relationship to focus on streamlining the payments processing business. To achieve this, Visa will provide financial support to pursue mutual business opportunities and cost cutting initiatives that are expected to drive new innovation, reliability, security and new merchant acceptance. First Data will transition existing private arrangements between itself and Visa member financial institutions onto VisaNet."

ING Bank and Getronics PinkRoccade to set up European Biller Service Provider

Today ING Bank and Pink Roccade Getronics announced that they would set up a European Biller Service Provider to allow easier digital bill payment to the consumer. Both organisations signed a Memorandum of Understanding to this end.

The idea is that digital bills are sent to the consumer (rather than paper bills, which cost a lot) and presented in the e-banking environment. At present Rabobank is still the only Dutch bank with such a solution (offered in cooperation with CENDRIS/Privver; the former state-owned postal services company). But now it appears we will have more choice in the market.

Dutch banks open their books on cost/benefits in payments: EUR 128 million loss in 2005

In an unprecedented move of openness and transparancy, the Dutch banks have today published the results of a revolutionary study into the cost-benefit of payments business. 5 large banks (ABN AMRO, ING, Rabobank, Fortis and SNS) have opened their books to a team consisting of experts from McKinsey and the central bank (De Nederlandsche Bank). Based on actual data, McKinsey produced a generic report on the revenue/costs in Dutch payments in 2005. You can download the (Dutch) press release and report here.

Not only the openness is revolutionary but also the stakeholder-buy in. Before starting the actua data collection at banks, the central bank and McKinsey set out to discuss the methodology of cost-benefit calculation with large representatives of the Consumer Union, Point-of-Sale Merchans (Platform Detailhandel) and Utilities (Gebruikersplatform Betalingsverkeer). When all agreed on the methodology, the data processing and calculations started.

Background of the exercise is formed by the general desire of banks, retailers and regulators to move towards cost-based transaction fees in payments, most notably for consumers (which are now hardly confronted with the real/direct fees). This will contribute to more efficiency and lower private and social costs of the payment system. Which is completely in line with the European policy outlook of the Commission.

The results of the cost/benefit study are (briefly) that in 2005:
- the gross revenue in payments for Dutch banks amounted to € 3.996 million, based on interest margins and direct fees,
- the gross costs of payments were € 4.019 million, leaving a € 23 million loss (and a € 128 million loss when including the cost of capital),
- generally speaking there is little congruence between nature of revenue (consequence of the interest margin) and nature of costs (consequence of the number of transactions),
- businesses sponsor the consumer: the business segment accounts for net revenue of € 708 million while consumers generate a net loss of € 642 million
- credit-card payments earn € 89 million euro while cross-border payments cost about € 150 million.

And the real bleeders are:
- account maintainance with a cost of € 1215 million,
- cash with a cost of € 779 million,
- paper based credit-transfers: € 329 million.

Next steps are that all involved representative organisations of banks, retailers, consumers and what have you, discuss ways of improving efficiency in the socalled National Platform on Payment Systems. And some ideas have already made the news:
- using internet-banking instead of paper based credit-transfers or inpayments,
- stimulating debit-card use at the point of sale rather than cash by not penalizing the use of the debit-card (some retailers still demand a processing fee for payments lower than € 10),
- developing easy-to-use retailer POS-merchant kits/offers, allowing them to easily start accepting debit-cards.

As for the further future, the outlook is varied. The report contains a sensitivity analysis that demonstrates that increases in interest rate help profitability while improved cash management by clients reduce it. Furthermore the future move to SEPA may cost a bit. Nevertheless, the main conclusion that stands out is that a further change in the payment mix (more electronic, less paper) will be the way forward.

Irish Banks launch switching code to increase user mobility

The Irish Bankers federation has launched the new IBF Business Account Switching Code last week. The Code will make it easier for businesses to switch current accounts and demand deposit accounts from one financial institution to another. As such it is the next step, given that consumers already have access to the service (and 5 % are using it in Ireland, as opposed to 0,325 % in the Netherlands).

In implementing the Code, financial institutions are making three key commitments as follows:
* to provide to business customers a ‘switching pack’ that clearly and simply explains the process of switching accounts, who is responsible for what, how long it will take and exactly what the customer has to do;
* to have the customer’s new account up and running within 10 working days from the bank’s approval of the customer’s application; and
* to complete the process of switching everything over from the old to the new account – incl. standing orders and direct debits – within 7 working days of a signed (by customer) Transfer Account Form being sent by the new bank to the customer’s old bank.

Now, lets see what the take-up will be...