Political pressure to kick out and to accept customers....

Interesting week this week. First of all it became public that the EU has put a bunch of Duth convicted terrorists on the EU-freeze list. This means that banks are forbidden to provide those clients with financial services (cards, insurances etc) beyond the most basic bank services. Which is in line with Know-Your-Customer and integrity requirements of all kinds of supervisors.

Second, the mayor of Amsterdam, Job Cohen, is now litigating against exploitants of sex-houses. Which in turn take the Amsterdam city to court. And as a part of the solution of getting rid of illegal money, Cohn suggests that banks more actively participate in the provision of loans to sex-companies/prostitutes.

So what should banks do? First of all they need to keep the system clean and kick-out all kinds of vague customers. Having done so, they should accept those same customers and provide them with basic banking services, loans etcetera, in order to kick the criminals out of their financial business. But doing so will be a violation of the former integrity-requirements as well as the individual freedom of banks to choose with whom they want to do business.

The end result of this discussion can be no other that sometime, somewhere in the next years, we need to set up a state owned bank that provides these services/loans to 'bad customers' so that the public policy goal of accessability of banking services can be guarantueed without demanding banks to execute political inconsistent orders.

SNS Banks joins iDeal

Emerce reports that SNS bank joined the internet-payment scheme iDEAL. Of the 23 million webpayments in the Netherlands already 20 % are now done through iDEAL. Which signifies that the product has value to the merchants/consumers alike.

Update on further research following parliaments discusson on the draft bill Crone

This year, Dutch parliament discussed a draft legislative proposal by socialst MP Crone. The goal of this proposal was primarily to order the banks back into local communities where they closed bank branches. See my previous post. As the discussion in parliament developed, the MP's acknowledged that there was no real problem that warranted this draft law, yet given the upcoming elections they ordered a final study to seek out and solve any remaining issues. The Ministry of Finance released the preliminary results of this study last week. Also this report, produced by consumer union, retailers etc, confirms that the distance to a bank branch/service is not a real issue for consumers or merchants.

Does this mean that the proposal will be shelved? Most likely not. Two left wing parties (Socialist Party and Labour) have joined forces to keep the proposal alive by focusing on article 2 in the draft law. This draft-article prescribes that payment services must be safe, accessible and reasonably priced. And in a real nagging mood, MP's Irrgang and Crone, asked about the price asked by Postbank for its debit-card. Would the new draft bill not be useful to prevent Postbank from abolishing a free debit-card?

Interestingly the answer of the Ministry of Finance is a clearcut no, albeit formulated in diplomatic terms:
One may wonder if 'free payment services' can be considered reasonable, given the considerable costs involved in setting up and maintaining a payment infrastructure.

As in real sequels.... discussion to be continued...

Barclaycard adds Oyster to credit cards

See this article that outlines that Barclaycard plans to release a credit card that incorporates a London Transport Oyster card. Providing trials are successful, Barclaycard plans to roll out its next-generation credit cards to its customers in London next year.

The idea of combining an Oyster card with Barclaycard and Barclays Connect Visa cards follows an exclusive contract between Barclaycard and TranSys, the consortium which runs Oyster card in partnership with Transport for London (TfL), due to run for at least three years.

EU Commission: charming the citizen into unworkable rules

Last week we had an interesting analysis in the Financieele Dagblad by Mr Dekking. His view is that the Commission tries to sell the European concept by easy and straightforward rules to the benefit of the user. The example provided is the discussion on roaming fees for teleco. Those should be equal for phoning within and beteen countries. But, Dekking reminds the reader, one should always remember that such easy charm-concepts never make it fully into regulation. Member states will discuss and modify rules into a more complex set of rules. Leading to something which may be less easy to explain and less workable.

It would be interesting to draw up a list of regulation which suffers from the above European charm-tactic. That list might actually be quite a long list of symbol legislation. The funny thing is that, in order to sell the European concept of a competitive internal market, regulators choose to intervene severely in such a market. Such legislation may charm some European citizens. But do the politicians really think that all citizens will be fooled into the EU-concept? And that such symbol legislation will help?

Perhaps, the fact that EU-legislators and parliament really assume that citizens will be fooled so easily, may be at the heart of the Euroscepsis. Why would citizens transfer more rights to institutions that seek pearls and beads rather than policy-consistency to achieve a true competitive internal market ? And that, according to the transparant communication on the EU-website dismiss the NO-vote in 2 member states to continue making up a constitutional treaty that the EU-citizens really do not want?

Brr..

Dutch competition authority pleased with competiton for POS-switching but concerned/monitoring competition side-effects of evolution towards SEPA

Today the Dutch competition authority released their financial monitor 2006 (in Dutch) which contained two chapters on payments. One chapter outlined that as of the structural change to move the responsibility for negotiating POS-switching fees to banks, the competition increased. Small and large retailers get cheaper POS-switching. So that was a bit of good news.

But a bit of bad news as well. Chapter 6 demonstrates that the Dutch competition authority is still struggling to come to terms with SEPA. Their description is not so bad, but then again; not completely accurate either. The report speaks of one SEPA-system (implying one scheme/brand rather than standardised messages) and suggests that SEPA stands for Single European Payments Area (forgetting the focus on the Euro-zone: Single Euro Payments Area). Furthermore they take the migration deadline 2010 as a fixed deadline where all credit-transfers and direct debits in all the Eurozone will be sepa-compliant (whilst some national variations may still exist).

Furthermore the analysis of risks occurs on a card-based view of payments. Leading to a situation where the competition authority may forbid Dutch banks to agree bilaterally on lower interchange fees amongst them (in order to preserve the possibility for outside players to compete with the Dutch in the Netherlands). And funnily there is still the fear that the acuirer market is concentrated with one player (while effectively there are about 20 active in the market right now).

So, if one thing is clear, it is that it will be impossible for banks to satisfy all expectations. Politicians desire no fee hikes but do wish a payment service directive (which is going to cost). Retailers wish no fee rise but competition authority will not allow low-cost local agreements between Dutch banks. Central banks do not wish to see local variations of debit cards, but local interest groups do wish such a thing.

Where this will end is quite clear. Continued debates, bank-blaming and no consensus whatsoever. And later, when we are all old, we will come to realize that at this point in time we were trying to come to terms with the shift from domestic retail payments markets to European markets. Which brings us in a situation in which many fear to lose what they have and few are able to imagine the future and the benefits of what is to come. But assuming that we will not be hindered by geopolitical interruptions, these benefits will in the long run stand out: a deeper market in Europe, more competition, lower cost and convergence of fees.

Postbank hits the news twice this week... no free basic card and possible brand elimination

This weeks financial news featured the Postbank a couple of times. In the beginning of the week FD reported that mother company ING Group was reconsidering its branding strategy. As a part of that exercise, the brand Postbank might be taken off the market. Which would be the end of a nearly 90-year separate branding for the payment services of Postbank (before: 1986 government postal giro payment services). So all the experts each had their own opinion whether this was good or bad.

To the more-insider, the news of course didn't really come as a surprise. Every 5 or 6 years the board level management at ING comes up with the question whether or not to maintain or change the brand strategy. Usually nothing changes. So much ado, perhaps about nothing. Although... one might wonder which is the real Postbank in a more consolidated European payments market. There is a Postbank in Germany as well and some confusion might arise if these two start crossing borders and competing. So in the light of European developments, things may become different this time around.

European developments are also at the heart of tonight's news-item in the NRC. The NRC reports that Postbank will abolish its last debit-cards which were for free. There some 1,56 million of those cards which essentially only had a domestic ATM and POS functionality. But, referring to the SEPA-developments, Postbank informs it customer that they will not support the use of this low-end card as of july 2007. Customers that do wish to continue using this card must choose to upgrade to a full panEuropean debit card (for € 10,95 a year).

Although reactions at the present moment are still scarce, there is bound to be some rumour in the market. Given the image of Postbank as the former postal giro, with a mission to make payment facilities accessible to all people, there may be questions in parliament. Which will undoubtedly link this move of the Postbank to the current perception in public opinion that these European SEPA-developments will make life more expensive. In which case Postbank in turn will undoubtedly refer to European institutions such as European Commission and European Central Bank. The ECB for example recently published its vision and stated that:
...
Ideally, citizens should be able to use their cards anywhere in the euro area.
...
A SEPA for cards will have the following characteristics:
all technical and contractual provisions, business practices and standards which had formerly resulted in the national segmentation of the euro area have been eliminated.
...

Well, of course all ideals come at a price and in my opinion it would be up to the ECB now to step forward and compliment and support Postbank which has had the audacity to act as a first moving issuing bank towards a Single Euro Payments Area for cards. Which is to be preferred above banks merely paying lipservice to the European Ideal and not moving at all...

The price of banking; international comparison

This Oxera report compares the price and cost of the main banking products used by the vast majority of British consumers with the price and cost of those products in ten other developed countries.

Whilst the British bankers would have loved to say they were the best and the cheapest all across the board, such a statement was impossible due to the incorrect pricing structure of the Netherlands (where consumers are effectively sponsored by companies). So the conclusion became:
This study shows that a typical UK customer using a range of banking services is able to benefit from some of the cheapest services of all the countries covered in the study. This finding generally holds across the different consumer profiles. Finland and the Netherlands are also notable countries with low-cost banking services.

The report also contains a statement by external assessor: David T. Llewellyn, professor of Money and Banking. He vouches for the report and also makes the following two statements:
And yet, public debate in this area is often very subjective and frequently based on impressionistic judgements rather than concrete or robust empirical evidence.
....
Public debate on these important issues needs to be based on firm and robust empirical evidence rather than ad hoc impressions

I couldn't agree more.

We really need to stop wasting our time and resources on the current media policy circus on EU-payments and get back to the real world and real life problems rather than continue the ad-hoc and intuitive anecdotal media approach.

Retailer action against credit-card

Dutch retailers have opened their own private war on credit-cards. Frigthened and appalled by the penetration of credit-cards in the supermarket domain they now try to influence public opinion. While the 40 million credit-card-transactions are clearly irrelevant in the Dutch POS market of approximately 3 billion transactions, there is a movement in the retailer domain. So this week we see an article appearing in Trouw, quoting the chief of the branche-organisation for hotels/restaurants. Of course he claims the fees are too high and that retailers should surcharge more than they do now (in the Netherlands surcharging is allowed for about 10 years, but little use is made of that for credit cards - while extensive use is visible for those who make small debit-card payments below 10 euro).

And today we see an article by a restaurant owner in Rotterdam in Financieele Dagblad. The interesting thing is that from the article you might deduct that someone at the branch-organisation has written it. First of all it is a retailer that states that he he very much supports the efforts of the two branche-organisations: Koninklijke Horeca Nederland and Platform Detailhandel Nederland to deal with this serious credit-card issue. This is interesting because he forgets to write: 'From now on I am going to surcharge in my restaurant. And I encourage others to do so'.

Furthermore it looks as if the ghost writer of that letter has apparently looked at the Australian debate (where a real forest of goodies/points/systems on credit cards is present, while we do not have such a huge variety in the Netherlands). So this Dutch retailer states that consumers wish to pay by credit-card because of the goodies that come with the card. When reading it I think: true for Australia, not so much for the Netherlands.

So we have an obvious retailer action going on. But I guess the superficial reader would not read so closely and see the articles as a sign that something is rotten in the state of retailers. Let's see if this credit-card banging will also be the main retailer item tomorrow at a conference on SEPA in The Hague. Or will they use the conference to refuel the Maestro interchange debate?

MasterCard Europe Announces Maestro SEPA Interchange Rates

MasterCard Europe has today announced SEPA fall-back interchange rates for Maestro® point-of-sale (POS) transactions intended to be effective from 1 January 2008. The Maestro SEPA fall-back rates per transaction type are as follows:
Maestro, Chip & PIN, EUR 0.05 + 0.20%
Secure e&m-commerce, EUR 0.05 + 0.25%
Baseline transaction,EUR 0.05 + 0.30%
Large Merchants, EUR 0.03 + 0.12%

Mastercard states that for cross-border Maestro POS transactions, the fall-back interchange rates are significantly reduced versus current intra-EEA cross-border rates. For a typical transaction of 50 euros, the new Maestro SEPA interchange rates will be between 9 and 20 euro cents – as compared with the current Maestro intra-EEA interchange rates of 25 to 59 euro cents.

It will be interesting to see the response of Commission and ECB to this publication. Undoubtedly they won't be satisfied (a satisfied regulator/overseer being one if the inherent impossibilities of life)....

Citadel Commerce authorised as an e-Money Issuer in UK

ESI Entertainment Systems Inc, a provider of products and services to the international gaming industry, announced that its wholly-owned London, England based subsidiary Citadel Commerce UK Limited (CCUK) has received authorization from the UK
Financial Services Authority (FSA) to operate as a regulated e-money issuer.

Third progress report on Target2: on track

EBC's 3r progress report on Target2 shows that it is on time (of course we have to keep in mind that this is a delayed schedule... in the orginal planning Target2 should have been delivered all over Europe by now). It finally includes the pricing scheme for ancilliary systems.

FATF attempts to grasp modern payment technologies

FATF published this report on new payment mechanisms. It would be a nice try for a second year student, trying to come to grips with reality in modern payments. But if one considers this effort to be the result of heavily government funded research by public servants paid out of our tax money the result is astonishing, notably in the lack of capability to grasp what is really happening in todays markets.

Take for example the use of premium services via the telephone as a mechanisms of transferring money. The fact that 0900 services are being phoned over 2 billion times each year in the netherlands: not mentioned. A feeble attempt at stating that mobile phones may be used for payments. But not a mention of market reality. As planet multimedia outlines today: revenue for data services in sms/mms in 2006 in the Netherlands will be 1 billion euro (on total revenues of 6 billion euro). Quite a solid channel to smurf some money away to other venues.

The issuers of such phone-based payment mechanisms do not comply with FATF-special recommendation VI (all alternative payment mechanisms should be brought under a license regime) and local governments apparently do not (want to?) know of their existence. So the only main conclusion of FATF is not to look inside their own markets for unregulated alternative payment channels but to fear off-shore providers of payment/bank services. As if we're still in the 1995 point in time when people tried to come to terms with the internet and its consequences.

If this quality of analysis also underlies the rest of the FATF-work, we may well reconsider the relevance/efficiency of all FATF-measures. Then again, it may not be the counter-measure itself that is effective, but the threat of it. Thus, paradoxically, the FATF-efforts may work, even if they miss the target. And by that same paradox, we could also consider this to be a good report.

Inspirational commercial about paying cash...

Aneace noticed a nice Visa Commercial featuring speed of transaction of card based payments versus cash. Stuff like that is what we can use in the Netherlands to improve awareness.

Interchange under fire at Eu hearing

Last week there was a hearing at the EU on interchange fees. Reuters reported on that:
* The Commission conducted the hearing to let MasterCard reply to allegations that it restricts competition by setting minimum prices retailers must pay. The EU executive is considering abolishing the controversial and complex interbank fees charged by MasterCard, which can differ card by card.

* EU countries, shops and representatives of the airline and petroleum industries sharply criticised MasterCard's fees. A representative of Ikea, the Swedish furniture chain, said it could lower costs on many items, even amid high energy prices, but could not negotiate the fees imposed by MasterCard.

* MasterCard drew a rebuke at a closed European Commission antitrust hearing last week after claiming incorrectly that Britain had dropped an investigation into its fees, people who were present said. Mastercard made the statement near the start of the two-day hearing on Commission allegations that it sets excessive charges on shops and others that accept its credit and debit cards, they said.

This remains an interesting debate. There are quite some cheap shots thrown at Mastercard, but yet again, they are no saints either. Specifically the honour all cards rule could indeed be kicked out. But it remains painful to see grown up people still confuse interbank interchange fees with acquirer merchant service charges. That does'nt help the debate.

My guess? This banging on interchange fee in Europe may result in some changes that in the end hurt the retailers/governments more than they now realize. They're now all in for the card-scheme interchange fee banging experience without realizing the strategic effects of their behaviour. Specifically in terms of increased complexity and higher cost of decision making in the future.

It's a bit like the Netherlands. Retailers kept on nagging for years about POS-service charges (lowest in the world), which in the end lead to a restructuring of the industry so that scheme, processing and acquiring would all be different things. The central coordination concept was exchanged for a market forces dynamic, which means that it is harder to coordinate developments in the terminal market, telco-infrastructure etcetera. Both merchants, telco's and terminal builders have no single point of communication/entry for a debate on POS-issues. And what happens then: here come the retailers again, complaining that banks make life too complex/complicated as a result of the split of processing/acquiring/branding.

Well, you can't have it both ways. If you're really in for market forces rather than the simple life, you have got to buy in to increased complexity and coordination/information costs as well.

New payment data for 2005 from the BIS

can be found here (summarizing tables). But please all you scientists, be aware that these contain quite a condensened and in some sense arbitrary classification as to the nature of instruments. Don't bet your grandma on it.

The Eurosystem's view of a SEPA for cards

Quite interesting. The world of cards is already a worldwide business since quite some years. And here we have a bunch of central banks in euro-countries focusing on a suboptimization issue: how to allow similar types of payments in euro-countries with cards. See the Eurosystems view on SEPA for Cards. One might wonder: have they been sleeping all the time when banks were developing cross-border usage of debit-cards?

And another question: why suddenly the concern with consolidation. First the eurosystem insisted on one card-one terminal and harmonisation of features in the cards-world. Then suddenly as this materializes, there is the fear that it may not be a good thing to increase standardisation and allow for consolidation.

And a final remark. This is another annoying example of institutional drift. We set up the Eurosystem to do just one thing: determine monetary policy and operate a gross-settlement system used as a mechanism for executing money market policies. Over time, as any good institution apparently wishes, the eurosystem seeked to grab more territory by making statements, policy reports and implying that it retail payments are also within its remit. But I resent that drift. Retail payments are mere peanuts that will not shock the monetary engine whatsoever. So why bother about retail and card payments as the Eurosystem?

Isn't it more relevant to European efficiency in payments that cash payments be properly priced and kicked out as a very dirty, costly payment mechanism? That we get rid of the physical euro as soon as possible? That would be a more important issue that falls within the eurosystem remit. But alas, that would also be too impopular a statement and would not be good for the image of central banks. So rather the Eurosystem chooses to make cheap and easy statements on the neighbours grass than weed its own.

An opportunity missed...

First V-pay transaction in Europe

See the Visa press release and read:
The first V PAY transaction in Austria took place on November 15, 2006 at Denkstein in Salzburg's Getreidegasse with the attendance of Annika Karlsson Hill, Vice-President Visa Europe, Jutta Müller-Liefeld, Country Manager Austria, Visa Europe and Hubert Neumayr, CEO hobex AG.

Just one tiny hickup; V-Pay is always PIN - always Chip. So its potential penetration is dependant on the rate with which retailers move to EMV. As opposed to the Maestro brand that allows stripe-PIN transactions and thus may be a better bet for customers/banks/retailers that focus on smooth transitions.

UK Government changes governance for payment schemes

See the website of the OFT to find out that:
...following a recommendation from the Chairman of the Office of Fair Trading, the Chancellor of the Exchequer has agreed to the establishment of a new governance body for payment systems, the Payments Industry Association. In addition, the Payment Systems Task Force, which is chaired by the OFT, has also announced that agreement has been reached on a number of improvements to the cheque clearing process that will benefit both consumers and businesses.

The Payments Industry Association will be the new strategic governance body for the payments industry in the UK, and will concentrate on access, innovation and governance issues. It will provide a lasting governance solution to the issues raised in the Cruickshank Report. The Payments Industry Association Board will consist of independent directors and directors from the payments industry with an independent Chairman, Brian Pomeroy. The OFT will review the outputs and achievements of the Association against its objectives after two years. The Chancellor has agreed that the majority of the outstanding work of the Payments Systems Task Force can be transferred to the Payments Industry Association. The Task Force will meet for the last time in December.

I think this may be a model that may become the norm internationally. In the Netherlands, we do it a bit different, but not too different altogether. The scheme-owner Currence has a board of Commissioners with independent members. And its work is closely monitored by the Competition Authority. Meanwhile, the policy issues are discussed in the National Platform for Payments. And we also maintain a Bankers Association that does payment things.

It will be interesting to see which countries follow suit.

The unbearable lightness of hyping and PIN-cracking

Of course it is big fun to mess about with PIN-code systems and devising a way to attack them. That's what the security game is all about. But it is another thing to devise an insider attack and imply/suggest that such an attack is so easy to pull off that all banks worldwide should retroactively compensate so-called phantom-withdrawals (which as the camera tells us is often a family-member withdrawal).

So three cheers and one hurray for the authors of The unbearable lightness of PIN cracking but also a pat on the hand for hyping their research a bit too much.

Usage data for Messenger balance information of ABN AMRO

ABN AMRO informs us that its Windows Live Messenger service to provide balance information to its users now has 16.500 users, which grows with 500-1000 users a week (on a total of 2.6 million Internetbanking users). Half of the users is aged between 18 and 25 jaar, 36% belongs to the 26-40 years categorie.

There's more than just a 'card-payment'

Scientists and policy makers often make the misstake of simplifying reality to fit their preconceived assumptions on how markets work. As a part of their reality check they might actually benefit of the Mastercard overview on interchange rates for different types of cards.

Contactless terminals in Amsterdam target for vandalism; Rotterdam expands use of Ov-chip

In all the cost benefits analysis of contactless payments, the assumption is (calculated) that terminals and machines would not be subject to vandalism. Alas, Amsterdam estimated that - while now hardly in use - it will lose 250.000 euro on costs of repair and replacement for terminals, load machines and entry/exit gates for public transport. Which may be less than in the cash age, but is higher than estimated beforehand.

Meanwhile the city of Rotterdam is proceeding the planned expansion of usage of contactless OV-chipkaart. Before the end of this year, it will be possible to use the contactless card in bus and tram. And as of March 2007, it will be the only payment mechanism in the metro (which by the way still requires the permission of the Ministry of Transport).

Postbank uses Google to help customers find ING&Postbank ATM's

Perhaps a first in the world-innovation by Postbank this monday. On their website there is a link that allows customers to find an ING or Postbank automated teller machine on the Google map of the Netherlands. Fancy stuff and nice work. Click here to find out and experiment.

Rabo starts mobile phone banking in alliance with Orange and entertainment company Talpa

Planet Multimedia reports that Rabobank announced this monday that it will offer internet banking via mobile phones distributed by Rabobank. The phones come with a low fee phone bundle and allow for internet banking without the complicated Rabox (and debit-card). Rabo envisages NFC like usage of the phone as a payment instrument. As for the content part, Rabo has agreed with Talpa that they will sell video and music and soccer games via the mobile.

The historic relevance is that this is a first bank entering the telco domain. While telco's generally remain unwilling to formally enter the payments/banking domain and become a bank. An interesting game will develop here.

CCV Holland ready for Europe

See article in HFD. CCV Holland have received certification for its terminals and is now ready for roll-out and replacement of card terminals (costing app 500 euro per terminal). But CCV is also processing/switching 200 million card transactions per year and sets out to become the second switcher of POS-transactions in the Netherlands. For that reason CCV is better off with industry moving to V-Pay and Maestro than a continuation of domestic POS-protocols.

By the way, let us all be reminded that it was retailers themselves who complained about all different terminal protocols and requirements in Europe: they demanded a unified protocol/service level. And as we are reaching such unified protocols/service levels, they now start complaining how they lose their local flavour (and local fees). Sufficient to demonstrate that the adhoc element of retailer reasoning is high and its consistency quite low.

New Zealand authorities to attack no-surcharge rule

Card schemes have a habit of starting out as incompetetive as possible. So if undisputed they will introduce a no-surcharge rule in scheme-rules. Until regulators attack it and then they drop it. In this article we can see that New Zealand regulators have apparently found out what the RBA were doing and now are on a antitrust mission of their own.

So much for the no-surcharge in New Zealand. Although the situation may not be as clear as one would think. There may be a tourist issue/effect involved (see also the paper by Rochet and Tirole on the tourist test).

Regulation by McCreevy: action would speak louder than words...

Interesting speech here with the following notes on how the Commission should regulate:
Those who know me well recognise that this is not a plea for regulatory action, rather for the most "appropriate and proportionate" response in each area. Appropriate can be to let the industry take the initiative, such as in the case of the Single European Payments Area. Appropriate can be not to legislate but to agree upon a set of principles, such as in the case of the Code of conduct for Clearing and Settlement, with industry agreeing to implement, subject to strict monitoring. . Appropriate can be to amend a directive to bring it up to date or to repeal it when it becomes redundant. There is no "one fits all" solution across financial services, nor should there be.

Before taking any decision, the Commission carries out impact assessments and consults extensively with stakeholders. Many of you have already been consulted or have expressed opinions, for which I am grateful. Indeed, the success of any measure - be it legislative or non-legislative- largely depends on the input it enjoys from regulators, supervisors and market participants.

All very well but action speaks louder than words. If all the above is true, why are the retail bankers still waiting for:
- the repeal of regulation 2560 as it is inconsistent with the cost-based fees in payments that the Commission deems necessary to promote more efficiency in EU-payments,
- publishing of the comments that the Commission received on the SEPA-incentives paper.
Apparently the Commissioner is not willing to put his money where his mouth is?

A new (erotic) life for Wallie card...?

Good article this week in Emerce by Erwin Boogert on Wallie Card. It turns out that new investors have taken over at Wallie Card which results in a shift away from the card as a voucher. E-vouchers are all that matters now, as is expansion towards other countries and entertainment sector (a whitelabeled e-money voucher for use on erotic websites).

Again a demonstration of the rule that the entertainment industry is the niche that makes new payment instruments profitable. With a first good example is the 0900-premium line capabilities introduced in the 1990.

DNB research conference on payments and contribution by Katz

The conference programme with presentations can be found here. The hearsay has it that the conference was quite animated, indeed academic and with a very good presentation by Micheal Katz. Katz discusses the difference between antitrust action of government vs regulation of payments industry by regulators. Reading the slides, one might conclude that market players may be better of with the scrutiny requirements of the anti-trust domain (which demands governments to make a case which stands in court) as opposed to the more fuzzy regulation (where lobby-interests and regulatory capture may lead to unclear outcomes and positions).

ECOFIN October 2006 conclusions on SEPA

I will recite the conclusions below. Of course the usual stuff about how the SEPA world may not be worse more costly than the current payment services. This is essentially the equivalent of ordering a free payment lunch which consists of:
- a technical overhaul (as a result of EPC-standards),
- a legal overhaul of bank internal processes (as a result of the payment services directive)
- a commercial overhaul (working towards a cost-based fee structure for all customers and payment products in order to achieve more efficiency fo EU-society)
- maintaining current price/product/functionality features in Europe.

I've highligted two interesing recitals (perhaps overlooked). The first one outlines the concern that member states have that the Commission may actually not be doing a serious job with respect to assuring a level playing field for all new entrants in the payments market. Could this be a reference to the free-lunch that mobile operators are already enjoying for some years?

The second one is on the SEPA next steps initiative. Having had a consultation in the beginning of the year, the Commission professionally shoved its results on the table and decided not to publish the results of the consultation (right now). Quite remarkable for a Commission which states that it attaches a lot of value to the principles of better regulation. But then again, quite understandable. If the results to the SEPA-Incentives paper were to be made public, the Member States would become aware of the real sentiments in the market with respect to the way the Commission acts in the payment domain. And that would mean the Commission's position during the discussion of the Payment Service Directive would substantially weaken (BTW: I'm assuming here that all market players used the sepa-incentive consultation to explain to the commission that there goals and vision for payments in Europe are too ambitious, unrealistic and actually damaging to banks and customers alike).

Well, having said that, here is the full October ECOFIN-statement on SEPA:

"The Council:
– SUPPORTS the aim of the Single Euro Payments Area (SEPA): to achieve an integrated market for payment services in euro which is subject to effective competition and where there is no distinction between cross-border and national payments in euro wthin the EU;
– CONSIDERS that the highest priority must be given to meeting users' needs by the payment services developed under the SEPA, which requires continual involvement at national level of all interested parties;
– EXPRESSES appreciation of the substantial work undertaken by industry to achieve this aim and encourages it to make progress in the areas where work remains to be completed;
– NOTES that the completion of SEPA calls for the removal of all technical, legal and commercial barriers between the current national payment markets;
– NOTES that continued attention is needed to ensure that SEPA-payment services,
including their supporting technology and procedures, do not represent a deterioration compared to the national cost and service level in the most efficient Member States and that SEPA products and services are offered in a competitive environment;
– STRESSES the importance of ensuring a level-playing field as regards the application of competition principles to all market participants, including new entrants to the payment services market, and INVITES the Commission to continue without delay, its work on this subject;– UNDERTAKES to work, together with the European Parliament, towards a swift adoption of the Proposal for a Directive on Payments Services;
– WELCOMES that the Commission intends to come forward with the final report regarding the sector inquiry into competition in the retail banking market (which includes payment cards) before the end of the year,

– In order to facilitate commitment to an early use of SEPA,

- INVITES Member States to carry out cost and benefit analysis, where necessary, to check that SEPA products are better or at least equivalent to existing products in terms of price and quality, including as regards the security of payments and INVITES the industry to provide information to this end;
– INVITES Finance Ministries of Member States to monitor progress on SEPA at national level, with all interested parties; as well as the Commission and the ECB to continue monitoring the overall development, together with the Financial Services Committee and the Economic and Financial Committee, and report back to the Council if progress is not satisfactory and at the latest in 2008;
– INVITES the Commission to assess the economic and competition impacts of the SEPA taking into account its planned time schedule, and
– INVITES the Commission to continue its work on the next steps regarding the issues raised in its consultative paper on SEPA, including the responses to the public consultation, without delay."

Payments & Settlements news 44

is out here, with some nice features:
- cooperation of Norwegian banks and Telenor in identification via mobile telephone (October 2, 2006);
- ECOFIN conclusions on SEPA (see this separate post),
- website SEPA-world;
- an article by Leo van Hove, once more explaining why fighting cash is a worthy cause on pages 8-13.

Police arrest a lot of juveniles that loaned out their debit-card to criminals

HFD reports that more than 100 younger adults have been arrested this week as they loaned out their debit-card for money laundering to criminals. The interregional fraud team performed arrests simultaneously in Amsterdam, The Hague, Rotterdam, Flevoland and Zaanstad.

TSYS Certified to Process Prepaid Cards on MasterCard Network

See press release here... to discover that TSYS is now certified to support open-loop prepaid cards in Europe on the MasterCard network. The certification includes capability for chip-and-PIN processing on MasterCard's network.

Most likely this announcement will not be noticed by EU regulators. So while effectively the markets for processing and issuing of cards-transactions opens up with a considerable speed, they are still debating how to make the EU market more open by regulating new entrants in the new payment systems directive.

ABN AMRO, Rabo and Postbank to transfer Dutch web-payment scheme to Currence

This week, the large banks that developed the web-payment method iDEAL for their Dutch customers, transferred the scheme/standard to Currence. Currence is the bank-owned but independent scheme manager for the Dutch domestic products debit-card (PIN), e-purse (Chipknip), direct debit (Incasso) and paper based bill-payment (Acceptgiro).

The consequence of this transaction is that any bank that wishes to use iDEAL may now do so buy purchasing an IDEAL-license from Currence rather than having to come to an agreement with the three developing banks. So the shift of scheme responsibility most certainly leads to a more open market.

At present, there have been 4 million iDEAL transactions on an annual number of 20 million web payments. iDEAL has thus a steep adoption curve with a penetration percentage of 20 % after about 1-2 years after introduction.

Postbank expands its distribution and sets up its own retail store

By tradition, contract and convention, the Dutch Postbank is bound to use post offices as the main outlet for services. Already in the 1980s, the disadvantages of using that channel lead the Postbank to develop its concept of at-home-banking ('thuisbankieren') suggesting that you don't need to leave home to do you banking and payments business. And this distance-based marketing concept is still at the heart of ING Direct.

As a next step in the evolution away from the Post Office, the Postbank will now set up its own retail stores. Not in combination with postal offices, but a 100% Postbank branded store. Of course Postbank denies that it will desinvest from the agreements with its Post-Offices joint venture.

And this may be true for the moment, but my guess is that in the long run (say 20 years from now) the combination with the post-office will be the exception and not the rule.

Domestic card schemes to disappear in Europe...?

See this article:
Accenture’s survey of 45 European senior payments industry executives also reveals that banks will spend an average of 11 million to 50 million Euros (US$14 million to US$63 million) on making their ACH (automated clearing house) systems SEPA-compatible.
..
"Our survey showed that 66 percent of respondents expect domestic European debit card schemes to disappear as a result of SEPA," Iglesias says. "Within the next five years, there will only be four or five domestic debit schemes left in Europe, as the majority (of schemes) migrate to either Visa or MasterCard."

E-wallet providers increasingly shut out US gambling customers

See this article:
The online ewallet provider, Moneybookers, will follow suit of Firepay which halted all gambling transactions for US stationed customers.

The decision to stop all gambling transactions between MoneyBookers and gambling sites for US players came yesterday. Moneybookers is a UK based provider but says they will comply with US laws.

No official press release has yet to be issued by Moneybookers. Players who logged into their account and tried to make a deposit into an online gaming site were denied. A pop-up now rears its ugly head saying, “US customers can not do business with Gaming sites.”

ESI: new kid on e-money block in Europe, coming from Canada

Interesting press release here from Entertainment Systems Inc. ("ESI") which is a provider of products and services to the international gaming industry. Now that the US make life difficult for them (with the gambling act stuff going on), this Canadian company further expands to Europe instead, using their product MyCitadel.

Citadel Commerce initiated expansion into segments of European payment processing in 2005. It has now launched support for myCitadel Wallet in Spain and the United Kingdom. And the Company recently completed a technology audit, one of the final stages in completing an e-money license application before the FSA.

Visa US clarifies interchange reimbursement fees

This file link contains tables that set forth the interchange reimbursement fees applied on Visa financial transactions completed within the 50 United States and the District of Columbia.

Visa explains that it uses these interchange reimbursement fees as transfer fees between financial institutions to balance and grow the payment system for the benefit of all participants. Furthermore Visa explains that Merchants do not pay interchange reimbursement fees; they pay "merchant discount" to their financial institution. This is an important distinction, because merchants buy a variety of processing services from financial institutions; all of these services may be included in their merchant discount rate, which is typically a percentage rate per transaction.

The document tells us that Visa is not choosing the cost-based interchange fee reasoning but goes for the macro-economic position that interchange reimbursements are required in two-sided markets. It also shows the variety of card-transactions that policymakers and politicians should consider if they speak of card-schemes and card payments.

Paypal results are out: another growth quarter

See the file of ebay here:
PayPal's number of accounts grew 41% year over year to 123 million accounts.
The number of accounts active in the quarter grew to 30.9 million, up 26%.
The active accounts generated 146.2 million payments during the quarter averaging about $62 per payment resulting in a total payment volume of $9.1 billion, up 37%.

PayPal's transaction revenue rate was up from 3.6% of payment volume to 3.73% - resulting in PayPal revenues of $340 million, up 42%. And 38% of PayPal's revenue was from international.

Mobile NFC-payment pilot in Amsterdam started

See this press release to discover that a cooperation of JCB, CCV Holland B.V., Gemalto, KPN, Nokia, NXP Semiconductors (formerly Philips Semiconductors), PaySquare, and ViVOtech, announced that they have successfully launched Mobile J/Speedy™, the Near Field Communication (NFC) mobile payment pilot project in Amsterdam. Following initial trials in September, the pilot service is now being rolled out to a broader group of JCB’s customers. The project marks Europe’s first contactless international credit payment scheme using a mobile phone with an NFC chip.

This project is being carried out with close collaboration among these regional and global enterprises addressing the whole ecosystem for mobile payment applications. Selected JCB cardholders are provided with a mobile phone by Nokia, which is equipped with an NFC chip, developed by NXP and loaded with the JCB payment application specified by JCB and developed by Gemalto. At selected PaySquare merchants, cardholders can securely purchase items by just holding their mobile phone close to ViVOtech’s contactless NFC reader/writer, which is attached to the payment terminal of CCV. KPN is taking the role of installing the application and personalizing the mobile phones, and CCV is processing the transactions. JCB designed the scheme and coordinated the project based on its successful experience in contactless technology in Japan.

MSN payment innovation Bill (by SNS) will disappear

Emerce reports that MSN payment system Bill (as offered by SNS Bank) will be taken off the market. Only 10.000 users applied, whereas the bank hoped that at this time (the introduction was in March 2005) there would be 60.000 users.

Ukash moving in to Europe with vouchers...

See this release explaining that preparing the company Ukash (in posession of e-money license) wishes to steer the growth of cash transactions for online sportsbook and gambling merchants, outside the States.

Ukash is currently trading in the UK, Ireland, Spain and Germany and Ukash vouchers will be available to purchase in The Netherlands, Belgium, Luxemburg, Turkey, Sweden, Switzerland, Austria, Poland, France, Italy, Romania and Greece by the end of 2006.

Visa to go public as well...

Financieele Dagblad reports that Visa intends to restructure its organization in order to create a new public global corporation called Visa Inc. As a part of this restructuring, Visa Europe will remain a membership association, owned and governed by its European member banks, and become a licensee of Visa Inc.

Mastercard did the same in May this year, collecting some $ 2,4 billion. Since then its stock rose about 80 % so that Mastercard is now valued at $ 9,5 billion. Analysts estimate that Visa would be worth $ 20 billion. And, if this were to be the case, the British bank Barclay might see some $ 200 million coming in (having about 1% of shares).

Postbank's Online-Internet Banking down once more....

and once too often as the operational trouble now hit the Internet-press: Planet Multimedia mentions that the good old dial-up banking still works fine and properly... ;-)

SAP and SWIFT join hands for further efficiency

As announced at Sibos, SAP and SWIFT have joined forces to introduce the SAP(R) Integration Package for SWIFT -- a standardized software solution that will be designed to link SAP ERP solutions directly to SWIFTNet, the IP-based messaging platform connecting nearly 8,000 financial institutions in 206 countries and territories.

US law against use of credit-card for gambling

The Guardian placed a very nice article that outlined the paradoxal effects of the recent US legislation that prohibits Internet users/credit-card users to use their credit-card in certain domains (gambling etc).

Essentially the consequence might be that a whole bus-load of US customers will revert to less legal solutions in order to continue to do what they did. In essence the US Bill thus leads to a customer base seeking for alternative solutions. Those solutions will all be examples of the money laundering procedure (placement, layering and integration). And once the customers get to know the principles of money laundering, why not use it for other purposes (tax evasion) as well?

'Strange guys, those Romans....' as Obelix would put it.

And even more credit-cards in Dutch supermarkets..?

While representative organisations of retailers still moan about the lowest POS-fees on the earth (the Dutch..) their own constituency demonstrate that this moaning is no more than crocodiles tears (as we say in the Netherlands). They do so by increasingly signing up to accepting credit-cards.

In todays Financieele Dagblad a representative of EMS (European Merchant Services) states that they are keen on breaking the taboo on credit-cards for supermarkets. EMS is also involved in providing the first supermarket in Roosendaal with terminals and functionality to accept credit-cards. First results show that the average amount paid increases from € 20 to € 50 upon allowing the use of credit-cards. The results also hold for use at the HEMA convenience stores.

National Australia Reviews Credit Card Unit for Possible Sale

See this Bloomberg article.

National Australia is assessing whether it should focus on more profitable units because of concern it is losing customers to rivals. The Melbourne- based bank said in May it had lost market share in credit cards.

The bank has sold several units this year to focus on improving the performance of its domestic operations where revenue growth stalled following a currency-trading scandal in 2004. The review of National Australia's card unit began last month and is initially being conducted without external consultants or advisers.

Blog on Sibos by Anita Hawser

Well, not high enough in the picking order?
Did not let you go to Sydney?

Then have a look at Anita Hawser's blog and just pretend you were there as well.

Standardisation in payments does not require government intervention

Policymakers tend to overemphasize the relevance of intervention in the area of standardisation for payments. It does take an economic/econometric approach but using that approach one can demonstrate that standardisation will always occur in the payments market (unfortunately the margin in this blog does not allow me the space to prove this theorem).

But practice may be supporting me in this theorem. See this press release that explains that four e-Payment brands in Japan are to use the same reader/writer. Those brands are: Suica, iD, QUICPay and Edy.

Which was exactly what also happened in the Netherlands upon development of e-purses and point of sale applications.

Q.E.D.

Australian RBA sets interchange fees....

See the press release here and find out:

In accordance with the Standard The Setting of Wholesale (‘Interchange’) Fees in the Designated Credit Card Schemes RBA has determined a common benchmark for interchange fees in the MasterCard and Visa credit card schemes. Using data supplied by issuers of credit cards and the two schemes, the Reserve Bank has calculated that the common benchmark to apply for the three years from 1 November 2006 is 0.50 per cent. This compares with the current average interchange fee in these schemes of a little under 0.55 per cent.

For Debit Cards Schemes a similar exercise lead the RBA to calculate a fee of 12 dollarcents as of November 2006 (for Visa this is now app. 44 cents).

Let's now wait and see what happens....

Interpay to lay off quite some workers after merger with TAI

Todays FD reports that Interpay will lay off quite some workers after the merger with Transaktion Institut. The estimate is a couple of hundred jobs will be lost. The article also informs us that the new companies' name will be Equens. Interpays chairman Haasdijk will step away and enjoy his pensioner rights in April next year. From then on Michael Steinbach will run the company.

First Data perspective on SEPA

See the report here.

ECB speech on SEPA for cards: a contribution to a cashless society?

This week Mrs Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB spoke at the EFMA Cards and Payments Conference in Paris, using these slides.

Now, what is interesting is that the Eurosystem claims to be neutral towards the different models for the cards market in Europe (slide 14) but then goes on to state that 'competition needs to be ensured':
• SEPA should mean more than two schemes....
• International card schemes and national schemes have a role to play

Now this leads to the following questions:
- how did the Eurosystem suddenly become responsible for competition issues...?
- why don't the competition authorities speak up to put the Eurosystem back in the monetary corner where they belong?

First Data Corp. holds investor and analyst conference

Payments News informs us on First Data Corp. Holds Investor And Analyst Conference - September 20, 2006 in which a further explanation occurs of the Western Union spinoff.

Interpay - Transaktionsinstitut merger finalised: Equens is formed

Today Interpay announced that the merger between Interpay Nederland and Transaktionsinstitut für Zahlungsverkehrsdienstleistungen has been finalised. The new name of the merged company will be Equens. See also the press release.

Cap Gemini World Payments Report 2006 is out and identifies the real issues at stake !

Download the Cap Gemini World Payments Report 2006 and find out that it is actually quite good. The consultants are not afraid to draw conclusions such as:
To preserve payments revenues, banks in Europe must improve their pricing strategies. Current pricing does not reflect banksÂ’ internal costs, and fails to provide incentives for consumers to use cost-effective payments solutions. Banks should be considering how to stimulate cost-effective means, such as electronic payments, at the expense of inefficient services like cash withdrawals and cheques. Banks should also consider introducing transaction-based pricing alongside fixed-fee packages.

And another good thing is that they stipulate the interrelatedness between the (very much delayed) work on the Payment Service Directive (PSD) and the implementation of EPC-standards. They clearly outline that without the PSD, introducing SEPA would be cumbersome, costly and useless. Their own observation:
The SEPA requires national legislative change, since it would be challenging, if not impossible, to launch SEPA products.
And the quote from outsiders:
But is the PSD really a prerequisite to the SEPA, anyway? Absolutely, according to EU Internal Market Commissioner Charlie McCreevy, who has said, "No Payments Directive, no SEPA".

Effectively, for insiders, this is quite an outspoken report. At present all resources in Europe are busy getting EPC-products in place and getting the Payment Service Directive finalized. And the Commission itself has already announced that January 1 2009 would be the earliest likely date for the implementation of the PSD. This makes one wonder why banks would want to rush in to meet a January 1 2008 deadline for EPC-products?

Why indeed...?

Let's look at the European central banks' project Target 2: that should have been ready well before 2008, but is delayed with about one year. And then the European Commissions' Payment Service Directive: should have been implemented in 2008, but my personal estimate is that 1, January 2010 is more likely (across Europe). Meanwhile EPC are still on track, getting ready for introduction/reachability of EPC-products by 1.1.2008, largely out of fear for further regulation.

Now what good is the use of introducing for example a cross-border direct debit for eurocountries on 1.1.2008 if - other than expected- there is no harmonised legal framework? The consequence is that each individual bank has to revise/analyze contract law in at least 12 countries to be able to offer the product as of 1.1.2008. And, on top of all, each time a member states implements the local PSD-regime, the banks must revise their relevant local contract terms accordingly. So that's about one contract change in 2 months on average during the years 2008-2009.

While theoretically speaking one would be right to argue that there are no legal impediments to stop banks from introducing EPC-direct debits as of 1.2.008 it is quite clear that such a thing would be a complete and utter waste of time and resources from a practical perspective. It is far better to await Europe-wide implementation of the PSD in 2010.

So another why occurs to me. Why is it that at the present moment in time such a delay in SEPA/EPC work would be the most welcome, efficient, socially optimal and (alas) unlikely outcome at the same time?

My guess is that there's quite a bit of tunnelvision and prestige involved in the SEPA and European project. As a result, it is quite unlikely that all those CEO's, Regulators, Commissioners, presidents in high places drop their prestige/image reasoning. They intend to bang the drum and hit banks with tough talk and are unwilling to reverse course as a matter of prestige. And their staff are not going to make them one bit smarter either: never disturb the dreamers at the top with real-life reality at the bottom. Because that will undoubtedly cost you your yearly performance bonus and your career. So staff is silent while top dogs dream on.

Ideally all involved policy makers and top dogs at E(S)CB and Commission would live up to the fact that they are being paid by all tax payers, and wake up one day with the courage to say to their own top dogs: we ourselves failed hugely in delivering our bit of SEPA (TARGET2/PSD) on time. So why demand from banks to maintain the old deadline and incur a bunch of useless investments? Any first year student in project management can explain why that is the most foolish thing to do.

Perhaps a final retoric exercise may help increase awareness and help all involved policy makers and top dogs to drop the prestige concerns.
1. Appreciate that it took more than 50 years to get with the EU where we are now.
2. Appreciate that building Europe is a long term institutional growth process.
3. In which all kinds of projects (such as getting a EU constitution agreed) face all kinds of delays.
4. And then ask yourself the many billion euro dollar question:
Why would we bother about 2 years delay in delevering a true European Payment Space?

Repeat steps 1 to 4 of the exercise until something begins to dawn in your mind.
Take a deep breath and proceed to:
5. Imagine that the year is 2030 and we look back in the history books. Grandchildren come up to old grandpa/grandma and ask about the good old time of fragmented domestic payments in Europe. Ask yourself the control-question:
Would any one of our grandchildren ever really care if we tell them that the EPC-work and SEPA started in 2010 and not in 2008?

6. Now experience:

Rest......

......peace........

........solution


Let us be reasonable, let us not stop the work on PSD, EPC-standards and Target2, but let us save ourselves a lot of energy/resources and let us delay the implementation of all market projects some 2 more years to the latest deadline of PSD-implementation in Europe (2010). So that we can tell our grandchildren proudly that in our time we significantly helped the customers and the public in Europe by putting common sense before prestige and delaying the SEPA-work to allow for smooth and cheap changeovers and market driven establishment of the Single Euro Payment Area.

Payments and Settlements News Nr 43

is out now and has the following goodies:
- The Netherlands – Background paper on the Interbank Switch Support Service,
- The Netherlands – Banks incur loss on payments,
- Accenture/PSE Consulting study on SEPA Compliance "Costing More and Taking Longer Than Expected"

Interpay receives SWIFT-permission to operate EU-wide

Website of Interpay: Interpay is the first payment processor to receive the SWIFT Board’s permission to expand its SWIFTNet Market Infrastructure Closed User Group (MI-CUG) to financial institutions in the 25 EU countries.

This means that Interpay will be ready to provide services to institutions with a SWIFT connection well in advance of the introduction of the Single Euro Payments Area (SEPA). In the Netherlands, Interpay has accumulated extensive experience with a SWIFT MI-CUG. This facility is currently used by ten banks.

ABN AMRO to roll out Messenger Balance Information services

ABN AMRO reports that as of today, September 7, they will roll out a balance enquiry service using Windows Live Messenger. This service is called 'Messenger Saldo' and is available for those customers that have an active Internet-banking session. ABN AMRO has 2,6 million Internet customers by the way.

New type of ATM-attack: rebuild the front...

The Dutch society this week viewed tv-programme's in which a new attack on ATM's was revealed. Crooks now rebuilt part of the front of an ATM, ensuring that a card would flow through this fake front towards the proper piano device into the ATM. This gave them stripe-date. And by also observing the PIN-code they would have it all.

Of course the method is no different from making a fake-front for a bank office (so that merchants do not deposit their cash in the bank but in the crooks fake mailbox). But still, it shows that it took the criminals 1 to 1,5 years to get a new attack on ATM's up and running. Not bad for a product innovation period... ;-)

Interestingly the day after the Tv-show, an alert citizen noticed strange things happening at the local ATM and phoned the police. They got there quickly and arrested two crooks that were cashing (with a bunch of white-cards). Which IMHO shows that public and consumer education is key to prevention and detection.

First credit-card in Dutch supermarket.. relativity theory for MSC's

Financieele Dagblad reports this week that a local franchise of a supermarket chain (Super de Boer) is now accepting credit-cards, as the first in that segment of the market. This entrepreneur, Jan Pollemans in Roosendaal, states he got a good deal from Mastercard and Visa as they were eager to penetrate that segment of the market.

The move also illustrates that the regular wining of current retailers on the MSC for Point of Sale may be nothing more than playful acting for the public policy makers. The MSC for Super de Boer is apparently no barrier to accept credit-cards. So it is quite remarkable to notice that, with the lowest merchant service charge on earth of 5 eurocent per trx, the Dutch retailers still want a better deal from banks.

This is even more curious now that an open calculation (banks opened their books) showed that banks lose at least € 100 million on those transactions. Retailers always said they were willing to pay a fair price for POS-transactions if banks would just open their books. And now that the banks did completely open their books (retailers are a far cry from doing so, by the way), the Dutch retailer organisations keep on complaining and demanding lower fees.

I guess all is relative in this world...

Donalds bookstore...

Just made this Amazon store with books on payments. Indulge yourself.

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...

BCG report suggests regulators to hold their horses on their 2010 ambition to phase out national products in Europe

See this press-release on BCG's 8th report: Global Payments 2006. In which specifically the EU-comments are quite sensible:
The report says that the Single Euro Payments Area (SEPA), the legislation intended to harmonize European payments platforms, will bring measurable benefits to consumers and is worth the investment that European banks must make — an estimated €500 million— to meet the requirement of bringing pan-European payments capability alongside domestic schemes by 2008. But the next step in SEPA, the expected elimination or conversion of all domestic schemes by the end of 2010, will require roughly €5 billion in additional investment with little additional benefit. Full migration to the SEPA standard by 2010, the report says, will in fact decrease efficiency and possibly reduce functionality by compelling banks, payments processors, and corporations to adopt pan-European products and to discard highly-efficient domestic ones.

“The bottom line is that pushing for the full SEPA concept to be achieved by the end of 2010 will actually destroy value,” says Nick Viner, a senior vice president in BCG’s London office and lead author of the report. “A far more workable solution would be to allow payments players to invest in the full SEPA requirements in line with their natural investment cycles for IT infrastructure, cards, terminals, account engines, merchant contracts, and related elements.”

But would the regulators really want to hold their horses and listen to this?

ABN AMRO and Rabobank concentrate cash processing activities

See this press releaseto find out that:
- Rabobank Nederland and ABN AMRO will launch a joint cash processing company named Gavea on 1 October 2006.
- Both banks are taking a 50% interest in the new company. Gavea will provide employment for 225 employees (full time equivalents) who will all be from ABN AMRO.

The two banks decided to cooperate in this field because the Dutch Central Bank will largely phase out its cash processing tasks from 1 January 2008. The daily counting and recirculation of euro notes and coins will then be transferred to recognised parties capable of meeting the very highest quality standards, as set by the Central European Bank. This means that responsibility for cash circulation and related activities will be transferred to the bank.

Cash processing is a relatively cost-intensive activity owing to the substantial investments as well as additional costs for e.g. security and continuity facilities. By joining forces, Rabobank Nederland and ABN AMRO aim to keep the long-term costs of cash processing under control.

Google launches Checkout-service

After a lot of speculation Google has now launched Google check-out which aims to make repetitive payments via credit-card easier. Essentially it is a new button which does al the fill-in work for the consumer, while keeping the consumer data confidential. Merchants do not get the full credit-card number, just the ok on a transaction.

As a mechanism for the user it is similar to verified by Visa. The difference is that with verified by Visa the bank kwows that you're in the program while with Google-check-out it doesn't. So the liability rules will be different.

Commission takes on Mastercard interchange fees

See this press release to find out that the European Commission confirms that it has sent a supplementary Statement of Objections (SO) to MasterCard on 23 June 2006. In its SO the Commission takes the preliminary view that MasterCard restricts competition between member banks by pre-determining a minimum price retailers must pay for accepting MasterCard and Maestro branded payment cards. The Commission’s preliminary view is that such behaviour is contrary to the EC Treaty’s ban on restrictive business practices (Article 81).

The SO is a follow up on a previous statement of objections. And the Commission is very eager to state that the enquiry is completely unrelated to the Cards Enquiry that is now pending. The direction of the intervention is quite clear from the press statement: either a prohibition or a redraft of interchange fees for Mastercard.

Small terminal supplier points to outdated retailer dogma's that PIN (POS) is expensive

Yesterday, Mr Mogendorff of Pinlinq, stirred the Dutch retail payment industry with an article in the Financieele Dagblad on POS-payments. He explicitly stated that retailer interest organisations have an over-fixation on the supposedly high cost of POS-terminals. That's quite interesting and correct.

In general the bank fees for retailers are quite insignifcant compared to their other business costs such as communication (ADSL), printer paper and what have you. But it is a historical habit of retailers to persist in complaining on the bank fees; they started doing so when Dutch POS-payments (PIN) were introduced and haven't stopped since. Meanwhile, the communication market has opened up (lowering fees), the terminal market has changed (with Pinlinq offering GPRS terminals for 200 euro) and the bank market has opened up (with fees lowered to 4 to 5 eurocents).

Stil, the Dutch retailers persist in whining on bank fees. And while it is now common knowledge that the cost of cash payments exceed those of PIN-payments, you can still see signs at the teller of retailers stating that low-value PIN-payments will be charged for 10 eurocent (that is still approximately the 25 guildercents they used to ask in 1990 when all the PIN started). And the retailer representative organisations remain unwilling to ask their constituency to remove those signs (and penalties for efficient payments). And they keep on demanding even lower fees than the 4-5 eurocent per PIN-transaction.

Similarly, their website on payment terminals (www.betaalterminal.nl) has not so very accurate information on the best deals for payment terminals, suggesting that a GPRS-terminal would costs 1000 euro for the retailer. Of course that fiction is necessary to persist in the opinion that Dutch POS (PIN) is expensive and that all that it the bank's fault.

So all in all, it's quite refreshing to observe that Pinlinq, this new competitor in the payments terminal market is now not only stirring up the terminal-market but also the policy-market on payments (effectively challenging the policy dogma's of retailer representative organisations). Hurray for competition....

Remittances via money transfer agencies more expensive than via the bank

Here in the Netherlands, the press are so keen on blaming banks for not competing and not giving the best deal to their customers, that we found articles in the newspaper suggesting that the Ministry of Finance wanted credit-transfers to be cheaper.

Upon closer inspection of the source of the news: the Ministry itself (click here) it turns out that the Ministry of Finance has decided to make life easier for money transfer agents, hoping that their current high level of prices, will be lowered and that the remittance market can better flourish (not so much in the underground sector, but legally).

Effectively, the underlying documentation presents a picture that demonstrates that bank fees are systematically and substantially lower than money remittance fees. Still, the Ministry does not find the market for international remittances sufficiently developed and will ask the competition authority to look more deeply into the issue.

Well, remittances are indeed on the agenda now ......

SEPA compliancy for cards

In the SEPA discussion, there is one concept which is quite confusing: sepa compliancy for cards. Looking at the sepa cards framework, one can deduce that a sepa compliant card is issued by a sepa compliant bank and that the brand is also sepa compliant. And it is also clear that sepa compliancy means that one must be able to use the card in one country as easily as in others.

Still, what does make a card sepa or SCF-compliant?

Visa doesn't worry too much. See this article. It simply opens up processing and all that and states that they do comply. That's quite pragmatic, and actually, no one can prove them wrong. For all the vague phrasings that are all around, they might even be right.

Pilot with NFC payments in Amsterdam

Lanmagazine reports that JCB has set up, together with CCV van der Velden, a trial to facilitate payments using the Near Field Communication Chips of Philips and transaction software of JCB. Other partners in the project are: KPN, PaySquare, GemPlus en ViVoTech.

The idea is to provide a phone to 100 Amsterdam people so that they can use it to pay for small payments at retailers in and around the World Trade Center Amsterdam. The goal of the pilot is to obtain more practical experience and user feedback.

Google to hit the scene with payment functionality

Automatiserings Gids reports that Google will introduce its payment function on June 28, with a fee of approximately 1,5 - 2 percent (just under Paypal). Let's see if that works out.....

Phishers build brick ING office to phish

ING has confirmed after an article in the Telegraaf that phishers have set up a fake website as well as a fake office of ING. Customers were persuaded to phone 'ING-employees' on their private mobile and arrange a physical meeting (in a street where there was also a real ING Bank).

Another example of a phishing trend that increasingly becomes multi-channel, using phone, offices and web rather than just phone, web or office.

Payment & Settlement news nr 39

is now available here.

UK Chip and PIN already obsolete?

A Midcounties CO-OP experimented with a so-called Pay By Touch product, allowing payment with the use of a finger, rather than card (see link). At the checkout the shopper uses a simple finger scan for identification and, in doing so, a payment is made directly from his or her bank account, while members’ Co-op dividend points are automatically awarded.

Research showed that overall, shoppers were very supportive of this new initiative. Over half of those surveyed said they had either already enrolled in the service or intended to do so shortly. Over 75% of shoppers questioned said they would like to see the service available at other local retailers like M&S and Somerfield. When compared to Chip and PIN, 85% of shoppers felt Pay By Touch was more convenient and 76% felt it was more secure.

Undoubtedly there will be more to this than the press release tells us. It just isn't that easy to do the biometric stuff in payments.

Paypal Netherlands has started....!

Today marks the entrance of Paypal in the Dutch market. It has gone through the EU-notification procedure so that its UK e-money passport is also valid in the Netherlands. So, thanks to the e-money irective, Paypal can operate quickly and legitimately in all Eu-countries, without the need to apply over and again for local licenses. A nice demonstration of innovation, stimulated and backed by a Directive (the e-money directive).

And still, some argue that the e-money directive halted innovation......

EU: Consultation on future Internal Market policy

The EU consultation on internal market strategy has started some time ago and will end on June 15.

Fees review in Australia: consumers do not wish to see transaction prices....

Payment News had these two nice pointers to fee studies. One is from the Reserve Bank of Australia, the other from the Australian Bankers Association.

The RBA noted that the revenue feel due to lower merchant service charges, yet the overall growth in fee income that occurred was due more to increases in the use of banking services than increased charges. The Australian banks analysis confirms this and adds that:
- the user pays system allows customers to make choices about their banking and the average price of banking is falling as consumers gravitate toward low-cost options,
- expansion in the availability of free transactions, and of accounts offering an unlimited number of such transactions, means that many mainstream customers today pay little or no banking service fees at all because they transact within fee-free limit conditions on their accounts.

Most interesting is that while all theory outlines the need for transaction fees to be transparent to the user, the actual consumer quickly reverts to packaged deals which make the fee intransparant. Consumers do not want to be bothered with detailed billing for convenience services. They know they need to pay something but prefer to be not aware.