Thursday, March 08, 2007

New competition in payments to lead to more transparant pricing...

Many many years ago, payments between banks in the Netherlands were sent back and forth between banks without allocating costs to one another. The bacis principle being that it wasn't worth within a group of similar companies and similar interests to device a charging system to ask your competitor for the fact you processed something, while next week he would charge you in return.

Enter the giro-based Robeco on the scene (1975). Without having any offices they allowed customers to use the payment system to send them money for buying stock/securities. Which drained money from the system. But as those credit-transfers were free the banks felt it would be useful to introduce more cost-based pricing and interchange fees. Because in a world of different business model, imbalances between players require explicit cost-allocation and renumeration.

Fast forward to 2004-2006. Enter new players such as Argenta and DSB Bank on the Dutch banking scene. Having a full bank license but not operating with a lot of branches. So the cream off the market by offering customers high interest rates on savings and offering 'free payment accounts'. But there is a catch. It's not free for all. A customer will not be able to visit the bank (there are hardly any branches) but is required to do internet banking. And as forcard-usage, the new players lift along on international brands (without operating any ATM themselves).

This week Rabobank presented the loss-profit of last year. And FEM BUsiness featured an article that outlined that the competition for Rabo is increasing. Both in mortgages (where already 10 % of the Dutch mortgages is sold by a non-Dutch bank) and in payments (where new players offer free payment accounts). Of course Rabobank (having a dense network of branches) feels a bit annoyed by these new players in the payments domain. If such trends continue, they end up competing on price but also having only those customers left that do not do internet banking and need to revert to their physical distribution outlets.

So this week CEO Heemskerk of Rabo outlined to the press that Rabo will charge for all transactions related to the work for those new players. If any of the DSB- or Argenta clients will be using Rabo ATM's, either the customers or their banks will be charged for doing so. Because the days of free lunches are long gone.