Tuesday, August 28, 2007

Mastercard to reconsider ad valorem based fee plan in UK...

See the website of the British Retail Consortium to read that Mastercard planned for a new approach to debit card interchange charging but was stopped by retailers...

In the UK retailers currently pay a fixed fee on debit card transactions regardless of the value of the transaction. Rates range from 6 pence to 18 pence, depending on which card it is and where and how the transaction occurs, but the fee on a £20 transaction is the same as for a £100 transaction.

For this new debit card MasterCard wanted to introduce percentage, or so-called ad valorem, fees. It wanted to charge a fixed fee of 3.5 pence plus 0.15 per cent of the purchase price.

It's intruiging: the attempts of debit card schemes to go for the ad valorem fee structures for payments where actual value (in terms of cost) does not influence the cost of the transaction....

Saturday, August 25, 2007

ABN Amro employees don't wish to be sold out to bidders...

See the RTL news that outlines that a huge ABN AMRO survey outlines that 55 % wishes ABN AMRO to be independent. And 39 % chooses Barclays over 6 % Fortis. So the labour unions will now ask the ABN AMRO Board of Directors to conduct an investigation into that independent scenario.

Again, we should recognize that even ABN AMRO employees may not have the full overview and details on the new situation and the mergers. They oppose to being split up. And I was just going to link to the ABN AMRO investor relations website to illustate that ABN AMRO has repeatedly split up and reorganised itself over the past years (without a lot of succes). And all the time the employees representatives did not ask their Board to self-reflect on the wisdom of such actions. But now they do oppose to outsiders that will do exactly the same.

Too bad that I can't make the whole argument right now, as the ABN AMRO investor relation website is completely down... ... which makes me wonder: would there be a silent take-over going on ... beginning as we speak with the website....?

Friday, August 24, 2007

How socialist save the capitalist ABN AMRO for Barclays...:

This week it appears as if everyone understands and has an opinion on mergers and takeovers in the financial markets. Members of provincial representative fora voiced their opinion that they thought ABN AMRO should not be sold to the consortium as that would incur too much risks. And similar tidings/thoughts come from the left-wing socialist party (former mao-ists) that even want to discuss the takeover stuff with the Minister of Finance (before the moment where he provides his statement of no-objection....).

While I myself know that the complexity of such a takeover is so huge, that one wouldn't want to consider meddling with it (let alone voice an opinion) it is intruiging to note in this analysis that left wing socialists now help out Mr Groenink in keeping an executive seat with the Barclays combination. Analyst Jeroen de Boer actually calls this a devils' pact.

It's a bit of media-logics here. A lot of people, representative organisations or politicians seek attention. So they choose a news topic (such as ABN AMRO) and then device an angle to ride-along on the news wave and be connected to the issue. One of the nicest examples in this respect: the organisation for the gay voiced their opinion on the merger and outlined that ABN AMRO should continue their gay-friendly policies. Completely off topic and highly irrelevant to the takeover debate, but absolutely brilliantly done.

The PayPal Blog: Observing Trends in the Payments Industry

Interesting article here on Payment industry trends on the PayPal Blog. Essentially the trends are:
- cash will lose out slowly
- convenience will make the customer chose for debit
- rewards are what matters in a saturated market.

Well, the first two are clear; I'm not sure about the third one. There's bound to remain a lot of national culture in payments. So the decisive factor in a saturated market can take a variety of forms, not necessarily being rewards. But for example the eco-image of the provider, the image of a brand, the actual customer service if stuff goes wrong, or perhaps price.

Still, an interesting article by Dan Schatt.

Time for e-invoicing...?

This Planet - Multimedia column by Arjan Dasselaar outlines that it is e-invoicing time and states that direct debits and paper based bill payments should quickly move to the musea. With e-billing and the e-billing standard developed in the Netherlands, the bills and payment orders slide into the customers e-banking environment to be paid whenever you wish as a use. No more revocations of direct debit, no more typing 16 digit payment numbers when doing bill payments...

Indeed, one could question if the direct debit mechanisms (developed in the 1960s, when computer time was not abundantly available) would today be designed if we would not have it already. The answer is most likely negative. The direct debit comes with a lot of uncertainty for consumers (you never know exactly the date of the debit nor the precise amount), there is uncertainty for the companies (you never know if consumers refund the transaction) and there is a lot of work for banks (you never know when consumers/companies are going to call to ask for information/refunds).

Meanwhile one can see the European Payment Council still betting on the direct debit to be used as of 2010. Which, if this would indeed work, would become a typical case example of path dependency. This means that although rationally a technical standard does not make sense, the fact that so many people are used to it, will mean it won't be abolished.....

Wednesday, August 22, 2007

Octopus had some errors in top ups .....

Dave Birch has an interesting case study on the Octopus system that apparently doesn't do its math completely well. It appears that quite some users have paid for topping up the card while in fact it wasn't. And the central bank has stepped in to take a look.

This makes me wonder. Our contactless system also works with the Octopus stuff. And quite recently Dutch students did discover errors in the system for single load cards.

Would it be possible that TLS now have the same error embedded in their systems or would the adaptation to Dutch circumstances have eliminated it...?

The Economic impact of the single euro area... ECB research

The fun thing of policy research is that it always gets you the desired result (as apposed to scientifc research where you seek out to dismiss a hypothesis. Last year the ECB set out to do some work on the economic impact of the single euro area. And now, the result is here.

The ECB has carried out in cooperation with the banking industry a SEPA impact study with the aim of enriching its understanding of the potential economic consequences of SEPA. Based on the quantitative and qualitative expectations of major pan-European banks, the study finds that a dual SEPA implementation phase should be as short as possible. In fact, a longer migration period would give rise to higher costs than a shorter period. It can furthermore be concluded that those institutions that embrace new technological developments, create new businesses and provide innovative services are likely to gain most from SEPA.

Well, that's of course the desired ECB answer (I guess deep inside they still stick to their former 2010 deadline for phasing out national payment products...). But it is by no means the whole picture. A lot more is happening then just a move to technological EPC-standards. Like the major impact of the Payment Services Directive. And the report outlines on that issue:
The scope and impact of the PSD goes far beyond SEPA, e.g. in terms of currencies, products and players. Overall, the banks shared the view that the PSD introduces rules with uncertain consequences on the payments business and their financial results. At the time of this analysis, the participating banks preferred not to commingle the pure SEPA impact analysis with a PSD analysis, as this might dilute the results and lead to unbalanced conclusions. The interviewed banks acknowledged that the main effects of the PSD stem from the extension of information obligations, shortening of transaction times, tightening of liability regulations for payment service providers, and more stringent processing of cancellations of transactions. However, at the current stage, the banks felt they were not yet well enough equipped to provide any precise estimate concerning the potential economic impact of the PSD.

Meaning: while the technical and migration stuff is already giving banks a headache, the implementation of new legal rules all across the board may be hitting the banks even harder. Thus undoubtedly raising the cost of doing payment business and thus raising the barriers for entrants even more...

Tuesday, August 21, 2007

Boober.nl peer to peer lending ordered to stop after half a year...

Webwereld announces that Boober.nl, a peer to peer lending site, must shut down as it requires a license for intermediating in financial services. But the website of Boober tells a different story and outlines that as of today it has a license (actually uses the intermediation license of one of its shareholders). Yet, the spokesman for the supervisory authority outlines that that won't work.

From a legal perspective, the shutting down of Boober is a bit of a no-brainer. I personally expected this to happen within a week or month from opening (see my previous posting here). Because whether you like it or not, the financial intermediation role is one that requires a license.

Yet, it took quite some time for the officials to move in. And that might be due to publicity, questions in parliament and supervisors that are anxious not to be characterized as being out of sync with todays society when they are blocking a nice democratic peer-to-peer lending initiative.

Only the older customer still wants the bank branch

See the ABA-website to discover that although branch banking still ranks first overall among consumer's usage, younger customers are continuing to choose the anonymity of their laptops over the human contact of a teller.

Banking at a local branch was the clear favorite of nearly half of those over the age of 55, but only 25 percent of those under 34 said they use branches most often. In fact, younger customers ranked branches behind online banking (30 percent). Older customers said the opposite with 47 percent saying branches are their preferred method of payment with ATMs (17 percent) and online (13 percent) trailing far behind.

Monday, August 20, 2007

First Data LBO may get banks into trouble

Very interesting article in Investment news here that outlines that the banks that sought to assist private equity firm KKO with the leveraged buy-out of First Data, may end up footing the bill themselves, due the current market developments:
When the $29 billion deal for credit card processor First Data Corp. was announced in April, it looked like another coup for New York-based buyout firm KKR & Co. LP and the banks, which stood to collect millions in fees from selling mountains of junk bonds and exotic instruments.

The trouble is that demand for speculative debt has dried up.

Even in the spring, “this deal looked like a bit of a stretch,” said Chris Donnelly, an analyst at Standard & Poor’s Leveraged Commentary and Data in New York. Now, he said, “unless the market changes drastically, the only question is how much money the arrangers will lose on it.”

Saturday, August 18, 2007

Single Market Review.... where are the real barriers to Europe....?

In the next months, the European Commission will publish its Single Market Review. It will be a stock taking high-level assessment and announcement of plans, undoubtedly seeking to charm the citizens into Europe by taking easy one-liners and ideas. The FD reports some of the top issues (conveniently leaked by the commission):
- energy prices,
- prices for mobile phoning,
- pricing of bank services.

It is one thing to devote all this attention to price levels and the conception that by regulation those should be harmonised. But it would be another thing to acknowledge the real root cause of insufficient competition in Europe: uneven, nationally inspired implementation of Directives in combination with national supervisors that interpret their competencies in a domestic manner rather than with the European spirit and legislation in mind. This same commission knows this, as they ordered some academics to writethis contribution to the Single Market. Which contains amongst many others the observation:
The adoption and transposition into domestic law of EU Directives is a necessary but insufficient condition for the well-functioning of the Internal Market. Although the SMP and successive Internal Market strategies have been aimed at creating a level playing field by providing a set of rules to be applied across the Community territory, some provisions have lacked clarity and precision. The result is divergent, occasionally even conflicting interpretations by different Member States, which often result in the distortion of competition. Problems resulting from an uneven application and weak enforcement of EU regulation have been highlighted by many respondents of a recent public consultation carried out by the Commission on the future Single Market policy.

Suppose you have a house with a number of rooms and one central heating system and knobs on the individual radiators in the room. And you note that the temperature in the rooms is different, whereas you would prefer it to be equal in all rooms. Would it be smarter to adopt another extra regulation to align these temperatures, or would it be more intelligent to order the government officials in the individual rooms to back off from the radiator knobs and let the central heating do its work?

I hope the Single Market Review comes up with a structural suggestion other than the 'better regulation' mantra, to solve that problem. Because national sentiments and rules and interpretations of domestic regulators are at the heart of the non-existence of a real Single Market.

SEPA: cost for the banks but income for others......

See the article in De Financiƫle Telegraaf that outlines that the boss of professional temp agency DPA Flex Group states that SEPA and MIFID are changes in the bank environment/regulation that will help boost income and profits for his organisation.

So if anyone thinks now is the time to do some stock picking and get ready for the rebound of the market.... that would be a sure bet or course.

Wednesday, August 15, 2007

PayPal - Pay later in the USA - undoubtedly the plan here in Europe as well...

Paypal announced earlier this month that they would start offering their US merchants the option to allow customers a deferred payment at the check-out. Thus tempting customers to buy even if they don't have the money (yet). In order to allow for this credit-mechanism, Paypal works together with GE-Money.

My guess is that somwhere in the next 12 months we will see this feature popping up in Europe as well. And that may be one of the reasons why Paypal chose to move from an e-money license in the UK to a banking license in Luxembourg. As a bank they can do credit; as an e-money institutions they don't have the same manouvering space (as well as more stringent liquidity rules).

By the way, Papyal has also just opened up a blog to keep in touch with the customers. As such they may be the first official bank to so openly embrace the blogging-concept. It may have it's dangers (particularly if Paypal would too often revert to their cavaet: we may, in our sole discretion, reject and delete any comments without notice if they are abusive, defamatory and offensive or for any other reason we deem appropriate), but on the other hand, better create a central blog-space for your own brand (and explanation) than have those autarkic bloggers and linkdumpers get the upper hand in the dialogue with users.....

Tweakers.net: virus attack on ABN AMRO

Although it is summer (or because it is summer...?) the news continues on internetfrauds. Tweakers.net noticed that ABN AMRO had sent out a warning to its customers to ask them clean up their PC with a specific tool.

Why don't those criminals take a long vacation...?

Two skimmers arrested in Zandvoort

Trouw outlines that 2 Roemanian skimmers of 16 years old were arested in Zandvoort, as they were carrying an old POS-terminal. The police told the machine was bugged to skim all information but hadn't been used. And the skimming appears to happen more frequently, the police state that there's not really a trend upwards. It's the regular battle against the crooks.

Meanwhile the representative organisations of retailers have a hard time explaining the press why it is that they insisted on being able to use terminals beyond their economic write-off period. Because it's those older terminals that are now hit by criminals and create a situation where the public may want to use cash rather than debit-card.

So now all the previous talks about bad things that might happen when moving magstripe card payments to EMV (including possible liability shifts), keeping terminals long on the counter and so on is sort of gone and the retailers organisations openly call upon the ministry of Justice to quickly catch all skimmers in order to maintain the trust in debit-card payments....

Ministry of Finance does not object to takeover of ABN AMRO by Barclays

An important formal step; a statement by the Ministry of Finance that they have no objections as to the Barlays takeover has today been taken. See the released statement (in Dutch) here and do note that this does'nt mean that the RBS consortium would not get a similar statement. I'm pretty sure RBS, Fortis and Santander will also get a statement of no-objection.

By the way, the statement comes with quite a wish-list of conditions for Barlays and it is countersigned by the central bank (on the request of the ministry of finance). Although the formal remark is 'notwithstanding the institutional responsibilities' it remains strange that the responsible Minister would want his advisor to sign his statement as well. So it does look a bit as if the Ministry of Finance is leaning quite a bit on the central bank expertise. Or, less poetic, in the case things might go wrong, it will also be the central bank that has to take part of the blame.....

Thursday, August 09, 2007

News on being overdraft in the Netherlands

the AD had some news on the overdraft behaviour of the Dutch. One third of the public is never in the red on its account. One third only sometimes. 17 % often and 11% always. The amount of money involved is about 8 billion euro; it's unlikely that (as the article stated) this full 8 billion wouldbe unagreed overdraft. It's more likely that a huge amount of that money is agreed lending via the payment account. But figures in this respect are scarce.

Wednesday, August 08, 2007

Tuesday, August 07, 2007

All on the Visa restructuring.. and the risks.....

This SEC filing contains all you want to know about Visa and its upcoming reforms. My personal favourite by the way is the risk section with main risks such as:
- Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenue, our prospects for future growth and our overall business
- If Visa U.S.A. or Visa International is found liable in the merchant interchange multidistrict litigation, we may be forced to pay substantial damages
- If Visa U.S.A. or Visa International is found liable in any of the cases brought by American Express or Discover, we may be forced to pay substantial damages.
- If the settlements of Visa U.S.A.’s and Visa International’s currency conversion cases are not ultimately approved and we are unsuccessful in any of the various lawsuits relating to Visa U.S.A.’s and Visa International’s currency conversion practices, our business may be materially and adversely affected.
- If Visa U.S.A. or Visa International is found liable in certain other lawsuits that have been brought against them or if we are found liable in other litigation to which we may become subject in the future, we may be forced to pay substantial damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability.
- Limitations on our business and other penalties resulting from litigation or litigation settlements may materially and adversely affect our revenue and profitability
- The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues.
- Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of payment cards issued, and could decrease our payments volume and revenues.
- Government actions may prevent us from competing effectively in the domestic payment markets of certain countries, which could impair our ability to maintain or increase our revenues.
- If government regulators determine that we are a systemically important payments system, we may have to change our settlement procedures or other operations, which could make it more costly to operate our business and reduce our operational flexibility.
- We face intense competitive pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Our operating results may suffer because of intense competition worldwide in the global payments industry.
- Our operating revenue would decline significantly if we lose one or more of our largest customers, which could have a material adverse impact on our business.
- Consolidation of the banking industry could result in our losing business and may create pressure on the fees we charge our customers, which may materially and adversely affect our revenue and profitability.
- Merchants are pursuing litigation and supporting regulatory proceedings relating to the costs associated with payment card acceptance and are negotiating incentive arrangements, including pricing discounts, all of which may increase our costs and materially and adversely affect our profitability.
- Certain financial institutions have exclusive, or near exclusive, relationships with our competitors to issue payment cards and these relationships may adversely affect our ability to maintain or increase our revenues.
- We depend significantly on our relationships with our customers and other third parties to deliver services and manage our payments system. If we are unable to maintain those relationships, or if third parties on which we depend fail to deliver services on our behalf, our business may be materially and adversely affected.
- Global economic, political and other conditions may adversely affect trends in consumer spending and cross-border travel, which may materially and adversely impact our revenue and profitability.
- Visa Europe’s payments system operations are becoming increasingly independent from ours and if we are unable to maintain seamless interaction of our respective systems, our business and the global perception of the Visa brand could be impaired.
- As a guarantor of certain obligations of our members, we are exposed to risk of loss or insolvency if any of our members fail to fund their settlement obligations.
- If our transaction processing systems are disrupted or we are unable to process transactions efficiently, our revenue or profitability could be materially reduced.
- If we are not able to keep pace with the rapid technological developments in our industry to provide members, merchants and cardholders with new and innovative payment programs and services, the use of our cards could decline, which would reduce our revenue and income.
- Account data breaches involving card data stored by us or third parties could adversely affect our reputation and revenue.
- An increase in fraudulent and other illegal activity involving our cards could lead to reputational damage to our brands and could reduce the use and acceptance of our cards.
- Adverse currency fluctuations could decrease revenues and increase expenses
- Some of our financial incentives to customers are recorded using estimates of our customers’ performance. Material changes in our customers’ performance compared to our estimates could have a material adverse impact on our results of operations
- We have significant contingent liabilities for settlement payment of all issued and outstanding travelers cheques.
- Our brand and reputation are key assets of our business and may be affected by how we are perceived in the marketplace
- Our retrospective responsibility plan depends on several related mechanisms to address potential liabilities arising from the covered litigation, some of which are unique and complex, and if we are prevented from using one or more of these mechanisms, it may be difficult for us to fund the payment of a settlement or final judgment against us, which could have a material adverse effect on our financial condition.
- The shares of class B common stock that are held by members of Visa U.S.A. following the restructuring will be subject to dilution as a result of any follow-on offerings of our class A shares, the proceeds of which will be used to fund additional amounts into the escrow account necessary to resolve the covered litigation.
- Our governance structure after the restructuring could have a material adverse effect on our business relationships with our members.
- Following the restructuring, our relationship with Visa Europe will be governed by our framework agreement. This agreement gives Visa Europe very broad rights to operate the Visa business in Visa Europe’s region, and we have limited ability to control their operations and limited recourse in the event of a breach by Visa Europe.
- Our framework agreement with Visa Europe requires us to indemnify Visa Europe for losses resulting from any claims brought outside of Visa Europe’s region arising from either party’s activities that relate to our payments business or the payments business of Visa Europe, and this indemnification obligation could expose us to significant liabilities.
- We have granted to Visa Europe the right to require us to purchase all of the outstanding shares of Visa Europe’s capital stock. If Visa Europe exercises this option, we could incur a substantial financial liability and face operational challenges in integrating Visa Europe into our business.
- Our management team will be new and will not have had a history of working together.
- The restructuring is expensive and will require us to make significant changes to our culture and business operations and if we fail to make this transition successfully, our business could be materially and adversely affected.
- There is no existing market for our regional classes of common stock or for class B common stock and class C common stock into which the regional classes of common stock will be converted prior to our planned initial public offering, and thus we do not expect these shares to provide you with liquidity.
- The voting power represented by shares of our common stock may be limited because ownership of a significant percentage of our common stock will be concentrated in a few of our largest members.
- The U.S. Internal Revenue Service may treat a portion of our common stock received by a member of Visa International or Visa U.S.A. as taxable income.
- Members may incur tax liabilities in jurisdictions outside the United States, as well as in United States state and local jurisdictions, in connection with the restructuring and the true-up.
- The consideration that will initially be issued to members upon the closing of the restructuring is subject to reallocation and conversion.
- Anti-takeover provisions in our governing documents and Delaware law could delay or prevent entirely a takeover attempt or a change in control.
- U.S. federal and state banking regulations may impact our members’ ownership of our common stock.

Most interesting risk of course for us in Europe is to note the risk that Visa Europe becomes too independent. It's quite interesting that right now the fears that retailers try to increase among public policy makers, is that future Eu card schemes might become American owned.....

SanDisk and Philips join forces on cell phone payment via NFX

Tweakers.net had a post linking to this EETimes.com article that outlines that SanDisk and Philips join forces on cell phone payment:
Flash memory card supplier SanDisk Corp. has struck a deal with Philips Semiconductors to embed the Philips SmartMX smartcard controller chip in certain types of flash memory cards to allow them to be used for near-field communications (NFC) and in particular, when the cards are inserted in mobile phones, to pay for things.

SanDisk (Sunnyvale, Calif.) said the SmartMX would be embedded in TrustedFlash cards allowing consumers to use their phones as bus or train tickets and perform secure “contactless” payments and other contactless transactions by simply waving their phones near a contactless reader in a mass transit turnstile, checkout counters or drive-through windows.

TrustedFlash cards with SmartMX technology for NFC transactions are available to OEM customers in the microSD card format. SanDisk has started pilot programs and expects broader commercial rollout in 2007. The company did not state where the pilot programs are being run.

Monday, August 06, 2007

Fortis shareholders agree to share emission and ABN AMRO takeover

BNR Nieuwsradio reports that today the Fortis shareholders agreed to a share emission and to the ABN AMRO take-over. So ABN AMRO then published a statement that as of tomorrow there will be two competing bids on the table. One from Barclays and the other from the consortium with Banco Santander, Royal Bank of Scotland and Fortis.

And ABN AMRO also announced that it intends to hold an informative Extraordinary General Meeting of Shareholders on 20 September 2007 at 10:30 in 'de Doelen' in Rotterdam to discuss the offer by Barclays and by the Consortium of RBS, Santander and Fortis. The agenda items for that meeting will include a background to the public offers on all outstanding shares of ABN AMRO by Barclays and the Consortium, and the reasoned opinions of the Managing Board and Supervisory Board on those offers and the alternatives considered.

Quite an interesting meeting that will be.....

PS. Meanwhile today, the European Commission also cleared the merger between Barclays and ABN AMRO. So would the consortium get them to clear their initiative as well?

Sunday, August 05, 2007

Yes, there is an interbank compensation mechanism (interchange fee) for POS in the Netherlands

For some unknown reason, I noticed that quite some websurfers seem to be interested in the question whether or not an interchange fee (for POS) exists in the Dutch retail payment systems. Well, the answer is that there are interchange fees for:
- direct debits
- bill payments (acceptgiro)
- interbank usage of ATM's
- and an interbank compensation mechanism (not a literal fee) for POS.

As for the latter mechanism, the NVB explains in its reply to the competition report of the Commission:
From an outside view it may seem that the Dutch POS scheme PIN indeed operated or operates without an interchange fee mechanism. But this was and is not the case. In fact there has always been an “implicit” interchange fee till March 2004. Card issuers received the net financial result from the acquiring operation of the only acquirer Interpay/BeaNet, to cover costs on the issuer’s side. From the moment on that the sole acquiring by Interpay/BeaNet ended (March 2004) and individual banks became acquirers for POS transactions, an explicit cost based interchange fee from acquirer to issuer was introduced that forms part of the cost base for acquirers. The underlying interbank agreement was notified to the Netherlands Competition Authority (NMa). The NMa however doubted the necessity of a multilateral interchange fee mechanism. Therefore the interchange fee structure will most likely be redesigned and be replaced by a system of bilateral interchange fees. The discussions with the NMa on this topic are ongoing.

Now, why would this be interesting to the readers?

I guess that it boils down to the current hefty ideological debates on whether or not interchange fees would be necessary in payment systems. While the answer is a clear yes (most certainly to get separate initiatives all aligned to become interoperable and standardized) the regulators seem to forget about the evolution of payment systems. And wish to abandon interchange fees to the past. So they keep on continuing the myth that it is possible to do payments without compensation mechanisms and keep referring to the Dutch situation as an example.

Although every regulator might learn from studying and trying to understand the industry, they also do have a fundamental right not to take things for granted and the right to climb the learning curve from scratch by themselves. In that spirit, I would encourage those interested to start studying the situation in payments via the phone in the Netherlands. At present we have a number of initiatives going. Some use the phone and a voice-mail application, others such as Payter use NFC. And Minitix is a combination of both, while a number of trials is pending.

While the newspapers this week all announced that in the future we would pay with our mobile rather than with e-purse, let's imagine what will happens if all these initiatives grow. Suppose we end up with 3 types of schemes. The consumer and retailer lobby organisations will then say it is too messy and unorderly. You can't expect shop owners to accept all those schemes: they need to be interoperable. And consumers would also benefit from one m-payment technology rather than having to choose from three.

What will happen then is that the initiatives will work out some interoperability agreement allowing one application/device to accept all 3 schemes. But then there is the question: which scheme had the relation with the retailer and which with the customer. And how are the schemes going to be compensated for their efforts in building their customer base (which will now be accessible to all involved). Particularly if the market coverage of the schemes is different:
Scheme A: 30 % consumers ; 30 % merchants
Scheme B: 10 % consumers ; 60 % merchants
Scheme C: 60 % consumers ; 10 % merchants

The answer to this economic puzzle is of course an interchange agreement. Yet, if regulators would insist on forbidding it, they force the market into a situation where no single technology will serve the whole market in an interoperable way. Which is beautiful from a competition perspective, because there is lots to choose for all. But perhaps it may be less convenient from a customer and efficiency-perspective.

So if we would call interchange fees a 'hidden tax' the alternative is an 'open and visual tax' consisting of the burden for merchants and consumers to have a higher number of different, not-interoperable payment instruments in their wallets, on their phone's and on their pc, in order to be able to pay for all the purchases they'd like to do (and to be able to accept all the payments from consumers). That is in my view the bottom-line policy choice in the interchange debate.

And if it's the hidden cash we're after, why not start eliminating the hidden tax (or stealth tax that Dave Birch calls it) that is out there for cash?

Thursday, August 02, 2007

Interchange complaints are just a call for lower merchant fees..?

Here's an interesting article on the Javelin Strategy and Research site. It ends with the open remark that all the fuss about interchange payments, made by retailers could be merely those groups posturing for lower fees by whining about high charges for merchants and disruptive interbank agreements.

Now, if indeed all this hidden tax for merchants, interbank agreements and huge profit would be so terrible to retailers, why dont't they set up a retailer based card scheme....? Because in the end accepting payment with cards in a shop is a make or buy decision.

If you don't like the brands and fees out there, just do it better yourself. And then, when the argument comes that it would be impossible to reach all consumers with your single retailer card, or that it would become a messy world if each retailer would issue its own card: well, that would make one really understand what it is exactly that you as a retailer are paying for, when you decide to go along with bank issued cards.

Banks have solved a complex cooperation, coordination and reachability problem in the cards-space and do not just use their expertise for themselves (by limiting the interbank card usage to ATM withdrawals) but also allow their consumers/merchants the benefit of using that same card for paying in the shop. But then, when push comes to shove, all the users can do is be unhappy with the pricing (as if anything in the world would need to be provided for free).

So indeed, I would agree with the Javelin remark. It is high time for either a retailer based third card scheme in Europe or a more modest and less agressive approach by retailer lobby organisations.

Wednesday, August 01, 2007

Further 'summer news' on skimming.....

Summer is always the time when news is scarce and when journalist may be more quickly aroused. Latest news is that a one-man detective shop claims to be very well informed on the skimming practices of Rumanians and even states that the move to EMV is useless. The criminals would already be preparing for more advanced skimming attacks using blue tooth gear and all kinds of stuff. As it sounds scary and follows some regular news on skimming (and perhaps due to summer-days...?) the media tend to give the detective a lot of attention.

In the news for kids ('jeugdjournaal') the detective, Mr Engelsman, poses as an expert on skimming. The fun part is at the end by the way. After having explained that criminals will be eager to skim, he proposes a solution: shops should identify their customers by additionally checking their credentials (passport etc.).

Well, it only takes another criminal 'expert' (Mr Frenchmen for example) to explain to the public that one can buy a fake id for as cheap as 10 euro. So that so-called solution of additional id's would not solve the 'security problem' in shops. And upon closer inspection one would be able to see that the statements of the private detective are mostly a shuffling of public statements, news shows etc on skimming.

So in the end the relay attack gets recycled once more to hit the summer news here....