Adyen: the new bank is not a bank any more

Source: City Archive Amsterdam

Dutch bank registers show that, since the end of April this year, Dutch payment institution Adyen has officially acquired a banking license. This is clearly part of a bigger picture that shows ICT-based companies moving in a similar direction. Many years ago we could already witness the e-money institution Paypal become a bank in Luxembourg. Most recently Klarna also turned from payments institution to a bank. Now what could be driving these companies towards the bank license?

A ‘payments bank’

A closer look at the register tells us that Adyen is licensed for: taking deposits, providing loans, payment services, issuance and management of other payment instruments, foreign currency and issuance of e-money. I would call this a ‘payments bank’ as it demonstrates a clear focus on facilitating payments rather than covering all financial services (which is the case for challenger bank Bunq).

The move towards a bank does of course mean that own capital needs to be increased and some further obligations kick in, such as registering for the deposit insurance scheme. Also, despite the focus on payments, Adyen will need to provide some loans, in order to fulfil the definition of a bank in the legal sense: taking deposits and providing loans.

Now, let’s also look at the further practical consequences:

a- scope discussions for payments solutioning,

b- connections to clearing and settlement,

c- counterparty risk for corporate customers.

a-scope discussions for payments solutioning

Payment institutions that operate under the Payment Services Directive always need to be aware of the nature of the services that they provider. Does it qualify as money remittance, executing payments, executing payments with a credit line or placing money on an account? For each customer that seeks a bespoke solution to a business problem, the service offering needs to be qualified and business rules need to be applied accordingly. Banks on the other hand can more easily engage in the solution domain, given that any setup that involves holding funds and transferring those, will be possible under that license.

Now, payments institutions may of course be well accustomed to the scope and qualification work, so at the end of the day, this part of new business development may not be the source of a lot of head-ache. Still, it might be helpful to bring an end to discussions with local supervisors in Europe that might have their own opinions on the exact content of the payments institution license.

b-connections to clearing and settlement

One big difference between banks and payment institutions is that payment institutions are barred access from the RTGS-system of the ECB. The reasons is that the Settlement Finality Directive does not allow for PIs to become a direct member of designated systems. Even though already 5 years ago, the Dutch Ministry of Finance has made it clear that from a policy perspective the Settlement Finality Directive should change in this respect, no further action can be seen on the EU-level.

This is remarkable, as it is clear that we have a deep market for payment institutions, in which values of funds flow (or future funds flow) that may be quite significant. For example, the € 80 billion value of transactions that flow annually via Adyen (2016) comes close to the total value of transactions at the Dutch point of sale which is somewhere near the € 100 billion mark. There seems to be little logic to exclude these flows via payment institutions, from the scope of the Settlement Finality Directive.

In addition, we should not forget that the prohibition to have an account in TARGET2 has an impact on the future instant payment schemes as well. The settlement leg of most instant payment schemes will be organised in such a manner that only participants with access to TARGET2 can be direct members. The implicit competitive advantage of direct access to clearing and settlement is thus carried over into the new world of instant payments as well. Unless of course, the payment institution should choose to become a bank (or the settlement finality directive changes).

c-counterparty risk to corporate customers

In the classic design of a payment institution, the PI holds the customer funds in a separated account at a financial institution. Yet, if the bank where those monies are held goes broke, there is no recourse to the funds whatsoever. So the PI-business model means that all corporate customers have an inherent counterparty risk against the bank(s) that the PI has chosen to use to channel the separated payment flows.

It is well known that in particular larger companies dislike such intermediate counterparty risks. We’ve witnessed this before when Kasbank in the Netherlands was the only settlement bank for the transactions at the stock exchange. That model was eventually phased out. 

In a similar vein I could imagine that the possibility to eliminate this counterparty risk for its customers, may have also been one of the considerations for Adyen to move towards a bank license. In addition, the increased capital base that comes with the bank status could also help in comforting corporate customers. For a company that processes so many transaction annually, the obliged minimum capital base of € 125.000 appears to be somewhat thin.

The new bank is not a bank any more

As the digitalisation of our economy allows for further modularisation of all kinds of services, we see the same thing happening in the financial sector. We can also witness banking and payments regulation adapt to this reality. The first wave of ‘bank-light’ regulation in 2002 allowed for e-money institutions and the second one in 2009 for payment institutions. In both categories the larger players have gradually chosen to obtain a banking license, while some players have started a digital bank from scratch.

With the renewal of the Payment Service Directive and its obligatory open access, it is clear that for payments services the modularisation of services has become the norm. And it may be only a matter of time before we see the other bank business lines open up all the same. With that, the mental image of the bank as a full service provider will gradually disappear. We will undoubtedly see many more new focused banks, such as Adyen, who each excel at their own game within the bank sector.

The new bank is not a bank anymore. 

A new FAQ for PSD2 would be very useful to harmonise interpretations across Europe

Summary

The second Payment Services Directive, published end of December last year, is an important and welcome next in the further integration of payment services in Europe. In order to achieve a true European level playing field ‘on the ground’, a clarifying FAQ for those who prepare its implementation today would be very welcome.

A FAQ that explains how the PSD2 definitions will apply in all Member states to the variety of business models and transaction mechanisms observed, will enhance the purported level playing field. This harmonised guidance is just as important as the FAQ/guidance provided for the first PSD. Both regulators and the market have further developed since PSD1 and it is essential to recognise some of the underlying dynamics and developments of the payments market.  

1. Out of scope, limited network or regulated?

At present, member states use the harmonised PSD-rules to determine whether or not a certain business model defines as a payment activity or can be categorised as an exemption. Both in terms of content and process, the approaches vary considerably between supervisors. The feedback of supervisors varies from an elaborate argumentation to merely the brief outcome of an internal review process. 

Also in terms of content, the approaches vary. Business models that are out of scope in one member state may be exempt or require a license in others. The lack of a central register of supervisory statements on those matters makes this hard to identify, but the PSD2 will change this. All business activity exempted under article 3k and 3l, must be notified and the exemption decision will be published in a central register.

The practical consequence is that market participants can more easily determine which business models are exempted in which countries. This means that the supervisors must ensure that their qualifications are well-grounded and harmonised. One of the major challenges in this respect is to take into account the technological and market developments.

2. Technological developments: open and device-agnostic

Just one look at a user’s technical environment demonstrates that the major trend in payment technology development is the move from closed, bespoke systems and standards to more open structures. Whereas previously payment providers would control (sometimes own) all technological instruments to be used in a payment transaction, this is no longer the case.

The future infrastructure setting is one in which consumers and merchants will use their own technical device, and providers need to ensure that it can be used safely. We can now see card-based payments, where no plastic is used anymore, as the payment is made via a virtual card application in the mobile phone or PC. At the same time, in the back-office, the systems are opening up to the outside world via Application Programming Interface’s (APIs). Rather than having one instrument that operates as a shopping and a payments tool simultaneously, we can see that the value chain of search, shop and pay can be arranged via modularized interfacing of channels and technologies.

Therefore, when assessing the qualification of the technologies in todays payments, an open and functional approach is required. The classical approach, in which one tries to find the main device (such as a card) that services as the payment instrument and then builds the further classification of a system around that instrument, will no longer work. There will be all kinds of devices and technical tools and while some may classify as payment instruments, others may not.

Fortunately, the definition of payment instrument in the payment services directive enables this functional approach. The definition mentions both ‘a personalized device’ and/or a ‘set of procedures’ to be viewed and defined as the payment instrument:

"payment instrument" means a personalised device(s) and/or set of procedures agreed

between the payment service user and the payment service provider and used in order

to initiate a payment order;

3. Where is the commerce and where is the payment transaction?

As technology slices up the commercial value chain, we should note the relevance of the last element of the definition of payment instrument: ‘to initiate a payment order’. There is a clear difference between the commercial use of devices for purchases (apps, shopping carts on the web, nfc-identification devices) and the later moment in which aggregated purchases are actually being paid. This can be compared to the difference between the shopping cart/button on a website and the payment button.

The main question to ponder is therefore: does the technology service allow the user to make a payment to any other payee in Europe (under the SEPA-rules) and is the transaction actually a payment order, or is it merely a shopping transaction, with payments being arranged later on.

I wouldn’t be surprised if in the next years, we will witness a shift away from devices as the actual payment instrument. It may be more suitable to put the (user) accounts centre stage as the actual payment instrument. When applied by retailer organisations, such a choice will enable them to build a multi-channel sales-channel in which the device used is irrelevant. The sales channel aggregates purchase transactions towards the user account at the retailer. In cases where the retailer merely aggregates these purchases and initiates a direct debit for the total sum to be paid, this remains an administrative account as the actual payment account in the process is that of the bank. Only in cases where actual payments orders are initiated from such an account, it would become the payment account as well as the payment instrument for the commercial transactions.

It is crucial to distinguish the commercial from the payment process domain when evaluating apps and identification tools on the market. The actual payments can be expected to become the afterthought of commerce, rather than a primary service. These can flow via a payment account in the background, which is provided by retailer, bank or payment service provider. It is that account that will then function as the payment instrument in the commercial transaction and not the purchase device/application used. Supervisors should thus not immediately label ‘the card’ or any specific technical tool in a commercial business model as the payment instrument.

4. Areas and definitions of interest for the application of the PSD2

We’ve seen that the democratisation of technology allowed non-bank payment service providers to enter the payment space. Among those will also be retailers that can leverage the technology to provide a better customer experience. If those retailers are to use a services and customer contract with a monthly SEPA-direct debit agreement in the background, the payment services directive will not be relevant for them.

Similarly there is the question whether the payments services directive would have to apply to intermediary web-based platform companies that help users transact among themselves. Such business models could be in or out of scope based on the interpretation whether:

- the payments are seen as a regular occupation or business activity (art 1,2b),

- the agency model applies,

- the new definition of acquiring applies,

- the limited network exemption applies.

I hope that the collective of regulatory players involved in the transposition and application of the PSD2 will succeed in addressing those scoping and definitions issues early-on. In this respect the publication of a FAQ on those issues, may be a very effective tool to clarify and ensure the level playing field.

Now that the voting on the PSD is done, the real work starts...

The second Payments Services Directive, also known as PSD2, will be officially established today. In the plenary session discussion yesterday all political groups backed the achieved consensus and highlighted the benefits to consumers, the increased security of payments, further innovation in the payments area and lower cost overall.

Some work ahead...
We should realize however, that with the promulgation the real work will start for a whole range of involved players. First and foremost, there is a lot more work ahead for regulators and supervisors in the transposition process, but in particular also for the European Banking Authority. The PSD2 that seeks to open up access to banks and customer bank accounts for new players, leaves quite a bit of work to be done by EBA.

EBA should:
- develop rules on level of guarantee/professional indemnity insurance for payment initiation service providers and account information service providers,
- set up standards for cooperation and data exchange between local supervisor and resolve disputes on different applications of the PSD2,
- set up a central register of payment institutions and agents licensed under the directive,
- develop regulatory standards that define when the appointment of a central local contact point can be demanded by local supervisors and what its functions should be,
- be informed immediately in the case of emergency situations (such as large scale fraud),
- coordinate requirements as to the security frameworks applied,
- specify the requirements of common and open standards of communication to be implemented by all account servicing payment service providers that allow for the provision of online payment services,
- develop guidelines on a harmonised set of information to be provided during the application for a payment institution license,
- publish local exemptions under article 3k and 3l in the public register,

Clarity for industry on EU-application of definitions and scope
When the first PSD was delivered, it turned out that quite some players in the market required timely insights as to the future scope of the directive and how it would impact them. The European Commission then published an FAQ that further outlined how definitions should be understood.

It seems to me that it would be worthwhile to perform a similar exercise right now as there are quite some areas that can give rise to questions. As an example: the recital on the agency exemption leaves open the existence of agents for both buyer and supplier as long as the agent does not enter into posession of the funds. Yet, the definition of acquiring appears to be purposefully wide, meaning that such commercial agents might after all be viewed as acquirers.

The sooner this clarity is provided, the better it is, as the lead time for setting up and getting a license as a payment institution is similar to the lead time that now exists for transposing the PSD2.

I therefore hope that, for the sake of a proper EU level playing field, the collective of regulatory players involved in the transposition and application of the PSD2, will seek to address those scoping and definitions issues early-on.

ECBs renewed virtual currencies report: implications for the Third Payment Services Directive

This week the European Central Bank (ECB) revisits the subject of virtual currencies (VCS) in a renewed virtual currencies report with a further analysis. I have read the publication with interest to discover that the previous position on the subject essentially remains the same:
- virtual currencies don't come near money or legal tender concepts,
- the uptake of virtual currencies is still very limited
- the wait and see approach of the ECB will be continued.

The typical paragraph that summarises this approach is:
The usage of VCS for payments remains limited for now, which implies that there is not yet a material risk for any central bank tasks, including promoting the smooth operation of payment systems. However, a major incident with VCS and a subsequent loss of trust in VCS could also undermine users’ confidence in electronic payment instruments, in e-money and/or in specific payment solutions. 

Whereas at first sight the report doesn't lead to a lot of new insights, the broader scope of its definition of virtual currencies does beg a number of fundamental questions with respect to the future regulation of payments. These questions lead me straight into a renewed regulatory approach, to be used in the Third Payment Services Directive.

An improved definition
The major improvement of this Eurosystem-report over the previous one lies in its correction of the definition used for virtual currencies. In an earlier blog I commented that the definition was too vague:
“A virtual currency is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”.
With this report, the definition of virtual currencies has formally changed into:
"a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money."

I am quite pleased with this change as it allows for a better understanding and classification of the subject of virtual currencies. Interestingly, the elimination of the element of decentralized issuance leads to a far broader range of virtual currencies than previously discussed. And this leads to an interesting follow up question.

Virtual currencies are suddenly everywhere... 
The table below lists the major payment options in the Netherlands, with the virtual currencies listed at the far right. When looking at the turnover figures, one can understand why the Eurosystem will be primarily monitoring the virtual currency scene. The most interesting observation is however that all the blue coloured segments of the table are now also considered to be virtual currencies.

We can see that in particular the giftcard and transport payments (which are out of scope of the payment regulations for a number of reasons) do amount to quite a substantial payments volume. Literally these payments are now also considered to be payments with virtual currencies. And from an analytical perspective, this is a logical consequence.

Regular (e-) payments	OV-Chipcard	Mobile telephone	Retailer Giftcards	Bitcoin / alt-coins
16 million per day	5 million per day (includes loads)	Premium services	500.000 - 1.000.000 per day	Less than 1000 trx per day in NL
€ 903	€ 2 - € 20	€ 2- € 5	€ 12	€ .?
Payment Services Directive (PSD)	Exemption under PSD1	Explicit exemption of PSD1	Out of scope when issued as a single retailer	Out of scope of PSD

Effectively we can now better appreciate today's payments world, seen from the eyes of the consumer. Because the consumer is not bothered by the details of Payment Services Directives and obscure exemptions of mobile payments. The consumer will use the mobile or ticketing payment means as a matter of convenience (or: obligation) and will have to undergo the payment experience as a fact of life.

Particularly in the Netherlands this leads to the interesting situation where a sloppy and easily hackable implementation of NFC is being widely used for public transport payments, alongside a safer NFC implementation of banks that is still working on its nationwide roll-out. Users use them both.

Similarly interesting was the occurrence, last month, of a virtual currencies bank run. As retailer V&D threatened to go out of business, one could witness the sale of its pre-paid gift cards on Marketplace (the Dutch ebay) for considerable discounts. At the same time everyone in the Netherlands dug up and spent their old gift cards, before it was too late.

What the third Payment Services Directive will have to look like 
If we take the wider definition of virtual currencies that the ECB uses, it becomes clear that the user experiences with virtual currencies (and losses: for example the sudden vaporisation of retailer gift card value after a period of 18 months) happen alongside the heavily PSD-regulated instruments and mechanisms.

Based on some prudential rules we now burden some forms of payments with a whole lot of rules, while we neglect all schemes that are out of scope (but may still have relevant consumer effects). This difference is - in my view - too big and requires a changed approach to be used for the Third Payment Service Directive (PSD3).

Under the Third Payment Service Directive, we should recognise that payments can and will be made and offered by everyone to everyone. The PSD3 should thus define a light-weight conduct supervisory framework for all payment mechanisms, regardless of the institutional status of the issuer. Alongside this wide conduct framework, we keep the current prudential framework intact, which outlines the prudential rules applicable to the different institutional payment setups (e-money, payment institution, bank).

The new conduct based framework would apply to payment mechanisms and e-money alike and have as a goal that the user is always properly informed on the basic terms and conditions, redeemability etcetera. The control-mechanisms should not be supervision based, but could be reputation-based for example, allowing the market to monitor and redress, rather than costly supervisors. Only in exceptional circumstances would a European conduct supervisor step in.

In sum: more analysis ahead
The broader scope of the Eurosystems definition of virtual currencies begs a number of fundamental questions with respect to the future regulation of payments. In particular the area of non-regulated payment schemes at the fringes of the PSD might deserve more attention than they do receive right now.

Not only could the question be whether or not a separate regulatory conduct-framework should apply, the European Retail Payments Board might also decide to expend its analysis towards these mechanisms, particularly when they reach a volume/scale which is equivalent to that of the regular payments.

Reflection on almost 100 years of retail payments in the Netherlands

These next few days we will be processing the last Chipknip transactions in the Netherlands. This marks the end of a period of almost hundred years of consumer payments in the Netherlands. Here is a brief reflection on this period. My hope is that we retain our innovative mindset and that we abandon old school practices like: competition on technology and inward-thinking-based marketing practices.

The beginnings
It all started out with a certain demand of the public and small retailers, around 1900. It took however more than ten years before the city giro of Amsterdam (1916) and the national giro of the Netherlands (1918) were set up. In the period leading up to this moment, the cashiers were asked whether they wished to improve their services, as this might lead to the parliament to conclude that no national giro was necessary. Their response was too meagre as a result of which they created their biggest rival: the national giro system, operated by government.

This system effectively created a benchmark for the private industry by offering (some time after it's start) payment services for free to the public. Today we would call this the Internet model, but in those days, this lead to repeated discussions on the undue competition element. Bankers and cashiers assumed that the national giro was cross-subsidized by government; while effectively the reverse became true. The national giro acted as a cash cow that covered some of the other costs for the Ministry of Transport (including the costs of post offices etc).

The city giro Amsterdam has stood out mostly for its innovations: the use of modern bookkeeping machines, the introduction of photo-imaging (in the 1930s) to process payments easier as well as the early introduction of a payment card to the public. The national giro, in turn, was early to create a mechanism of inpayments that could be used by government services, that used similar (punch card) standards.

In this respect it should be noted that the national giro, during the previous century, was plagued by several operational distortions, leading to 'giro stops'. One big one occurred in the 1920s and shut the system down for almost a year, other ones happened after the second world war. These stops instilled a big trauma into the organisation with the effect that when in 1965 a change was made to using punch cards and mainframes, this was done with meticulous scientific precision in order not to fail. Ever since, the postal giro (later Postbank) would be very keen and strong in the area of operational logistics and control.

Competition on standards and technology
For the most part of the evolution of Dutch payments, there were differences in technology used. A first attempt to bridge these differences occurred after the second world war when a commission on the integration of giro traffic tried to bridge the bankers vs giro gap. This didn't work out.

In the mid 1960s the bankers were keen to find funding in the retail market and realised they needed a better clearing system to process faster payments. While they were in the process of deliberating this move, the postal giro offered them to join/use the same standards as they were, in order to achieve uniform processing. For strategic reasons, the banks decided not to do this and chose a slightly modified technology and numbering system of their own. Remember: this was of course the age of shielding off markets by technology.

The net effect for the consumers and companies was less positive however. In the end it took some 30 years to create bridging standards/protocols to integrate the different payment standards of bank and giro. And even when the digital, networking time started (in the 1980s) banks and giro found it hard to abandon the classic competition by technology paradigm. For the EFTPOS network they did use a common standard and this also seemed to work for the Chipknip e-money products. Yet, due to misunderstandings and distrust at the board room level, the Postbank decided to jump the Chipknip ship to start the separate Chipper product. Again, the effect was that consumers and retailers were burdened with dual standards in a market that is too small to do so.

Inward based marketing of the big banks
With the deregulation of financial markets and the privatisation of the Postbank, all providers of payments were commercial companies. The Dutch banks grew bigger and with that their bureaucracies. Postbank gradually lost its touch-and-feel as a former public entity and became a bank like all others. The best event that symbolises this is the abolition of the Postbank brand by ING.

The net effect of becoming bigger and more ambitious is that straightforward customer research and marketing gets stampified. This is a word that I coined to denote the fact that in those big banking bureaucracies the responsibilities of employees - with the only exception of the board - becomes limited to the size of a postal stamp. The result is that these companies (marketing) departments require more time for internal debate, offcie politics and consensus-finding which they can't spend at finding out how to best serve the customer.

The consequence of this stampification is that the banks lose touch with their customers and reality. Our last retail payment product, the Chipknip, showed this most clearly. The ridiculous local battle between two competing e-money schemes (although perfect from a competition perspective) created so much nuisance for retailers that this inspired them to get back at the banks. Infuriated by high terminal switching costs, they found the newly set up competition authority at their side to fight the banks cartel behaviour.

As such our retailers were quite successful: the banks were being fined and a part of the fine was channeled towards them (via a Covenant) to improve the EFTPOS situation in the Netherlands. This Covenant was even prolonged to ensure a continued collective rebate for retailers on EFTPOS fees. Effectively we could thus see the retailers as being the clear winners in the last 15 years of retail payments here in the Netherlands. [And as with today's MIF-debate we can wonder whether the benefits they derived from emptying the pockets of banks did really end up in the consumer pockets by lower prices.]

Back to inward-based-marketing: the best (and typical) example is the way the Chipknip product was initially taken off the market. Banks informed the customers that they all had to unload their Chipknips at specific loading/unloading points. This lead to a big confusion and questions on twitter. Eventually some individual banks decided to give the money back on the basis of the internal administration so that customers didn't need to bother going to an obscure loading point. And then, quickly, all banks decided to do this.

I sincerely hope that we will no longer witness these old school thinking marketing methods in the new year. Banks need to find a way to innovate and listen to clients and society or they will be trapped in old behaviour that is only comprehensible from a stampification point of view but not understandable for customers outside the bank.

Outlook
If history is anything to go by, we may well see a repetition of the SEPA-dynamics in the banking domain. What I mean with that is the following: as banks are busy lining up their internal systems in order to conform with a whole range of upcoming new EU regulation (keywords: PSD2, MIF, AML), the non-banks will be able to build all kinds of new products at the fringes of the payments market.

Most of these new products won't be made from a payments perspective but will solve a user problem. Creating a payment button in these products doesn't require much more than a direct customer relation and a European direct debit agreement. So we might well see the banks moving into a back-seat role of providers of the payment rails for non-bank providers of user services.

Where and how to look for innovation in payments ?

This week I had the pleasure of joining a panel on retail payments innovation as a part of a seminar by van Doorne and Innopay on the Payment Services Directive and the future changes for the payment industry. Panel chair Gijs Boudewijn challenged me to formulate some thoughts on the future direction of retail payments. I answered that the best place to look would be in places and via perspectives that we could be overlooking right now.

1. Is it access to the account or a traceable id that matters?
There is a lot of discussion on the text of the second Payment Services Directive and on the legal and technical mechanisms that are required to make access to the account work. Due to their origin, these discussions are quite bank centric and the implementation issues surrounding this topic will drain a lot of resources of many players involved.

While being busy with this PSD2 issue, we may overlook the fact that all one really needs is a simple chip-id. In the Netherlands for example, one could use the chip-id of public transport ticket issuer TLS as a basis for use in hip and new proprietary retailer/consumer applications. These would combine the chip-id with an intelligent voucher/billing/customer system that utilises SEPA-direct debits in the back-end. It would provide a smooth customer and retailer experience while the bank only sees regular transactions.

My proposition here is that if we're all looking towards access to the account as the hot spot for innovation, we may be looking in the wrong direction. It might be more about the traceable id.

2. The retailers have landed in an interesting position
In his tomorrows transactions blog Dave Birch referred to an analysis by Peter Jones from PSE on the impact of the interchange fee regulation, published in the Journal for Payments Strategy and Systems. The main conclusion of it was that financially the retailers are the winners by getting a cap on their fees. I agree with that and would be inclined to broaden this perspective.

By tradition banks were the players with the monopoly on payments technology and security knowledge. Even in the 1980s, the collective of retailers in the Netherlands had done a feasibility study to set up their own Point of Sale system. This showed they could set it up for € 5 million euro but they didn't want to take the risk of it failing. So they left it to the banks (to complain about high fees later).

Since that time, the knowledge on processing and payments has become available to a wide range of players, to the extend that banks are now lagging in expertise and capability (while being locked into old technology solutions). The consequence is that retailers will be well able to develop or use in-house apps, customer relation services and payment mechanisms that use the bank infrastructure, without being subject to the rules of the Payment Services Directive.

The main development is therefore that the obliged intermediary role of banks in providing payment mechanisms is gone and will erode. Retailers can regain their customer relationship by themselves or in cooperation with any other ICT-provider that allows them to identify the customer and provide a processing infrastructure. Some interesting innovations can therefore be expected at the outer boundaries of the PSD, as a consequence of the possible exemptions.

I expect both physical and e-retailers to use the non-bank, non-payment space that the PSD defines to achieve exactly what they're after: increased customer retention, increased conversion and a smooth payment experience. Bottom line: we might better be looking outside of the PSD to see innovation in action.

3. On ledgers and tokens
As a final thought I would encourage everyone to try a different mindset for the developments that we are witnessing. Because in essence, anything that happens (in payments/retail) boils down to either tokens (coins, notes, points) or ledgers (private or public). Now let's see what happens if we apply this framework.

We might then appreciate the bitcoin emergence as an innovation in the area of collective ledger provision with distributed trust. We could reposition Linked-In as a privately owned, open and self-administered ledger, that logs individuals achievements that are relevant in the work domain. The same would hold for Facebook and many other e-commerce companies. We would call banks the keepers of the trusted and well protected financial ledgers and would also note that in the public domain, a whole range of ledgers are being interconnected for the sake of security, anti-fraud measures etc.

We could also look at the world of tokens, in its many variations. Tokens of shopping behaviour (saving points), tokens of access (tickets), tokens from government (coins and banknotes), tokens of appreciations (awards, prizes) and tokens that prove identity or personal characteristics. Some of those tokens might be valuable and lead to a change of some of the ledgers, while others would have a role in their own right (voucher for a free coffee).

While it is clear that there are quite a few interesting new developments in the ledger-space, could it be that it is the token-domain where the true action is going to be ?

Payments as an afterthought
In sum: the non-bank, identity-based, non-regulated commercial domain might well be the area where we can see innovations that show us how today's technology can be made to work best so that payments become the afterthought that they are.

Lawsuit in the Netherlands on Bitcoin as 'money' or 'current money'

Since May this year, there is an interesting discussion here in the Netherlands on the legal status of Bitcoin as money.

First law suit on failed bitcoin delivery 
The discussion starts with a law suit of two people engaged in a bitcoin transaction. Party B failed to pay up the whole amount of bitcoins, although it had received all the money for it. Party A, after two weeks partially annulled the agreement (for the part of the bitcoins not delivered). However, this party later on decided to demand to be compensated for the financial loss that resulted due to the increase in price of bitcoins over the course of the year (after the moment of canceling the contract).

Party A based its reasoning on the fact that our law allows for something as 'current money' to be used in order to pay a sum of money. This terminology was explicitly chosen by our legislator (instead of the legal tender concept) to allow non-State forms of money to be condoned in our country in situations where it was commonly used and accepted by all the people.

Should this argument succeed and bitcoins be considered such 'current money' the consequence could have been that an additional compensation claim could be made under our civil law. The judge however outlined that Party A should be compensated for the price rise of Bitcoin between the moment of concluding the contract and of canceling it (some € 1700). No compensation was due however for the remainder of the time, as it was party A that had initiated the canceling of the contract.

In addition the judge outlined that Bitcoins cannot be considered current money that is condoned by the State. Our Ministry of Finance has outlined that it doesn't fit the definition of legal tender, nor that of electronic money and that it should be considered a means of exchange. The nature of bitcoin (tradeable) doesn't work as an argument as also silver and gold are tradeable but not considered to be current money.

New law suit on status of bitcoin as money
A number of players in the Dutch Bitcoin community have chosen to challenge the above verdict of the judge and has raised more than  € 15.000 to pay for expenses of a law suit. It challenges the first verdict in order to have the judge reconsider its position and outline that Bitcoin is money. As a consequence it feels that it must then also be treated as such by our administrative bodies, supervisors, tax authorities etc. This would mean that bitcoin operators could be payment institutions, supervised and exempt from VAT (which, as I understand, are the underlying goals).

While I am very sympathetic to the concept of challenging a status quo and laws, I fail to see how a verdict on civil contract law could spill over into:
- the definitions of payments, money and payment institutions under the Payment Services Directive (and Dutch law),
- the definitions of payments under the Sixth Tax Directive.

Having said that, it will surely be very interesting to see which approach will be taken by the law firm involved and see if they are able to convince the judge that at least in civil contracts bitcoins may act as money.


Last edit: October 1, to outline that it's not the whole Bitcoin community that seek to challenge the verdict.

The Euro Retail Payments Board: first meeting and outlook

On Friday, the 16^th of May, the Euro Retail Payments Board (ERPB) held its first meeting (with this agenda) in Frankfurt. The ERPB is the successor to the SEPA Council, which aimed at realising the SEPA-project. Whereas the SEPA Council was co-chaired by the ECB and the European Commission, the chair of the ERPB is Yves Mersch, Member of the Executive Board of the ECB.

First Meeting

The first meeting was dedicated to agree to the mandate, functioning and work plan of the ERPB. The ERPB Members decided to set up a working groups on post-migration issues relating to the SEPA credit transfer and SEPA direct debit schemes as well as one working group on pan-European electronicmandate solutions for SEPA direct debits. In addition the ERPB acknowledged and asked the Cards Stakeholder Group (CSG) to carry out a stock-taking exercise and devise a work plan with respect to card standardization.

The ERPB further discussed the expansion of the SEPA Direct Debit scheme (SDD) with a non-refundable (one-off) direct debit. It was agreed that the EU legislators would be asked to clarify legal refund-conditions when evaluating the Payment Services Directive and that a possible scheme would be launched only after this review was complete.

In order to further investigate the future use of pan-European electronic mandatesfor SDD, the ERPB set up a separate working group. Finally, the EPC presented the latest update on the migration to SEPA. Whereas the migration to credit-transfers was very close to completion, there remained work done for direct debits. The ERPB called upon all stakeholders in the euro area to complete their migration to SEPA payment instruments as early as possible and before the deadline. 

Outlook for the ERPB

The launch of the European Retail Payments Board marks a new starting point for discussing the future of European payments with all stakeholders involved. The inclusion of payment institutions and e-money industry can add considerable value given their different approach and background. These providers live and breathe Internet-based technology, seek EU-standardisation and do not have similar legacy-systems as the banks. I expect this to lead to fruitful debates and exchange of insights.

Some observers may cite the lack of legislative powers as a disadvantage of the ERPB. Others may wonder if it is possible to achieve results in a body that only meets twice a year. I would submit however that in ten year’s time, the sceptics will look back in surprise to see how the ERPB has positively shaped the outcome of the European debate on retail payments. The Dutch experience with similar standing committees (see this separate blog) demonstrates that there is a lot of unlocked potential that lies in the trust and bonds that will be formed and shaped by this collective effort. 

FCA kicks the Securepay-can down the road...

In March 2014, the FCA, the prudential supervisor for UK based payment institutions and e-money providers, outlined that it would not be strictly assessing the compliance with the Securepay Recommendations on the security of Internet Payments. This announcement was quite interesting as in February 2014, the Forum also published an assessment guide that assists payment service providers with the implementation of these Recommendations by February 2015.

FCA Statement:
We have decided to await the publication of guidance from the European Banking Authority on measures for the security of internet payments and will begin to assess firms’ implementation of these security measures when the updated Payment Services Directive requirements take effect.

The updated Payment Service Directive will enter into effect at the earliest by mid 2016. It will assign the European Banking Authority with the task of further developing guidance for the security of retail payments. The FCA has chosen to wait for this guidance rather than pre-empt it.

Kicking the security-can down the road
It is interesting to note that the FCA seeks a pragmatic middle ground. It carefully states that it finds security an important issue while at the same time outlining that it will wait for a solid legal basis to assess the security of retail payments. In doing so it effectively kicks the tricky security can down the road.

I can well understand the FCA desire to kick this can. The Securepay recommendations on security lead to quite some questions in their practical application for different technologies (see the blog here). On top of that, the detailed prescriptions on the basis of the new Payment Services Directive may lead to further rules that limit the choices that market entities can make to achieve a certain level of security.

Rather than confuse the market with layering requirements which quickly follow each other, the FCA apparently chose to wait and see, hoping that the final rules on security for retail payments may become more balanced.

It will be interesting to see if other supervisors follow suit.

Bitcoin legal classification in Germany: much ado about ... ?

These days I noticed an interesting discussion in my Twitter time line and on the web on the fact that the German government has 'recognized' Bitcoins (even as legal tender, as cnbc reported for some time). There were many reports on the matter, outlining that Bitcoin is apparently gaining further acceptance among regulators. But as the reports were a bit confusing I felt it would be good to track the sources.

German MP Schäfflers enquired about tax-treatment for Bitcoins
It turns out that a German MP, Frank Schäfflers, has been asking his Ministry of Finance how the taxation rules applies in situations where people use Bitcoin as an instrument of trade/payment. And later on he asked a follow up question whether or not the use of Bitcoins as a payment mechanism would be exempt from VAT (as is the case with German legal tender). Here is the link to the source documents.

The German Ministry of Finance outlined in its response that:
- commercial transactions where bitcoins are being used for payment, have the tax regime on the basis of the transactions' commercial nature; so the use of bitcoins doesn't disturb the regular taxation rules,
- goverment agencies are still discussing how to tax the value increase of bitcoin holdings over a year,
- bitcoins are not legal tender, nor e-money, but a form of private currency which classify as 'Devisen oder Rechnungseinheiten': under the German supervision law (article 11, sub 7).

The Rechnungseinheiten can be translated as unit of accounts, but the explanation of the German Ministry of Finance is that this definition covers - amongst others- all private currencies or units of accounts which are not based on legal tender. Essentially is a catch-all definition to capture any sort of privately agreed payment mechanism that can be used in multilateral clearing or settlement.

The regulatory logic: classification rather than recognition
While to the observer it may appear that the German regulator is leapfrogging into the modern world by outlining the status of bitcoin, the reality may be less exciting. The German Ministry of Finance merely outlined how, given the existing rules on taxation and payments, bitcoins qualify under their supervision law. This is rather a technical exercise and it can be seen that only for income tax issue (what to do with bitcoin holdings that change in value), they haven't yet got an answer.

So yes, the bitcoin has a legal status, but then again: any new development, instrument or technology already is subject to the law book. The fact that the Ministry has now pinpointed the article of the law book where they think the object fits, may therefore not be so spectacular.

If we look at the Netherlands, a similar situation appears. Anyone is free to determine whether to exchange services by paying for them or by using other forms of payment. . I could buy a bread in exchange for washing a car. And if the bakery would accept bitcoin rather than washing their car, it would work as well. The use of bitcoin can be considered payment in kind. Given this regulatory payment mode, our legal system is already recognising alternative forms of payments.

The same holds for the taxation part. The VAT rules on services do not change if the payment leg of my transaction is different. And the income tax rules don not change either. The Dutch rules state that if you hold something which has value, it must be registered on the tax declaration. In this declaration, the bitcoins in a wallet thus show up as the money in my bank account does.

As for the legal tender part of the discussion: I view that as an overrated concept. While in earlier times, the concept of legal tender meant that the other entity in a transaction had to accept the notes and coins, this obligation has been struck out of our Dutch law book many years ago. But it still lingers in the mind of many people and may of course in some other countries still be more relevant.

Future developments
What I find most interesting about the news is the quick and fast coverage that new forms of payments and regulation get in the media and with the public. We can see that the developments are positioned as the story of the recognition of bitcoin by the regulator or as the coming of age for bitcoin. Regardless of the angle of these reports, it is clear that things are happening and moving in the area of private, digital, distributed currencies. And it will be interesting to see this area develop further.

The proposed EU-directive on Bank Accounts: wrong tool

Today, the European Commission will announce a proposal for a Directive on Bank Accounts that covers the following areas:

- comparability of bank account fees: the aim is to make it easier for consumers to compare the fees charged for bank accounts by banks and other payment service providers in the EU;

- bank account switching: the purpose is to establish a simple and quick procedure for consumers who wish to change from their current bank account to a different one, with the same or a different bank or other financial institution;

- universal access to bank accounts: the aim is to allow all EU consumers, irrespective of their country of residence or financial situation, to open a payment account, which allows them to perform essential operations.

 

With the proposal the Commission continues its standard policy towards the financial sector: ride the road of regulation as long as the sector is still unpopular with the public. It has done so with regulation 2560 (on fees) which had to motivate banks to speed up intercountry payment processing in Europe and it has in a similar vein used the regulatory process for the Payment Services Directive. Repeatedly we see the banking sector respond with initiatives to improve operations and just as repeatedly we see the European Commission and Parliament find that this was not sufficient and move forward with regulation.

 

At face value, the goals of the Commission with this Directive seem laudable. But what would interest me most is the degree with which the Commission has done its regulatory homework. Quite some time ago, there were EU-initiaves and rules on 'better regulation', which meant that a solid cost-benefit analysis would be required by the Commission before proceeding with further regulation. In the process of discussing switching cost, the Commission did not follow these rules however (see blog).

I remember that at the time I was amazed by the ease with which the Commission bypassed the work done by an EU expert group on user mobility in bank accounts (of which I was a member). The consequence was that, without having proper data as to the degree of problems experienced, the nature of the problems in different countries, the discussion remained a yes/no discussion. So I was quite interested to see if in the mean time there is more hard evidence on the table to determine the nature of the problem that needs to be solved (and to see if it is a European or a national problem).

A quick look at the impact assessment tells me that not much has changed. It is essentially a fast forward reasoning towards the norm that unless everyone in Europe switches bank accounts quite a lot, the market is evidently failing and thus regulation is necessary. Furthermore there is a blind eye as to the different types of service providers: the document assumes all players to be banks with a full service package. In terms of analysis, it is skewed as it misses one alternative explanation for low bank switching rates. That explanation could be that, from a consumer budget point of view, it is more economical and rational to use the scarce time to chip off a small percentage of other purchases (mortgage or lending percentages, tablet-purchases or mobile phone subscriptions) than to spend a lot of time comparing and switching banks and earning very little revenue in the process (see also the presentation here that discusses which assumptions lead to which regulatory preference).

Seeing the current state of discussions (a directive proposal) it seems hard to imagine that the plan would be withdrawn or modified seriously. Still, it would be useful if the Commission had done their homework a bit better and at least had chosen a proper regulatory tool. If indeed the provision of bank accounts accross the EU is a concern, why not choose Universal Services Obligation as the regulatory mechanisms, that is most suited?

We used this mechanism before in Europe, to designate the amount of public telephone's that had to be available to the public. And setting it up for banking isn't hard to do (read this Tilburg University Report) but it does require one thing: a better cost/benefit analysis:
Furthermore, designating all banks to take care of the product dimension of a Universal Services Obligation (e.g., consisting of only a basic bank account service) may be the most effective way of implementing it, provided that the USO has a minimal scope. However, with regard to the geographical dimension of a USO, designating all banks leads to unnecessary cost duplication, so that it is worthwhile to consider other options, such as self-regulation and a franchising mechanism in combination with an auction. In addition, technological developments in a sector are very relevant when assessing the need or desirability of universal service obligations. By interfering in these processes without having made it clear in advance that there is a problem, such developments may be distorted; hence the importance of carrying out a cost-benefit analysis as a starting point.

I think the citizens of Europe are best off with goverments that only regulate when the facts are evident and the tools of regulation are properly geared to the problem at hand. At this point in time, with this Bank Account Directive, I believe we are heading for another emotion-based, cost-increasing all-in Eu-wide regulation, which underlying problems (if any) could have been solved much cheaper and easier by using other more appropriate regulatory tools.


PS. The post is updated at 1823 to include some of the impact assessment data.
 

Digital Money Forum 2012... 15th anniversary and lively as ever

The Digital Money Forum is an event that this year reached it's 15th anniversary. And a special event it is. My previous visit to the Forum was probably some ten years ago, when everyone was pretty much into the e-money way of life. But technology, money and society continue to develop and that's where Dave Birch and his team of Consult Hyperion come in. In setting up the forum they provide for a lively and thought-provoking event where money is dealth with from all different angles. And as before, it was a pleasure to participate.

So this years event was special in many ways. We all got a better look at the evolving phone payment landscape, delved into possible future scenario's for the world and money, we spoke about the future and death of cash, about social inclusion and lots, lots more. And, quite fascinating, I got to issue my own currency, PunkMoney, via Twitter, by promising the developer, Eli Gothill, two beers and a financial history tour in Amsterdam.

A bit more on the principles of Punkmoney (as I understand them). If we look at money it is an invention to facilitate transactions in society. But before the official money we had mutual obligations and trust relations in society. I would help my neighbours out with building their house, assuming they would do the same for me, in time. And so on. So there was this web of mutual obligations and promises that cemented the relations in society.

Now what Punkmoney does is to leave all the monetary issues and digital money aside and elegantly replicate this web of promises. With some rules as how to form proper messages, Twitter as the carrier and a software enige that scans twitter for any promises of Punkmoney. And when it finds one, it registers it and there you have it. Not the real money, but something even better: real promises. Just as trustworthy as... yourself.

After Punkmoney, we moved on to another kind of money. Monopoly money, sitting on a Samsung phone (with an application neatly developed by Easan).

Six teams on six tables started playing and as for me personally, I was literally quite lucky. I landed on 3 airports in the beginning of the game, won some lotteries and eventually turned into a big shot property owner. I turned out to be the winner of the competition, with an awesome price: this incredibly beautiful banknote (an official German forgery of a UK 20 pound note; part of the Bernhard operation):

Some more on that will follow on my financial history blog later.

Latest oversight framework of the ECB: the institutional drift continues and the blind spot for outside-payments increases

Today, the ECB published updated standards for oversight of payment and settlement systems. And once more I found it quite interesting to observe this big institution increase its span of control and policy-reach in a process which is called institutional drift. Which is a scientific term for: just grab something that is within reach of what you're doing and see if anyone can stop you. If not, you just expanded succesfully your territory. Which is the fuel and drive for any organisation or institution of course.

The distinctive example of institutional drift, worthy of further scientific exploration (if ever a political scientist would wish to do so), regards the vague term: 'oversight' on payment systems. And in this blog I am giving some clues as to a possible lines of reasoning and research.

1. In general it is of course a good thing that central banks, in their role as an important local government institution keep an eye on the developments in the payments and securities sector in their country. Some central banks at some point in time called this: 'oversight'.

2. And should anyone wonder if this is the same as supervision: it is not. Supervision is formally described and delegated in general laws and supervision law. Oversight on the other hand is a self-invented word of central banks. Yet there are always some generic words in the central bank law that vaguely refer to the job of central banks to promote smooth payment systems.

3. This promotion of smooth payment is of course relevant given the role of a central bank as the settlement bank for active banks in its country. But in time, central banks have started using the terminology and words in bank law to increase their action radius. So they started becoming involved with national retail payments, not being a real supervisor, but sort of acting as such and using complicated terminology as oversight to disguise (in some countries) the lack of a strong legal basis. So we have a mixed bag of central banks in the EU, all claiming to also do oversight, with some of them having a real legal basis, and others not having it really.

4. Enter the European central bank, more than ten years ago. In a quest for a bigger role in the universe, they found the oversight function to be of relevance and started drawing in this territory. Which brought them in conflict with some local central banks that said: 'Hey, ECB, hands off our local retail payment systems and oversight, that is a local matter, not a European matter'. But then again, over time such a stance can't be uphold, due to the centralizing powers of any power centre. So the ECB's role in retail payments oversight got bigger and bigger.

5. So over time we could witness the Dutch local central bank publish and use 'oversight'-standards. The ECB got involved in cards-standards. Which was a strange move, upon which the Dutch Bankers Association also commented:
1 The Articles 105(2) of the Treaty and Articles 3 and 22 of the Statute of the European System of Central Banks and of the European Central Bank (ECB) at best provide a legal basis to publish or enact regulations with respect to gross-settlement systems that are directly relevant for the functioning of the money market. We note that the scope of the proposed oversight framework for CPS extends beyond this domain. While we recognize that analytically the proposed framework (or any other payments oversight regulation and measures of the ESCB) may perhaps be considered ‘in line’ with the statutory tasks of the ESCB, we are of the opinion that such an extension lacks the required legal basis. Additionally we note that it is only remotely related to the primary tasks of maintaining price stability.

6. Still, this verbal slap on the hand by the NVB made no impression whatsoever, and so we can witness the European central bank pursuing the quest for retail payment oversight. There is a catch however. The ECB conforms to the definition of payment instruments in the Payment Systems Directive and thus leaves a whole range of thirdparty instruments as OV-chipcards or e-money on mobile phones out of their scope. So here is an interesting blind spot.

7. If we take the spirit of the ECB document as a guidance, aren't mobile phone money and pre-paid cards (and possibly all other new kinds of payment mechanisms) effectively the instruments that most require some form of oversight? And aren't those the systems (rather than the ones of banks) that have the best record in making the money of consumers effectively disappear? Contactless card may be more prone top operational errors (the Dutch system is) and money on mobile phone is notoriously gone due to unrequested reverse billing via sms and what have you.

8. So what I find intriguing is the mixed message the ECB is thus sending. On the one hand they wish to increase their hand/policy area to fit all the world of payments into their remit. So with an not-legally based word as oversight they conquer the retail payments world. Yet, they carefully seek to steer clear from instruments that may be too complicated or are too tough to handle.

9. Which leads me to my final questions. Who asked for this? Who is paying this? And is anyone in Europe holding the ECB responsible for what they are doing in the area of retail payment oversight? Are they being evaluated by some other organisation than just themselves? And is this what the European citizens or European Parliament wish the ECB to do (rather than leave this to local central banks)?

History (of e-money) repeats itself... central bank alert on crowd-funding.... and (still) missing the real issues in the market..

One of the major challenges for central banks and supervisors is to appreciate new technologies and to decide their policy stance on the subject matter. Currently we are witnessing a case of 'history repeats itself' here in the Netherlands, as the central bank, DNB, has informed the public that it will look out for instances of crowd-sourcing. They mean the situation that a group of people pre-pays the production of a book (tenpages.com), film or anything else. And suggest that this is the equiuvalent of attracting deposits (a bank activity), which therefore warrants a closer look by the supervisor.

I dare to disagree and would suggest DNB to reflect on their policy stance and take a closer look in the mirror and in their own recent history (of electronic money). When the first instances of e-money occured (on chipcards: Mondex and in software: e-cash), central banks were keen to quickly state that this was needed to be subject to bank supervision. This resulted in a clash between supervisors and European Commission (that wanted to stimulate competition and that viewed the vision of supervisors as protective). With the Electronic Money directive as the result, that outlined that issuers of e-money (regardless of technology) needed to be subject to supervision.

Since then, we have seen a number of initiatives with respect to e-money, varying from Paypal (now a bank) to Wally, global payways and what have you. Here in the Netherlands (just as in the UK) a separate organisation was set up to represent those issuers of e-money: http://www.11a2.nl. And whoever takes the time to read through their website will find out that the central bank itself was inconsistent in their supervisory approach. In principle, anyone issuing electronic money, was to be subject to bank supervision. So that would also apply to the digital funds, used for mobile phones and digital mobile services. Yet, in response to the lobby of mobile operators, DNB (and later even the European Commission) created an unequality in the market by saying... e-money should be supervised, unless it's e-money for mobile operators. And some more years down the road, they also used tiny holes in the E-money directive to not supervise the Dutch public transport company Translink, with all the requirements of the e-money directive.

Let's review the developments and arguments once again. The main issue here is: who's paying for what? Is the transaction that I am doing a prepayment for a specific good, or is it the purchase of a digital amount of money (or coins, or beenz or what have you) with which I can purchase a wider variety of goods, even goods from someone else than the person to whom I made the prepayment. In the case of crowd-sourcing on tenpages.com, it is clear that the customer does not prepay for any book, but for a specific book. So to call this deposit taking would be silly and no banking laws should apply. Yet, the central bank/supervisor seriously wants to delve into this issue, by going for crowd-sourcing.

Now let's take a look at the situation that I purchase a digital fund: to use on the mobile phone or in public transport. It looks to me that this is so close to money, that you would want the supervisor to take a good look at it. And since 2000, there have been numerous incidents in the Netherlands with a whole range of providers and users of these digital tokens. Over and again, the mobile operators have developed codes of conduct, rules, call centre's and what have you, to make sure that the unasked  provision of paid sms's (reverse billing) would not lead to phone users who suddenly see their phone-money disappear. While the level of annoyance has changed over time, the essential bottom line is that if treated as regular payment mechanisms under the current European Payment Legislation (Payment Services Directive) these services could not exist in this form any more. And a similar thing holds true for the transport company translink. They made a technical system in which the security is insufficiently guaranteed and money is deducted too easily from consumer accounts and cards. So there is actually a real case for concern by the central bank/supervisor. Yet, the supervisor sticks to the old adagium that these do not fall within the definitions and are thus not subject to supervision.

If we further evaluate the role of De Nederlandsche Bank, as a supervisor, we can see they failed big time over the last years, as they didn't succeed in properly monitoring DSB Bank, De Hoop and Icesave (all banks failed). For that reason, parliament has been digging into the topic and the Ministry of Finance and DNB have promised it will organise a change in culture, a change in approach. At the core of this change, we should expect a more self-critical approach in which policy stances are not developed in line with the managerial group-think or in response to lobbying by important stakeholders in the market, but as a result of an assessment of what is at stake essentially; trust in payment systems and any entity providing payments or banking services to the public.

While DNB tries to convince the public over and again that times have now changed and they have reinvented themselves with a new organisational culture, their unchanged policy stance on e-money issuers demonstrates that this is far from true. And although none of the exempted e-money issuers have caused a failure, big enough to worry parliament and society, one might view the current troubles at the OV-chipkaart company, as another demonstration of the failure of the current (failing) supervisory approach by DNB. It is stunning to see that DNB seeks to further investigate legally irrelevant crumbs of crowd-sourcing while missing the leaking boat of OV-Chipkaart/Translink company that is in everyones face nowadays and while ignoring the undermining spinoff that is created by phone companies that handle money (and customer complaints) with a different quality level than justified.

So this leaves us with a public opinion, parliament and Ministry of Finance believing things are now proceeding nicely and on track with DNB as a re-invented, more focused and less obedient supervisor, with the evidence of the opposite being ignored. It is interesting to see when this will further evolve. My guess is that eventually we will see a white washing scam where an actual terrorist attack appears to have been funded by money which has been transferred by mobile phone services (using anonymous top-up cards in country A to demand empty 'premium services' from country B). Yet, by that time, there will be no one around who is politically relevant today, so that means our future politicians can then blame the former politicians, ministries of finance, and supervisors.

And the world keeps on spinning.