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.

Mount Gox tumbles off the learning-curve

This week, Mount Gox, a very large provider of bitcoin services, couldn't live up any more to its services agreements with bitcoin users. It provided exchange and storage services for bitcoins, but due to a technical implementation flaw, the bitcoin holdings of users were compromised. Essentially it wasn't clear who really owned the bitcoins. The website went black and users can no longer claim their bitcoins.

Tumbling off the learning curve
I view the failure of Mt Gox as a logical consequence of the learning curve that bitcoin holders and bitcoin companies face. The bitcoin, although considered decentralized, is just as centralised a system as any other value transfer mechanism. However, for ideological reasons, the developers chose to only describe the technical heart of the system (the algorithm) leaving the rest up to the market.

This open source code approach has some advantages, among which a very speedy development of applications. Yet, we are for some time now witnessing what it means if systems lack a central authority or scheme manager. There is no entity taking responsibility and chasing users or companies because they don't abide by:
- usage conditions (demanding user identification),
- security requirements and certification of tools,
- specific legal frameworks.

As a result we have seen a whole community of interested companies and users climbing up the payments, banking, investments and monetary learning curve. The inevitable consequence is that those who do not get it right, will pay a price, while the others continue to learn. Due to the digital nature of bitcoin, these developments unfold rapidly, allowing us a compressed overview of lessons from financial history.

Frijda's theory of money (1914)
The essential lesson at stake is that the usage of any value transfer mechanism does not just rest on its acceptance by users, but just as well on the rules and regulations that underly the value transfer. In 1914, the Dutch lawyer Frijda analysed this topic in his dissertation on the theory of money. At that time discussions emerged on the nature of banknotes. Did they have value because they were exchangeable for bullion, because they were defined as legal tender or because the public used and accepted it?

Frijda pointed out that the underlying legal framework that safeguards property in a society constitute a necessary precondition for the use of payment instruments. Without such safeguards, people will tend to stick to other stores of value rather than attaching value to local bank notes. Until today this effect is clearly visible: consumers tend to hold and use foreign cash or commodities if they live in country with a lot of curruption, a weak system of justice and an instable monetary climate.

Trust is built by institutions and markets
What makes money tick is a solid institutional basis, upon which trust can be further developed. The latter part can be done by a combination of regulation (supervision) and self-regulation (market action). Which brings us back to the Mt Gox case.

Following the events of this week, a statement was released by the bitcoin companies Coinbase, Kraken, BitStamp, Circle, and BTC China. The industry leaders committ to safeguarding the assets of customers, to applying strong security measures, to using independent auditors to ensure integrity of their systems and to have adequate balance sheets and reserves to be able to ensure continuity.

In sum we can now see both a gradual development of both the institutional framework for virtual currencies and the market-driven self-regulation. This reflects the fact that - whether you like it or not - trust for financial services is always built on institutions, regulations and self-regulation.

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.
 

Six Pack becomes fivepack: T-mobile leaves NFC-consortium of Dutch banks and telcos

Tweakers net today reports that T-mobile is leaving the consortium of banks and telco's in the Netherlands. The sixpack consortium is also delayed in its plans (from mid 2012 to beginning of 2013) given the considerable market share that both the banks and telco's have. So they will go to Brussels to aks for exemption of competition rules.

van Hove's take on the Commission flawed interchange decision

Amidst all the political noise on the interchange decision of the Commission it is good to also see that some academics still see the whole picture and have the courage to challenge politicians where it hurts. See this article by Leo van Hove and more particularly his closing remark:

So if regulating one payment instrument can have unintended repercussions on substitutes, and a prohibition of interchange fees would be a leap in the dark, what are enlightened policy makers to do? They could simply try to ensure that market forces work, and in particular that merchants cannot be locked in by card networks. To that end, retailers should be allowed to "surcharge" and pass on interchange fees to consumers. Promoting competition among card networks as well as among various payment instruments should also be high on regulators' lists. More generally, we need policy makers who have a comprehensive vision of the future of our payment system -- and who have the political courage to make cash more expensive in order to lower its cost to society.

Commission prohibits MasterCard's intra-EEA Multilateral Interchange Fees

See the press release here to read a landmark decision of the Commission. It's main argument:
The Commission concluded that MasterCard's MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies.

Well, the discussion cannot be solved and Mastercard will not be able to prove it is right. But neither can the Commission. As I pointed out in an earlier post (ultimate paper on interchange fee by Brookings Insitution). So this is a power game, a legal game and a communication game at the same time.

We should note that at present the multi-lateral fall back MIF allows lots of smaller banks and participants to the Mastercard scheme. Those players would otherwise have to negotiate individually with all issuing banks. And that would be so costly that they wouldn't join the system at all. And I fail to see why the Commission isn't able to calculate those costs of negotation (and view the efficiency benefits of having a fallback MIF). Do they now really expect all members of Mastercard to use the next 6 months to agree bilaterally on new fees...?

Barclays withdraws Offer for ABN AMRO

Well, another story begins to end. See the ABN AMRO Press Release that outlines that Barclays withdraws Offer for ABN AMRO.

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.....

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.....

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.....

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.....

Brussels agrees on roaming regulation and closes competition investigations ....

Sometimes, the news comes in bits of pieces and only makes sense if you put the two together on a later date. Take for example the EU regulation to establish more modest roaming fees for mobile operators. At last the mobile industry stopped battling the initiative, understanding that it wouldn't make sense, given their pricing practices in the consumer domain.

And then a couple of weeks later, the Commission suddenly announces that it drops the competition investigation for mobile operators. Quite unusual as the FT notes:
The decision to draw a line under the high-profile cases is unusual because EU competition regulators rarely stop such inquiries without either securing a settlement or imposing a fine.

So where was the deal/settlement...?

My guess is that one and one makes two. The agreement between Commission and mobile operators clearly was that if they stopped resisting the roaming regulation, the Commission would stop the competition investigation in roaming.

Now, let's compare that deal to the situation in the banking sector. Already for 5 years there is the regulation that bank chargs should be equal (whether paying inside or to another euro-country). Which is effectively worse than the current roaming regulation (that allows for some higher prices in cross-border phoning). And at the same time there are still all kinds of threats and rulings to be expected with respect to interchange fees (the bank's equivalent of roaming agreements). With no one ever considering to drop those actions...

So why would it be that the Commisison continues to the debate on interchange rulings and interbank practices while completely dropping the roaming investigation?

My guess is that the Commission and EU Member States' governments, rationally distinguish between industries that are making them money and those that aren't. Any government would of course be more likely to be friendly to an industry that makes/has made you a lot of income (by buying some air/frequencies to do phoning) as opposed to an industry that is constantly ripping you of income (by killing cash seigniorage which is a nice source of government revenue).

Perhaps just another one of those cases of Schizophrenia?

DNB helps ABN AMRO by withdrawing supervisory action

See the newssite nu.nl to find out that DNB has withdrawn its supervisory measures with respect to ABN AMRO (see also the previous post and explanation here). In doing so they release ABN AMRO of a grip that would have otherwise also been a burden to the new buyer(s) of ABN AMRO.

This new buyer could well be the RBS-consortium. Rumour in the Dutch press has it that even ABN AMRO itself is now slowly distancing itself from Barclays (who announced this week that they would draw in some Chinese banks to increase their bid). But then again, Mr Groenink also suggested that the RBS bid would have been based on incorrect and old data of the wholesale market for ABN AMRO. To which the consortium replied by explaining that it was ABN AMRO who had given that data in the first place....

Meanwhile pension funds massively regain ownership of their Fortis shares that hey leased out to equity funds. This is all in order to prevent them to bid/choose wrongly during the shareholders meeting of Fortis. So the thing that might happen is that those funds would block a sale to the consortium by blocking the Fortis shareholder vote.

Well, that's the workings of a free market in all its beauty..... ;-)

Paypal Netherlands has 1 million customers

This article in BN/DeStem reveals that Paypal has 1 million Dutch customers. The article compares the features of the bank-based iDEAL payments system and Paypal. Essentially the main difference is that Paypal has international payment/acceptance features (with customers/merchants being able to both received and pay) while iDEAL serves mainly domestic Dutch transactions allowing customers to pay merchants but not to pay each other. Furthermore Paypal is fully webbased, with a lot of software controls to secure payments, whereas most banks secure the iDEAL payment with a bit of hardware or a separate sms-verification effort.

If the personell ads were something to go by the Paypal efforts should not be underestimated. They will be building a base here and will remain to have their international and peer-to-peer advantage, even if iDEAL would become a European standard. So there appears to be quite a sustainable advantage for them.

Supreme Court allows LaSalle sale: RBS consortium renews bid and another court case for ABN AMRO underway

Friady the 13th turned out to bring bad luck for shareholders association VEB (making it a lucky day for ABN AMRO). The Dutch Supreme Court overturned a previous decision of the Enterprise Court (that blocked the LaSalle sale). And BNR reports that the RBS consortium is now considering to renew their bid for ABN AMRO (not counting in LaSalle).

Meanwhile the labour unions and the Personell Board of ABN AMRO ask Barclays the same committment as was given by the RBS Consortium: no forced resignations/labour cuts. But while the RBS Consortium dares give this assurance, Barclays only wishes to quickly specify its plans (refusing to give a job guarantee).

Add to this that the the Barclays payment for ABN AMRO shares will be done largely in their own shares, as opposed to the cash offer by the RBS consortum, and the picture becomes quite clear. The RBS Consortium know what they're doing and see added value to their businesses. As such they are willing to bet serious money on it and lend money in the market for this pro-active bid. Barclays is not willing to bet externally funded money on it and will mostly try to recoup its money by cost/labour savings of the new combination.

The bidding game is not to end quickly by the way; new court cases and filings are underway where shareholders, personell board ABN AMRO and labour unions will join hands to petition an investigation into the policies of ABN AMRO management and board of supervisors. So the whole bet is going to last beyond a long hot summer.

Rabobank wishes to increase market share in cities

See the webarticle here. Rabobank (historically being strong in the rural areas) has announced that it wishes to increase its market share from 15 to 20 % in the cities. To this end it will open new outlets and further expand its terminal/atm network in cities, pop-centres, train stations etcetera.

Barclays offer delayed while Fortis personell board agrees

See the ABN AMRO Press Room for an update that outlines that Barclays will be filing the required reports a bit later. This is due to the regulatory processing at AFM. But it comes in handy as it now delays the final moment to offer documentation to after the verdict of the Supreme Court.

Meanwhile the Fortis Personell Board has given a positive advice as to the further next steps in the bidding of Fortis.

And those who go down the Dutch streets will see bill boards and ads all over the place. A part of it is from Rabobank, and says: We remain the same as always. And another part is by ABN AMRO and states that whilequite some things will change, their service will remain the same.