ING Banking a bit wobbly lately

This sunday I wanted to order a cd and sheet music by Jules de Corte. Whereas usually this is just a matter of seconds, using iDeal, I now had to circumvent it to do electronic credit transfers via e-banking. It was clear that the ING database had some glitches, but after a couple of tries I succeeded in transferring the money.

While I could just repeat the exercise, others couldn't. The glitch turned into a major failure of ING-e-banking in the last couple of days. Today however, everything seems to be up and running again. And ING will once more regret using Oracle as the back-end database of an online payment system.

The euro-note now ten years in circulation...

This new year brings us a bit of a memory: ten years ago we started using the euro bank notes. For many people in the Netherlands, this was a step back in terms of quality and design. And we also notices how prices were quickly moving up. At first all economists and the central bank heavily denied this, but later research (in 2005) showed that in the first year of the euro, inflation was 3,6%, of which 0,5% due to the introduction of the euro.

In their efforts to deny the experience of the public, economists coined the term: 'experienced-inflation' ('gevoelsinflatie') to outline a situation in which the perception of price rises differed from reality. This helped the economists at the ECB discover that price rises in regularly purchased items could lead to a consumer perception of inflation that was higher than their scientifically produced price-index basket. Again a demonstration of the fact that economic models need to incoporate bounded rationality rather than assume a rational consumer.

As for the future of the euro: many experts now predict its demise in 2012 and paint a gloomy picture. When listening to those 'experts' I have the impression that it's increasingly fashionable to doubt the future of the euro. And although the politicians last year didn't do their best to help out, I do think that the future may be less bleak. With the ECB lowering cash reserve ratio, widening it's collateral policy and throwing in almost unlimited amounts of liquidity the bazooka is already out there, but some fail to recognize it as such.

So I think those ugly euro-notes will remain in circulation for quite some time to come.

Costs of fraud by phishing at banks doubles in 2011

The Dutch Bankers Association today starts a campaign to increase awareness of consumers that they shouldn't fall for the numerous phishing mails that flood their inbox. The reason is the fraudnumbers in banking. After the first half year of 2011, the fraud by onlinebanking had already succeeded that fraud over 2010 (9 million euro). And similarly, the number of phishing incidents in this first half year amounted to 2418 while over the whole year 2010 this number was 1383.

The NVB has also renewed the website VeiligBankieren.NL; a website that I personally helped come into existence in 2005, as it was clear that awareness on the risks of e-banking required timely communication. This still is the case and thus the campaign/trailer below was developed. It will air extensively the coming days. The commercial shows the physical equivalent of phishing and warns consumers not to open fake-mail from their bank.

Dutch Ov-Chipcard gets instructions from parliament

This week was the last week of this seasons parliament sessions in the Netherlands. And our parliament has a tendency, of late, to increasingly focus on details and incidents, rather than strategy and policy. Thus, responding to consumer dissatisfaction, the Dutch MPs approved a decree in which TransLinkSystem, the builder of the public transport chipcard, is ordered to simplify the check-in, check-out system.

Upon check-in the system deducts a big amount (sort of bail) from the pre-paid purse and only if check-out functions properly, the system returns the money (and deducts the fare price). This doesn't work properly so if somehow the machines don't work properly you quickly run out of cash and are forced into the hassle of phoning/contacting customer service to get your money back. There is even a separate fund that Translink owns, in which money resides which should have been claimed back due to these operaitonal errors. It's the money of customers who are unaware of the errors (they may have enabled the autoload function that fills up the purse from their bank account and they may not really check their accounts that well).

Additionally, there's going to be a change in governance for the ov-chipkaart. MPs decided to install a governing board that is responsible for design and customer features, reducing Translink to the mere processor of the scheme.

Well, as with most of MP initiated ideas, we'll have to see if this will fly (and how.....).

Moving to EMV-based ATM and POS-transactions.... it's the small things

It's the small things in which you can see that in the Netherlands we're moving slowly to EMV-based transactions. At the ATM's we now need to press OK after entering the PIN-code. That used to be a quicker interface with merely the pincode and some other buttons. And at the POS the difference is more clear. With some shops, there's a band of plastic on the side of it so that you can't swipe any more. And in the internet-banking domain, we now don't see an amount which is directly debited. No, we can see that the amount paid is reserved, because the basis is now a Maestro payment, developed for the international payments (and thus: first the amount is reserved and later after clearing/settlement it is considered to be finally debited).

All in all I think that January 2012 is the date on which we should have moved over completely to EMV. I'm curious to see how the large retailers deal with that. Because they are the ones that really will see a slowdown in payment, given that the consumer cannot swipe, enter PIN and put his debit-card back in the purse (to finally only press OK somewhere). The consumer now has to press his OK at the end of all counter-calculations, while the card is still in the POS-terminal and that is going to be a different routine.

Dutch contactless chip (OV Chipkaart) in trouble

Hello there again.

As you can see from the dates on the blog. I have been out for a while, taking a good number of sabattical years off and enjoying myself with other stuff than payments. But developments here in the Netherlands remain entertaining enough to take up some blogging. No too much, because I shouldn't overdo it.

Hottest news here in the Netherlands is that last week the OV-Chipkaart once again became the subject of media attraction as a tv program explained how to crack the card. A free program to increase the credit on the card became available and known through Geenstijl. And contactless card readers got sold out, even via the Internet.

So discussions in parliament and media once again occured and the province of Zuid-Holland decided to not completely migrate to the OV-Chipkaart but allow the old Strippenkaart to be used. And the Dutch Parliament did not wish to discard the whole project yet. Still, we should note that this is all not really new: already since 2008 the dutch newspaper Trouw decided to open a separate corner in their website for the 'Drama' of the OV-chipkaart.

Translink systems formally claim they can handle the frauds and point to the fact that also bank cards are prone to attack/fraud (forgetting to mention the differences in financial and technical impact). So thay play it all down. But we keep on discovering unintended or hidden consequences. For example: the sigar/tobacco shops that used to sell the strippenkaart found out sme serious financial impact of decreased visitors to their shops. And the new OV-chipkaart loading machines that some install in their shops, don't give as much kick-back as the strippenkaart.

Now, this is quite a nice time to have a renewed look at the cost benefit analysis of the OV-chipcard. Effectively the business case gets a bit worse, because there will not remain a lot left of the 'income' made by the reduction of fraud or 'grey' travel (possible with the Strippenkaart and assumed to be non-existent with the OV-chip). This is calculated as a benefit of between 380-500 million euro. Also the re-use of OV-chipkaart in other applications would give benefits of 100 million euro. So we'll be seeing a slow meltdown of the business case of the OV-chipkaart.

So while the business case is slowly fading into the sea, what in the end may make or break the card is the consumer-side of things. For example, right now, the handling of consumer complaints in case of forgetting to check-out, is near to disastrous. So there is not much of a warm feeling with the Dutch citizens with respect to this card. Also, in practical terms, the card doesn't completely do what its predecessor can. Try taking a group of people (of a school class of 14) to the ZOO and you'll discover the hassle soon enough.

It's a matter of time before we'll move on to the next generation or next system. And with this experience of a non-bank issuer/provider of payments means, perhaps the public will now more appreciate the quality of service that they are used to from their bank-issuer provided system.

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.

Paying cash more expensive than using the debit-card

Here's an interesting bit of research done in the Netherlands. All shops, banks and central bank have joined forces to evaluate the cost of payments with cash, when compared to debit-card. The results are that it has taken us in the Netherlands some 15 years to ensure that the full cost of debit-card payments are lower than cash-payments.

The research outlines that:
- full cost of payments in retail are down from 839 million euro in 2001 to 788 million in 2006,
- in 1992 a debit-card payment was triple as costly as a cash payment
- in 1998 the debit-card payment with PIN was roughly twice as costly as a cash payment
- in 2006 the debit-card payment is almost the same price as a cash payment (20-18 cents in retail-environment),
so that now, at the end of 2007 it's safe to state that the full cost of Dutch debit-card payments to merchants are lower than cash payments (on a per transaction basis).

As a consequence, the retailer representative organisations advise all merchants to use the debit-card rather than cash and to stop old habits that date from earlier days: the surcharging for use of the debit-card. Because other research by the central bank shows that still 20 % of the retailers surchagre an amount of approximately 23 cents for payment wit a debit-card.

So one landmark achievement is that over here in the Netherlands we have started to beat cash in terms of real cost.

Comes with it another interesting development. One fifth of the retailers surcharges 23 cents for a debit-card transaction that costs them 20 cents. Leading to a 3 cent per transaction profit. The bank-side of this equasion is that banks sell their debit-card transaction for 5 cents, while it effectively costs them 13 cents (see McKinsey reports in 2005). Meaning that debit-card payments have turned into a profit maker for retailers and a bleeder for banks.

This makes you wonder why it would make sense for banks to still subsidize debit-card payments to merchants with a one cent per transaction 'efficiency-stimulus' as agreed in the 2005 Covenant.

Single market review forgets better regulation principles

This recent single market review is interesting in many ways. We can see that the Commission is selling Europe to the citizen. And bashing banks is always popular, so we can see that happening now as well. Without awaiting the results of a consultation on a report (that finds no evidence base on the exisence of a switching problem) the Commission wishes switching services to improve. In doing so it jumps to conclusions and forgets it's own better regulation principles.

This is not the best way forward. Let's relook the earlier committments of Commissioner Mccreevy on this matter:
Ladies and Gentleman, this Commission is taking a more variable, more modern approach to regulation. Strict adherence to better regulation principles. Wide consultation. Full impact assessments to ensure that initiatives are fully thought through. Legislation only where clear benefits are apparent.
And let's now proceed to see the real-life case of user mobility in the retail financial services area.

1. In the white paper on financial services, the Commission set up an expert group to discuss user mobility.
2. After one years work, the group concluded that there was no evidence base and no agreement between different stakeholders on the issue: is there a problem or not.
3. Then, the commission sent out a (coloured) consultation on the report, which already had a spin on it; assuming that there was a user mobility problem. But, the positive news still was that the Commission claimed to adhere to better regulation:
In line with Better Regulation principles and as a follow-up to the Group's work, the Commission is opening a public consultation on the Group's report. Stakeholders are invited to comment by 1 September 2007. Comments should also address the impact of the Group's recommendations and suggest any other ways to improve customer mobility in relation to bank accounts.
4. To top it of however, without awaiting the results of the consultation, without doing any impact assessment whatsoever, the single market review heads for a specific direction (asking the industry to do national things on switching services) that should normally be the result of the analysis in the impact assessment.
5. Given that the results of this expert group do not at all come in handy (as it acknowledges the need for a solid evidence base), the work of the expert group is completely left unmentioned.
6. So now the Commission moves ahead, will undoubtedly publish a press release to take things a further step forward ('inviting the industry to come up with national solutions to switching') without due consideration to the real facts and developments in the market.

Interestingly: if the analysis is that switching is not a pan European issue, it's not up to the Commission to act. Similarly, if there is no impact assessment, it's not up to the Commission to do anything else than make one. But then again, the Commission seems to think: a scare tactic always seems to work with banks, so let's see if we can move them in a direction by threatening, even if we put aside our own principles and follow gut-feeling rather than facts and due process.

Unfortunately this fits nicely into an earlier grim picture that I sketched on the true better regulation approach of the Commission. Which essentially was that it is about lipservice more than true service to the citizens of the Community.

Postbank puts link to Virus Remover from Kaspersky on its web

The attacks on banks continue in cyberspace. And to such an extent that Postbank found the need to warn its users to check their PC and use the Postbank Virus Remover by Kaspersky Lab. Apparently the virus listens for the inlog-code and later on asks for tan-codes to be used in transactions.

Well, we've come a long way since in 1995 or 1996 first virtual demonstrates that it was easy to eavesdrop on the web. By now First Virtual is long gone and the eavesdropping is done professionally. And the importance of user education increases per minute.

Rabobank introduces challenge response token for the visually impaired/blind users

See this Techzine article: Rabobank will help the visually impaired by providing them with a bigger, audio-equipped device that acts as the regular challenge-response token that internet-bankers use. It's a sign that in mature e-banking markets (over 2/3rds of the Dutch now bank via the internet and pc) the tools are now being developed to serve and include the not-so-trivial target groups.

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

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

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

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

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

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.....

Only the older customer still wants the bank branch

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

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

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

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

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

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

Tweakers.net: virus attack on ABN AMRO

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

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

Two skimmers arrested in Zandvoort

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

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

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

News on being overdraft in the Netherlands

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

Dutch SEPA website online

This week De Pers points to the Dutch SEPA.NL website, informing the public about SEPA. The site has got a bunch of material and backgrond information. Mostly in Dutch, but there's also a English page with info on the migration to SEPA in the Netherlands.