Report on changes in payment habits in Austria

See this link for the report on changes in payment habits in Austria.

July FED Kansas conference on Consumer behaviour in payments

See this page and beyond.

Ebay financial results and Paypal data

including Paypal figures can be found here.

Eurocommerce 2005 report: payments issues

See pages 38-44 in this report and discover that Eurocommerce find a fertile ground for their bank complaints at the premises of both European Commission and the European Central Bank. Furthermore they executed quite a proactive lobby on the Payment Service Directive.

Comparative report of European Competition Authorities (ECA) on competition issues in retail banking

In may 2006 the European Competition Regulators finished the study they started in May 2004 on competition issues in retail banking. To appreciate the report we should first look at what ECA is.

ECA is a united work force of the competition authorities of the EEA (European Economic Area) and EFTA (European Free Trade Area), which was established in Amsterdam in 2001. ECA aims to be an informal and pragmatic organisation which seeks to find ways, by means of discussion, in which competition policy and regulation can best be implemented within Europe—so-called ‘best practices’. ECA aims to improve cooperation between European competition authorities and to stimulate convergence of regulations and policy through discussion. In addition, its members jointly search for solutions to complex shared problems. Members meet at least once a year.

In sum: ECA is a new European institution. Whereas central banks, supervisors, governments have all kinds of European or worldwide cooperation organisations, the competition authorities did not have one. And, as a rule, in the first years of the existence of such institutions, all involved need to get going and warm up. Often one sees shallow reports in the first years, to become better over time, as the

So now the ECA published its first report on competition issues in retail banking. Although the title suggest a broad overview of retail banking (including provision of mortgages, loans, savings etc) it is effectively a study on competition issues in retail payments. And as a first report of a young institutions, this is quite a decent report.

Of course some analytical flaws/inconsistencies can be pointed at (especially when the mantra on bank concentration-competition is repeated) but as such it is quite a good effort. Essentially it provides a nice overview as well as the following recommendations:
1-improve customer mobility,
2-improve access & governance of payment systems by separating scheme rules from processing,
3-involve local competition authorities more in SEPA, as the competition effects of SEPA are too much overlooked right now.

There is not bound to be too much follow up for this report in the Netherlands. We have:
1- a fully operational switchting service for retail payments
2- separated schemes/processing (Currence/Interpay)
3- an competition authority: both the Chair and Secretary of this report are Dutch (which may by the way explain the nature of the recommendations).

United States Senate Committee Hearing on antitrust concerns for credit-card rates

See this page with information/links. Essentially this is the usual exhange of views where consumers and retailers protest and banks and card schemes try to explain why interchange fees are necessary for payment systems.

And once again the regulatory reforms of the Reserve Bank of Australia are taken as an example of improper intervention. Josh Floum, General Counsel and Executive President of Visa U.S.A. stated:
Three years ago, the Reserve Bank of Australia imposed artificial price caps on interchange fees set by Visa, MasterCard and another bank-owned payment system. The Reserve Bank cut rates by 43 percent, from 0.95 percent to 0.55 percent. The Reserve Bank did not regulate the price that American Express charges merchants or modify the internal transfer that American Express makes from its internal acquiring side to its issuing side (i.e., the American Express “interchange” fee). Nor did it benchmark the total price that merchants should pay to accept four-party payment systems to what American Express charges its merchants.

The regulatory intervention has had precisely the expected effect. Cardholders in Australia are paying more for payment cards than they did before through higher annual fees and finance charges. They are also getting less in terms of reward programs and other rebates. Merchants, meanwhile, have seen their cost of payment card acceptance drop some. But there is no evidence that they have passed this decrease in cost on to consumers in the form of lower retail prices. In fact, the Reserve Bank, which had promised that retail prices would decline as a result of its intervention, has given up trying to prove the existence of the promised decline.

While I feel that the Australian example is quoted too easily and a lot of sensible work is dismissed too quickly, the Australian case does highlight an interesting thing. Merchants do indeed cheaply attack banks on interchange fees and monopolistic behaviour, suggesting that retailers are the good guys and banks the bad guys. But all across the board however, they do not share the cost-benefits of lower card fees to consumers. Which could be qualified as just as monopolistic (and if so: forbidden)interorganisational price strategy as the one they claim to attack.

This is the same in the Netherlands. Since last year, Dutch retailers got a one cent discount for POS-transactions. But they continue to charge customers that pay small amounts with their debit-card a fee of 10 cents per transaction. If retailers were honestly interested in serving their customers, they would pass it on and reduce the extra payment charge for small payments to 9 cents.

So the real lesson here is that regulators, central banks and ministries of finance may want to be careful when leaning towards favoured underdog policy positions of retailers or consumers. Whilst these positions may coincide more with their own policy position (banks need to be disciplined to avoid cartel-behaviour) it does create a new form of regulatory capture. Essentially the regulators may thus back these specific partial interests in society rather than taking a societal point of view.

ING loses POS-debit-card contract Ahold to ABN AMRO

Yesterdays Financieele Dagblad reports that ING loses its contract for POS-debit transaction for Ahold to ABN AMRO. This accounts for about 10 % (125 million) transactions for the big retailer (Albert Heijn) but may account for 300 million transactions if we include other companies within the Ahold-form (Etos, Gall&Gall, ..). Rumour has it that the price of the transaction will be 2,5 eurocents per transaction. But non one kwows really, now that banks all compete for the retailers.

Of course the representative organisations of small retailers are silent while all this happens. Because they may have not done their constituency such a favour by demanding the split up of the acquiring-monopoly for POS (which resided at Interpay). By forcing all retailers to contract with the individual bank, the larger retailers can of course negotiate their lower prices while small retailers get stuck without purchasing power.

But small retailers can't and lose the benefit of the so-called 'scale-efficiency' of Interpay prices. This scale-efficieny meant that at the end of the year -depending of the total number of POS-autoristions (small and big retailers added)- they would get a discount on transaction fee. To my knowledge, neither central bank nor competition authority nor the small retailer organisations foresaw this effect.

Dutch banks follow APACS example with website on safe banking

The Dutch banks yesterday launched a webste which instructs consumers on safe banking. See the website www.veiligbankieren.nl and do notice that it is compliant with strict accessibility requirements, so as to allow all users/browsers to be informed.

The idea is not new of course. APACS already have a similar site up and running for quite a while. Still, it's a good thing that all basic saftey instructions are assembled on a single accessible spot on the Dutch web.

Commission takes on Cartes Bancaire

This press release clarifies that the Commission sent a new Statement of Objections to the ‘Groupement des Cartes Bancaires’ (CB) on 19th July 2006. In its new Statement of Objections the Commission takes the preliminary view that ‘Groupement des Cartes Bancaires’ restricted competition between member banks by adopting tariffs which hinder the issuing of cards by new entrants at a reduced price, thereby preserving the revenues and market shares of incumbent banks to the detriment of consumers.

IMHO this signifies that the Commission does not seriously believe that its sector enquiry into cards will get them anywhere. They know that the sector enquiry shook up the cards market, but getting so much criticism as to method and outcome, the Commission has decided stick with its old role: pursue violations of competition law on a case by case basis.

Why regulate banks and/or competition?

This pdf is an interesting piece of work of the International Competition Network (ICN) with an overview of arguments why regulation of banks occurs and what the role of the competition authorities should be. A tiny bit outsiders perspective, as one tends to see more often when non-industry supervisors take a bite in the banking cake, but generally quite good.

The ICN is a supranational coordination body, exclusively for competition regulators. What the BIS is to central banks, the ICN is to competition authorities. ICN started in 2002.

Increase in use of debitcard for Dutch low value payments

Het Financieele Dagblad reports (login required) that the Dutch increasingly use the debit-card instead of cash for lower value payments:
- one out of ten payment between 0-5 euro (increase of 66 %)
- one out of four payments between 5-10 euro (increase of 35 %).

Cash is really on the way out, although slowly.

Visa and First Data settle dispute..

See the posting on Payments News:

Visa USA and First Data Corporation have announced they have settled a legal dispute that has been pending since 2002 over the processing of Visa payment card transactions. According to the two firms, "as part of this settlement, First Data and Visa agreed to work together to build a stronger business relationship to focus on streamlining the payments processing business. To achieve this, Visa will provide financial support to pursue mutual business opportunities and cost cutting initiatives that are expected to drive new innovation, reliability, security and new merchant acceptance. First Data will transition existing private arrangements between itself and Visa member financial institutions onto VisaNet."

ING Bank and Getronics PinkRoccade to set up European Biller Service Provider

Today ING Bank and Pink Roccade Getronics announced that they would set up a European Biller Service Provider to allow easier digital bill payment to the consumer. Both organisations signed a Memorandum of Understanding to this end.

The idea is that digital bills are sent to the consumer (rather than paper bills, which cost a lot) and presented in the e-banking environment. At present Rabobank is still the only Dutch bank with such a solution (offered in cooperation with CENDRIS/Privver; the former state-owned postal services company). But now it appears we will have more choice in the market.

Dutch banks open their books on cost/benefits in payments: EUR 128 million loss in 2005

In an unprecedented move of openness and transparancy, the Dutch banks have today published the results of a revolutionary study into the cost-benefit of payments business. 5 large banks (ABN AMRO, ING, Rabobank, Fortis and SNS) have opened their books to a team consisting of experts from McKinsey and the central bank (De Nederlandsche Bank). Based on actual data, McKinsey produced a generic report on the revenue/costs in Dutch payments in 2005. You can download the (Dutch) press release and report here.

Not only the openness is revolutionary but also the stakeholder-buy in. Before starting the actua data collection at banks, the central bank and McKinsey set out to discuss the methodology of cost-benefit calculation with large representatives of the Consumer Union, Point-of-Sale Merchans (Platform Detailhandel) and Utilities (Gebruikersplatform Betalingsverkeer). When all agreed on the methodology, the data processing and calculations started.

Background of the exercise is formed by the general desire of banks, retailers and regulators to move towards cost-based transaction fees in payments, most notably for consumers (which are now hardly confronted with the real/direct fees). This will contribute to more efficiency and lower private and social costs of the payment system. Which is completely in line with the European policy outlook of the Commission.

The results of the cost/benefit study are (briefly) that in 2005:
- the gross revenue in payments for Dutch banks amounted to € 3.996 million, based on interest margins and direct fees,
- the gross costs of payments were € 4.019 million, leaving a € 23 million loss (and a € 128 million loss when including the cost of capital),
- generally speaking there is little congruence between nature of revenue (consequence of the interest margin) and nature of costs (consequence of the number of transactions),
- businesses sponsor the consumer: the business segment accounts for net revenue of € 708 million while consumers generate a net loss of € 642 million
- credit-card payments earn € 89 million euro while cross-border payments cost about € 150 million.

And the real bleeders are:
- account maintainance with a cost of € 1215 million,
- cash with a cost of € 779 million,
- paper based credit-transfers: € 329 million.

Next steps are that all involved representative organisations of banks, retailers, consumers and what have you, discuss ways of improving efficiency in the socalled National Platform on Payment Systems. And some ideas have already made the news:
- using internet-banking instead of paper based credit-transfers or inpayments,
- stimulating debit-card use at the point of sale rather than cash by not penalizing the use of the debit-card (some retailers still demand a processing fee for payments lower than € 10),
- developing easy-to-use retailer POS-merchant kits/offers, allowing them to easily start accepting debit-cards.

As for the further future, the outlook is varied. The report contains a sensitivity analysis that demonstrates that increases in interest rate help profitability while improved cash management by clients reduce it. Furthermore the future move to SEPA may cost a bit. Nevertheless, the main conclusion that stands out is that a further change in the payment mix (more electronic, less paper) will be the way forward.

Irish Banks launch switching code to increase user mobility

The Irish Bankers federation has launched the new IBF Business Account Switching Code last week. The Code will make it easier for businesses to switch current accounts and demand deposit accounts from one financial institution to another. As such it is the next step, given that consumers already have access to the service (and 5 % are using it in Ireland, as opposed to 0,325 % in the Netherlands).

In implementing the Code, financial institutions are making three key commitments as follows:
* to provide to business customers a ‘switching pack’ that clearly and simply explains the process of switching accounts, who is responsible for what, how long it will take and exactly what the customer has to do;
* to have the customer’s new account up and running within 10 working days from the bank’s approval of the customer’s application; and
* to complete the process of switching everything over from the old to the new account – incl. standing orders and direct debits – within 7 working days of a signed (by customer) Transfer Account Form being sent by the new bank to the customer’s old bank.

Now, lets see what the take-up will be...

BCG report suggests regulators to hold their horses on their 2010 ambition to phase out national products in Europe

See this press-release on BCG's 8th report: Global Payments 2006. In which specifically the EU-comments are quite sensible:
The report says that the Single Euro Payments Area (SEPA), the legislation intended to harmonize European payments platforms, will bring measurable benefits to consumers and is worth the investment that European banks must make — an estimated €500 million— to meet the requirement of bringing pan-European payments capability alongside domestic schemes by 2008. But the next step in SEPA, the expected elimination or conversion of all domestic schemes by the end of 2010, will require roughly €5 billion in additional investment with little additional benefit. Full migration to the SEPA standard by 2010, the report says, will in fact decrease efficiency and possibly reduce functionality by compelling banks, payments processors, and corporations to adopt pan-European products and to discard highly-efficient domestic ones.

“The bottom line is that pushing for the full SEPA concept to be achieved by the end of 2010 will actually destroy value,” says Nick Viner, a senior vice president in BCG’s London office and lead author of the report. “A far more workable solution would be to allow payments players to invest in the full SEPA requirements in line with their natural investment cycles for IT infrastructure, cards, terminals, account engines, merchant contracts, and related elements.”

But would the regulators really want to hold their horses and listen to this?

ABN AMRO and Rabobank concentrate cash processing activities

See this press releaseto find out that:
- Rabobank Nederland and ABN AMRO will launch a joint cash processing company named Gavea on 1 October 2006.
- Both banks are taking a 50% interest in the new company. Gavea will provide employment for 225 employees (full time equivalents) who will all be from ABN AMRO.

The two banks decided to cooperate in this field because the Dutch Central Bank will largely phase out its cash processing tasks from 1 January 2008. The daily counting and recirculation of euro notes and coins will then be transferred to recognised parties capable of meeting the very highest quality standards, as set by the Central European Bank. This means that responsibility for cash circulation and related activities will be transferred to the bank.

Cash processing is a relatively cost-intensive activity owing to the substantial investments as well as additional costs for e.g. security and continuity facilities. By joining forces, Rabobank Nederland and ABN AMRO aim to keep the long-term costs of cash processing under control.

Google launches Checkout-service

After a lot of speculation Google has now launched Google check-out which aims to make repetitive payments via credit-card easier. Essentially it is a new button which does al the fill-in work for the consumer, while keeping the consumer data confidential. Merchants do not get the full credit-card number, just the ok on a transaction.

As a mechanism for the user it is similar to verified by Visa. The difference is that with verified by Visa the bank kwows that you're in the program while with Google-check-out it doesn't. So the liability rules will be different.

Commission takes on Mastercard interchange fees

See this press release to find out that the European Commission confirms that it has sent a supplementary Statement of Objections (SO) to MasterCard on 23 June 2006. In its SO the Commission takes the preliminary view that MasterCard restricts competition between member banks by pre-determining a minimum price retailers must pay for accepting MasterCard and Maestro branded payment cards. The Commission’s preliminary view is that such behaviour is contrary to the EC Treaty’s ban on restrictive business practices (Article 81).

The SO is a follow up on a previous statement of objections. And the Commission is very eager to state that the enquiry is completely unrelated to the Cards Enquiry that is now pending. The direction of the intervention is quite clear from the press statement: either a prohibition or a redraft of interchange fees for Mastercard.

Small terminal supplier points to outdated retailer dogma's that PIN (POS) is expensive

Yesterday, Mr Mogendorff of Pinlinq, stirred the Dutch retail payment industry with an article in the Financieele Dagblad on POS-payments. He explicitly stated that retailer interest organisations have an over-fixation on the supposedly high cost of POS-terminals. That's quite interesting and correct.

In general the bank fees for retailers are quite insignifcant compared to their other business costs such as communication (ADSL), printer paper and what have you. But it is a historical habit of retailers to persist in complaining on the bank fees; they started doing so when Dutch POS-payments (PIN) were introduced and haven't stopped since. Meanwhile, the communication market has opened up (lowering fees), the terminal market has changed (with Pinlinq offering GPRS terminals for 200 euro) and the bank market has opened up (with fees lowered to 4 to 5 eurocents).

Stil, the Dutch retailers persist in whining on bank fees. And while it is now common knowledge that the cost of cash payments exceed those of PIN-payments, you can still see signs at the teller of retailers stating that low-value PIN-payments will be charged for 10 eurocent (that is still approximately the 25 guildercents they used to ask in 1990 when all the PIN started). And the retailer representative organisations remain unwilling to ask their constituency to remove those signs (and penalties for efficient payments). And they keep on demanding even lower fees than the 4-5 eurocent per PIN-transaction.

Similarly, their website on payment terminals (www.betaalterminal.nl) has not so very accurate information on the best deals for payment terminals, suggesting that a GPRS-terminal would costs 1000 euro for the retailer. Of course that fiction is necessary to persist in the opinion that Dutch POS (PIN) is expensive and that all that it the bank's fault.

So all in all, it's quite refreshing to observe that Pinlinq, this new competitor in the payments terminal market is now not only stirring up the terminal-market but also the policy-market on payments (effectively challenging the policy dogma's of retailer representative organisations). Hurray for competition....

Remittances via money transfer agencies more expensive than via the bank

Here in the Netherlands, the press are so keen on blaming banks for not competing and not giving the best deal to their customers, that we found articles in the newspaper suggesting that the Ministry of Finance wanted credit-transfers to be cheaper.

Upon closer inspection of the source of the news: the Ministry itself (click here) it turns out that the Ministry of Finance has decided to make life easier for money transfer agents, hoping that their current high level of prices, will be lowered and that the remittance market can better flourish (not so much in the underground sector, but legally).

Effectively, the underlying documentation presents a picture that demonstrates that bank fees are systematically and substantially lower than money remittance fees. Still, the Ministry does not find the market for international remittances sufficiently developed and will ask the competition authority to look more deeply into the issue.

Well, remittances are indeed on the agenda now ......

SEPA compliancy for cards

In the SEPA discussion, there is one concept which is quite confusing: sepa compliancy for cards. Looking at the sepa cards framework, one can deduce that a sepa compliant card is issued by a sepa compliant bank and that the brand is also sepa compliant. And it is also clear that sepa compliancy means that one must be able to use the card in one country as easily as in others.

Still, what does make a card sepa or SCF-compliant?

Visa doesn't worry too much. See this article. It simply opens up processing and all that and states that they do comply. That's quite pragmatic, and actually, no one can prove them wrong. For all the vague phrasings that are all around, they might even be right.