Payments: The Clash of Banks, PayPal - 10.01.2007 - American Banker Print Article

Nice article here:Payments: En Garde! The Clash of Banks, PayPal. How to judge Paypal...?

Many EU observers often claim the e-money directive hasn't worked at all, allowing only 15 competitors market entry in 5 years. So hasn't it worked? Future will demonstrate how wrong those observers are. Paypal has used the e-money regulation as a stepping stone for it's current banking license in Luxembourg. And will now use the banking license to further skim the banking market.

Meanwhile banks struggle with legacy systems, legacy thinking and legacy regulators... so here's definitely a revolution in the making.....

Payments and Settlements News 53

Payments and Settlements News 53 is out now with:

News and events:
· Eurosystem – SEPA signing events at Sibos 2007
· European Commission – EU-Pay pilots launched
· ESCB - "TARGET2 is targeting start of operation"
· SEPA - European payment processors in interoperability pact
· European Commission - VISA fined for Morgan Stanley exclusion in the United Kingdom
· National Bank of Belgium - "The Single Euro Payments Area: SEPA"
· De Nederlandsche Bank - "Navigating towards SEPA: the transition to European payment instruments in the Netherlands"
· PCI Security Standards Council - administering PIN Entry Device (PED) Security Requirements
· NACHA - fee structure for Secure Vault Payments announced
· United States – Update on Revolution Money

Articles, speeches and reports:
· European Commission - "Improving the competitiveness of European card-based payments", speech by Charlie McCreevy
· Sveriges Riksbank - "The Costs of Paying – Private and Social Costs of Cash and Card Payments"
· National Bank of Belgium - "Financial Stability Review 2007"
· Suomen Pankki - "A qualitative study to identify factors that influence Finnish consumers to change their payment behaviour"
· De Nederlandsche Bank - "Overview of Financial Stability in the Netherlands"
· "Mobile Payment Models and Their Implications for NextGen MSPs"
· gtnews - "Prepaid Cards: a Payments Revolution"
· Innopay - "Understanding buyer and seller behaviour for improved payment product development"
· Fed Kansas City - "Complex landscapes: Mobile
· payments in Japan, South Korea and the United States"
· Fed New York - "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement"
· Fed Chicago - "Using Payment Innovations to Improve Transportation Networks"
· Fed Boston - "Consumer Payments Research: Industry Reference Guide"
· Fed Boston - "Mobile Phone: The New Way to Pay?"
· United States - "Why Once-Soaring Contactless Payment Has Lost Some Altitude"
· Reserve Bank of New Zealand - "Payments and the concept of legal tender"
· Bank of Japan - "Payment Flows for Settlement of Foreign Exchange Trades: Japan's Experience since 2002"
· Reserve Bank of Australia - Payments System Board Annual Report 2007

Zaypay, a new 'Paypal voor mini-payments'

M-payments service provider Mollie will enter the market with Zaypay, a payment system for small valure payments (below 1 euro). They view themselves, according to this Emerce article as the 'Paypal for mini-payments' and will launch next month. All non-regular payments (sms, 0900, Wallie etc) will be supported as well as iDeal.

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.

Elf arrestanten lid van Oost-Europese groep

Het Parool - Archief

Elf arrestanten lid van Oost-Europese groep
Skimmerbende opgerold PAUL VUGTS

AMSTERDAM - Met elf arrestaties heeft de Amsterdamse recherche dit weekeinde een belangrijke tak van een professioneel opererende bende 'skimmers' opgerold. Deze afdeling van de Oost-Europese groepering verdiende met pinpasfraude dit jaar aanzienlijke bedragen.

De recherche volgde de groep al geruime tijd. Het nu opgerolde onderdeel van de internationale organisatie is in elk geval verantwoordelijk voor inbraken in zes tuincentra, bouwmarkten en wegrestaurants in Amsterdam en wijde omgeving. Waarschijnlijk moeten ook inbraken elders in het land aan de bende worden toegerekend.

The beginning of the end: blocking payments for gambling...

Quite interesting both the US officials (Treasury and Fed) see proposed rule here and the Dutch government seek to stop 'unlawful betting practices' by demanding the banks that execute the payments to block those.

Well, if we go down this road and allow our governments to dictate which payments which customers may send/acccept (and instruct our banks to act accordingly), we may as well make the Treasuries our single national payment institution. This is what in my view will happen.

First the rules will be targeted to situations to which no one can protest: companies that sell child porn. This will get the first round of regulation off the ground.

Then the question will be: can we also stop payments to/from betting companies? Which is not so easy: in the Netherlands all non-Dutch government agreed betting (from abroad) is viewed as illegal. But that is a political judgment call, stemming from the fract that our government earns money from some of those companies that it has provided a betting license with. With a little luck, you also get this second round of rules agreed.

Third, we will see how it's not the national government prescribing to block payments to/from specific companies/customers, but local police officers or DA's. And they'll also be allowed to automatically fine the users that try to make payments to those companies that are considered blacklisted. Because those users are doing something illegal too....

Now, while this last scenario appears politically impossible now, it won't be once we're used to the first two interventions.

It is quite bluntly a disgrace that politicians and policymakers so improperly and so recklessly invade our privacy and dictate our and the banks' behaviour. If the bottom line is that police officials are not sufficiently equipped to catch crooks... fine, provide them with more resources. But don't try short-cutting it with using tools/means that will only end up backfiring at some point in time.

Or as Kant would say it, put yourself in the position of the other and question yourself once again if the proposed ruling is fair to all involved...

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.

Chipknip to disappear from manned-retail locations

Many papers and the national news discussed the ending of the Chipknip in manned retail loactions. Among them also Het Financieele Dagblad. All merchants are advised to just use the debit-card for low value payments, which is by now just as cheap as the e-purse (developed in a time when off-line payments were considered to be a smart way to circumvent the high telecommunication costs).

So, since the 10 years of its existence, the merchants didn't pick up the Dutch e-purse, which is partly due to the product characteristics. Consumers don't appear to like loading the card and keeping track of its balance. But then again, the use in parking, vending and catering niches is quite considerable. Th benefits of not having to collect coins at home for use in those machines clearly outlines the hassle of loading a Chipknip. So in these segments the Chipknip will survive.

Yet, we should also not forget the headlines of 10 years ago. Merchant lobby groups at that point of time explicitly stated that they were going to boycot the use of the Chipknip in the stores. Well, they lived up to their promise. It would be interesting to know if Neelie Kroes or any of her staff at DG Competition would also consider such collectively enacted boycots an abuse of dominant market position ?

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....

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

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

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

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

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.....

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

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

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

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

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

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

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

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

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

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

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

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

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

Only the older customer still wants the bank branch

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

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

First Data LBO may get banks into trouble

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

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

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

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

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

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

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

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

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

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

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

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.....