Demand for mobile banking: Uk research and Dutch practice

Planet Multimedia reports that while UK research shows that 51 % of the British consumers would seriously want to have a WAP-enable phone and want to do banking via this phone, the Dutch Rabobank (with 2,6 million digital customers that are all posessing such phones) only has 30.000 customers doing banking via mobile telephone.

ABN AMRO countersigns landmark regulatory measure

Yesterday an important thing hit the financial markets. ABN AMRO announced in a press release that it was sanctioned principally in connection with deficiencies in the US dollar clearing operations at its New York branch and violations of the OFAC regulations originating at its branch in Dubai. The regulators involved are a number of US regulators as well as the Dutch bank supervisor (the central bank). They imposed an 80 million dollar fine and ordered ABN AMRO to execute an action programma to improve the internal organisation. To conclude, ABN AMRO countersigned the regulatory measure and promised not to appeal.

Now let us see what's so interesting about this case (see the full document here).

First of all, the incident which is at the basis of the problem, dated before ABN AMRO signed into a previous agreement (July 2004) with US regulators to clear up internal mess. So the order of events is that ABN AMRO was cleaning up internal mess as a result of the agreement with US regualtors to do so. While doing this, they noticed trouble in Dubai and informed the regulator of their finding. And then, the regulator responds with a fine. Now if this were for an incident of later date than July 2004 I would understand, but to do so for events occuring before that date seems to me the wrong way to motivate...

Second, the regulatory measure is a coproduction with the Dutch central bank which is the home bank supervisor. To me this implies that US regulators know that they are on the edge of their competencies. If indeed ABN AMRO could be fined for actions in Dubai in violation of US-regulation; it could also be fined in Russia, Belgium, the Netherlands for that same violation. Similarly, the office in Dubai needs to comply with all banking laws that apply to ABN AMRO internationally (Dutch, local, US, etc). That can't be true. There is a serious conflict of law here, but it has been managed by drawing in the home country supervisor. And as this home country Dutch supervisor was already under public pressure (given that just 2 weeks before a small Dutch bank actually went broke while under supervision), that might explain the willing cooperation of the Dutch central bank in its supervisory role.

Third, also quite interesting, is the fact that ABN AMRO signed the regulatory measure and promised not to appeal. Is this because, after the Fazio case, the supervisors are afraid to be sued by ABN AMRO? Is it because ABN AMRO management wishes this issue to be dealt with properly on the inside; using this external measure as an extended instrument to get internal operations aligned? Or is it because the actual incidents require a decent cover-up? We may well tick either one or all three of the boxex above. The beauty is that we will never know.

Which leaves us with the main question. Are we just looking at an incident which is not representative for the future of supervision or is this a precedent leading us forward into a new regulatory future.

I hope it is the first, but I fear it is the last.

Rabobank to add television as distribution channel

Planet Multimedia reports that Rabobank will as of January 2006 start with interactive television. Customers will be able to transact via the television and to view educational clips. Rabobank does not think that this will further cannibalize on the bank branch. On the contrary, it expects to grow the branch network as a result of increasing advice-products.

Commission invites public comment in the fight against abuse of a dominant market position

The European Commission has published a bunch of stuff to invite the public to contribute to a discussion on market dominance and its treatment, given the EU treaty rules. The main paper that is published describes a general framework for analysing abusive exclusionary conduct by a dominant company.

Where a dominant company is present on a market, competition on that market is already weak. The concern of the competition rules is therefore to prevent conduct by that dominant company which risks weakening competition still further, and harming consumers, whether that harm is likely to occur in the short, medium or long term.

It is a good thing that the Commission appears to lighten the old approach. What still worries me though, is that essentially we keep on building Europe on the normative basis of economic competition theory. The Europe that results will be a dreamwork full of mirrors, night-mares where theorists may feel at home and find their way while the general public feels quite uneasy...

Do note that the Commission is anxious to put the consumer in the first place in all these ramblings. My guess is that the Commissions fears creating a further distance with the citizen, leading to a more general NO against the concept of Europe. Consequently we may continue to see a strategy where the Commission takes on the most visible/perceived dominant market players ; this will continue the support of the consumer/citizen. But the road that is being paved while doing so, may in the end lead us to a more ugly than social Europe.

Is the rational economic perfect competition Europe the Europe that we really want..?

Dutch banking sector closed...?

The Financieele Dagblad reports that the Dutch competition authority finds the Dutch market to be insufficiently open. These are the findings of the Financial Monitor team, who investigated the registers of the bank supervisor to come to this conclusion. Investigation of new players in the e-money or payments business was not a part of the research: it merely focused on credit-institutions.

P&S News 30

is out now with links to:
- the Commission White Paper on Financial Services
- a Eufiserv press release to demonstrate their SEPA-committment,
- special e-business watch report on e-invoicing,
- the Quarterly Bulletin of De Nederlandsche Bank, containing descriptions of latest developments (pp 38-44).

New Legal Framework for Payment in the Internal Market

The Commission announced the adoption of its "Draft Directive of the European Parliament and of the Council on payment services in the internal market and amending Directives 97/7/EC, 2000/12/EC and 2002/65/EC". With this draft Directive the Commission presents a "New Legal Framework" for payments in the internal market.

Much will be said about this Directive, not least of all the very funny way of using the term authorisation (up until now the word for a bank action checking the transaction) for the consumer action of sending a payment to the bank.

BT and Interpay Team Up to Enable Retailers to Save Telephone Costs

IT News Online describe how BT and Interpay have silently altered the software in retailers POS-terminals to ensure that they always dial-up to local phone numbers when transmitting POS-payment data. This is a nice cost-saver on top of the already lowered fees due the agreement with banks.

And... nicely timed as well. In the Netherlands we have a local custom called Sinterklaas. A kind of Santa Claus that provides gifts. Well, this is what one would call a good Sinterklaas gift. So if any retailer would still complain about banks and/or POS-fees, I'm pretty sure that Black Piet will take them off to Spain next year.

New estimate for mobile data revenue per year in Netherlands

This Emerce article explains that the non-voice/data revenue of Dutch operators in the third quarter of 2006 amounted to 226 million. This compares to 199 million euro in the second quarter. Meaning that in 2005 a total sum of on average 800 million euro non-voice services are being paid via mobile phone. Even when assuming that half of this market is paid by pre-paid clients, the e-money market via mobile can be estimated to be at least 400 million euro.

This is quite a significant market to leave unregulated (which is actually the plan of the Commission, on the basis of the argument that a huge number of small payments do not require regulation given the small individual size of the payments...).

Crying wolf over credit card fees..

This is a nice opinion on the issue of credit card fees. It warns retailers that suing Visa and Mastercard may eventually hurt them more than they foresee.

The trial lawyers are locked in on Visa and MasterCard because they see dollar signs. The merchants who are buying into these suits are, in their understandable desire to cut costs and maximize profits, being shortsighted. Crippling Visa and MasterCard through regulation or litigation would decrease consumer choice and buying power and ultimately hurt the merchants who are calling for it. The trial lawyers may be their friends on this fight, but seeking legal and regulatory intervention for market advantage is a precedent that large merchants will likely regret in the future.
....

Australia, where regulators slashed interchange fees well below their market level, the result has been a dramatic decline in cardholder benefits -- reward programs and the like -- and an increase in annual fees. This has driven a double-digit increase in the use of more expensive charge cards from companies like American Express and Diners Club. As a result, merchants are paying more on many transactions, and there is a push for regulation of the three-party payment systems.

In conclusion: betting on regulation and/or regulatory intervention rather than on the forces of the market may be a costly strategy with a high boomerang factor. One may end up with unexpected by-effects....

PIN-payments back on-line after two hour break

Interpay notifies the public that the errors in the KPN-network have been eliminated. Due to those errors, Dutch shopping today was a bit of an inconvenience. Between 14.00 and 16.00 the autorisation-system was hardly on-line.

But they're up and running again.

Datamonitor - EMV Migration in Europe - Market Analysis Report

This report compares the EMV introduction in Europe.

Three of the big five European countries distinguished themselves by their leisurely approach to EMV:
? Zero per cent EMV conversion for EFTPOS terminals
and ATMs in the Netherlands
? Migration speed is down to the business case

More specifically the report states:
Despite the lack of motivation, the Netherlands will still have to be compliant with the SEPA Cards Framework. This means that, with the exception of POS terminals, multi-purpose payment cards and ATMs in the Dutch market should be fully EMV-compliant by 2010.

The report is of course extremely expensive, but from the table of content we can read:
The Netherlands: A classic story of a weak business case
? But there is a business case for credit cards
? However, with the exception of POS terminals,
payment cards and ATMs will have to be
EMV-compliant by 2010 in the context of SEPA Cards
Framework

Commission proposal on payments is leaked....

Info-Europa appears to be well informed on the new legal framework for payments. It appears that the commission has adapted the framework last minute to shorten payment execution time to one day.

"The directive* defines a new category of payment service provider, namely payment institutions," reads the directive. "There has been last minute discussions among Commissioners on euro payments and there is a serious consideration that it will be go from three days to one," added the source.

The maximum execution time for payment transfers inside the Euro zone was originally thought to be three days and discussions among Commissioners are bringing it back to one day. This comes a week before the Commission is due to endorse the directive and send it to the European Parliament* and Council for approval.

Non-credit institutions will be granted market access across by including them in the scope of the directive. Providers of all payment services that do not involve taking deposits or issue e-money will be subject to new rules. The prudential regime will involve closer participation from regulators and less capital requirements. "Capital requirements and other quantitative solvency requirements are deemed to be disproportionate to the risks facing payment institutions," reads the draft.

It will be up to the national member states to appoint a regulatory body that will ensure that all payment providers fulfil their obligations, disclosure of information, follow their recommendations and warnings, and get authorisation. The authorisation given by this local regulator will be valid to operate across the EU*.

All payments that do not exceed 50,000 EUR* will be subject to rules of transparency and liability of the provision of services. The directive replaces the 25 different sets of rules which include information requirements, framework contracts, and common provisions. The liability rules focus on the rights and obligations of users - that is ensuring customers that the full payment will arrive within the execution time, with clear costs and guaranteed delivery.

The Commission was contacted and had no comment on the leacked information.

Interpay Launches Electronic Money Order

Yesterday Interpay announced that President Venetiaan and Prime Minister Balkenende were the first to receive the new Prepaid Transfercard by Interpay.

Interpay and Surpost developed the Prepaid Transfercard in order to enhance convenience, safety and speed when transferring money to, for instance, family in Surinam. Rather than sending cash or a money order, the sending party deposits the money in a central account. The recipient in Surinam then withdraws the money or makes payments using the Prepaid Transfercard.

Rabo to outsource cross-border payments

The Financieele Dagblad reports that Rabobank outsources its cross-border payments to Fin-Force, while simutaneously acquiring a 22% share in this Belgian company. An English press-release can be found at Yahoo.

The two articles provide an indication of the future ICT-strategies of Dutch banks. ABN AMRO and ING will start to become a European gateway for other banks; notably for smaller banks who can not further bear the burden of investments towards integrated European processing. Rabobank on the other hand has decided to be an early mover by partnering with KBC's Finforce.

Fin-force, starting out as the separated payments processor for KBC, is increasingly partnering with others. On March 11, Finforce signed a partnership with DZ BANK AG/Transaktionsinstitut. And now the deal with Rabo is done. This will allow Fin-Force, Rabobank, DZ BANK AG and KBC Bank to acquire a bigger market share in future.

At the moment, Fin-Force processes around 3300 million transactions a year (22.5 million of which are cross-border transactions) for DZ BANK AG and KBC. With Rabobank, they will have to process approximately another ten million payments and cheques.

The actual shift towards Finforce is planned for 2007. This results in the redundancy for 45 Rabo-employees, for whom new jobs will be sought.

Payments and Settlements News - Nr 29.....

is out now and can be read here... to find out amongst others that Payments are not a free lunch. That is the title of a finally translated piece of Dutch research into the costs of POS-payments. Have a read yourself.

NOVA Information Systems to Acquire Citibank Card Acceptance in Europe

Yahoo reports that NOVA Information Systems is to Acquire Citibank Card Acceptance in Europe. Effectively it is euroConex that has entered into a definitive agreement to acquire Citibank Card Acceptance (CCA). This doubles the merchant signup base of euroConnex to 200.000. Which is a further major step into cross-border acquiring in Europe.

I do wonder however if the deal has any povisions to ensure that the old owner of CCA pays for any fines that the Eu Commission may want to give later on as a result of their card competition study....

Bank-retailer agreement signed: pinnen gets cheaper...

Yesterday an important agreement was signed at the central bank. It involves three bits:
1-all banks will lower the fee for acquiring debit-card transactions with at least one cent; retailers will drop all pending law-suits on this topic;
2-the banks will setup a fund of 10 million euro so that banks and retailers may use the money to further promote innovation and efficiency in payments
3-banks, retailers and all parties involved will work together to determine which measures, communication, positive and negative incentives can be used to make Dutch payment more efficient.

Mr Zalm, the Dutch Minister of Finance commented on the agreement in his speech, explaining that it confirms that the market functions properly. He stated that it also confirms that the so-called Social Platform on Payments (a halfyearly round table forum of representatives of all users and supliers in the payments market) proves its use.

Zalm also outlined the challenge ahead. He noted that the often quoted low Dutch fees in the World Banking Report are only the visible fees to consumers. The real costs however are larger. Therefore he suggested that the market should work towards more transparent and direct pricing of payments. This statement is similar to that of numerous central bank speeches of the last years.

The final good news is that, contrary to popular belief, the competition authority has no fundamental objections to this agreement (see their informal view here); it does want to see the details of further collective actions of course.

So onwards to further efficiency and direct pricing it is...

SEPA rears its head....

Today the Financieele Dagblad reported on the upcoming changes as a result of SEPA. The article covers both legal changes as a result of the new legal framework and the changes as a result of using EPC-standards based on IBAN and BIC. Interestingly the article suggests that as of January 1, 2008 the IBAN will be used for domestic payments as well as cross-border payments. This suggestion appears not to be the first item on the agenda of Dutch banks themselves but rather that on that of the central banks (as reflected in this speech of ECB Board Member Tumpel Gugerell).

Further on in the same newspaper EPC-chair Hartsink outlines that he feels that further legal rules are inevitable to arrive at SEPA. Mr Hartsink furthermore announces that the EU government treasurers may meet in the coming months to decide how they may use EPC-based payment mechanisms to kickstart the use of panEuropean payments.

Finally, we are there: Microsoft points to be issued as a means of payment !!!

VNUnet reports in this article that as a part of the further delivery and expansion in the gaming segment, Microsoft will launch its own e-money system, known as Microsoft Points. Cards will be sold for �13 containing 1,600 points which can be used online to pay for games ranging from 150 to 800 points.

At last I would say. This is an example of an issuer of digital value which is so big, that it does make sense to only spend the value at the issuer. As such Microsoft does not have to deal with financial legislation. The Microsoft Points are simply a prepayment of goods.

The concept of company points (or similarly: MacDonald points, Virgin points; Easypoints in the case of the Easy-imperium) is a further step towards an economy in which it becomes quite explicit what it is that consumers trusts. It has been expected for a long time, and now it is here.

Why could we expect it? Well, in short because there is no theoretical reason why a consumer would not trust a large brand as much as a central bank (that issues currency on behalf of government). In practice however most companies do not have a consumer base that equals a complete population in a country; so the use of company points will then alway be limited.

This changed with the Internet and the increased irrelevance of national borders. As a result, e-gold for example, now has a goldreserve bigger than a whole lot of small central banks. And similarly, the user base of Paypal equals the size of large EU-countries. So the real worldspanning brands and companies do have sufficient critical mass for their company-currency to become useful to the consumer.

Q.E.D. (by Microsoft).

The infancy of the market for m-payments.....?

In the course of the review of the e-money directive, it is often stated that m-payments or e-payments are in its infancy. This press rrelease of LogicaCMG explains that the Mobile content market is set to triple to more than 7.6 billion euros within a year. With an average of ? 6.32 per user.

Meanwhile operators in Australia earn more with data and content than with voice.
See the article in PC World (Mobile report: Multimedia leaves voice behind). So let's not kid ourselves into believing that all those small payments via mobile are neglectable...

Dutch Parliament wants to await further investigation into costs of contactless payments for public transport

See the article in Automatisering Gids. Parliament has decided not to spend further money on the contactless payment system for public transport, until the Ministry of Transport has investigated the amount of extra investments needed....

Yet, the Minister has said she was unable to explain how much was needed until the beginning of 2006.... when things are much much clearer.....