Central bank director goes commercial...?

In a move which highly contrasts the good old central banker conduct, newly appointed DNB-director Klopper did not spend any time on regulatory or fundamental constitutional deliberations that we are so used from central bankers. Rather he gave this motivational (?) speech on 'Payment Innovation beyond SEPA'.

Do note the high frequency of the terms mobile (13) and contactless (9) in this speech. And do note as well that he seriously dislikes the product Chipknip (whereas his predecessors were keen to point out that Chipknip was by far the cheapest of all non-cash point of sale payments).

There is no mention of the need to make pricing of payments more transparent for costs in society to become as low as possible.... and no sign of the consideration that this means that essentially also cash should be priced rather than subsidized.

We may thus conclude that in this brave new (SEPA) world even central bankers are no longer central bankers. In this realm where the force of logic and analysis used to reign, the only concern now seems to be that the public will not like the conclusion of the analysis: direct pricing of payment instruments.

And if the above is a reflection of a general trend within central banks, it will not be the new payment instruments that will make central banks redundant in the far future (see Mervyn Kings prediction of some years ago). Rather this will be the result of annoyed politicians and citizens who are fed up with highly paid central bankers that acts as politicians while pretending to be central bankers.

Oyster roll out delayed

See this article:
"Computing has also learnt that Transport for London (TfL) has delayed trials of its Oyster e-money project while it works with the financial services industry and the smartcard operating consortium Transys to define the scheme's requirements.

TfL had planned to appoint a technology partner for the e-money project by the end of last year and commence trials in late 2005 or early 2006 (Computing, 28 July 2005).
Oyster e-money will allow commuters to use the smartcard to pay for low-value goods and services at newsagents, fast-food outlets, supermarkets and parking machines.

A TfL spokesman told Computing work is still ongoing and no major announcements are due.
"Our main focus is on finding the right way forward rather than hitting the timescale announced last year, he said."

OFT: Current credit card default charges unfair

See the press release and guidance:

Credit card default charges have generally been set at a significantly higher level than is legally fair, said the OFT today. The OFT estimates that across the industry this has led to unlawful penalty charges currently in excess of £300 million a year.

The OFT now expects all credit card issuers to recalculate their default charges in line with the principles set out in a statement published today and to take urgent action where needed to reduce the level of credit card default fees. The industry has until 31 May to respond to the statement. These principles also apply to default charges in other consumer contracts such as those for bank overdrafts, store cards and mortgages.

See the download: Calculating fair default charges in credit card contracts.

PayPal Launches Mobile Payments

This press release speaks for itself. See also https://www.paypal.com/mobile.

Wall Mart into banking; a plan not everyone banks on

Retailers become banks. Mobiles become banks. Paypal goes mobile.
What happens if boundaries of banking are at stake.
Read the viewpoints in this article in Kansas City Star.

Remittances: An opportunity for growth - the Albanian

And here is another remittance link in a long hype-like chain of events.

Obopay Mobile Payments - A First Look

See this posting on Payments News which goes to show that the mobile phone will become what the payment card was. The one device to be used if you need to pay something.

From the sheer number of articles, white papers etc. is should by now be quite clear that in the future the (mobile) phone will be used either to pay using:
- the phone bill (pre-paid or postpaid)
- Paypal-accounts,
- Mastercard or Visa debit-cards
- Mastercard or Visa credit-cards
- regular bank accounts.

Too bad that, although we are now 5 years busy discussing whether payments via mobile phone may or may not constitute e-money, the European Commission still appears to be the opinion, that m-payments won't happen; as a result of which m-payments need not be regulated when operated by a mobile operator (nonetheless regulated if applied by anyone else in the market).

Not an April 1 prank: Australian parliament to probe role of RBA in regulating the payment system

The visible and leading role of the RBA on the discussion of interchange fees is known among payment specialists all over the world. And it is taken as an example by many a regulator (among which the EU Commission) to model its own behaviour.

In this respect it is quite relevant to observe that parliament in Australia may fee that the RBA has gone too far. This article informs us that a powerful parliamentary committee that oversees the Reserve Bank of Australia is planning a two-day hearing in May dedicated entirely to the central bank's controversial deregulation of the nation's $60 billion payments system.

The decision by the standing committee on economics, finance and public administration to focus on one element of the RBA's operations is regarded as unusual. It comes amid suggestions from parts of the banking industry - which has lost substantial fee income from the RBA's reforms to the payments system - that consumers have not benefited and that the Australian Competition and Consumer Commission should be reinstated as regulator.

...

Australian Bankers Association boss David Bell said yesterday that merchants had been the main beneficiaries of the credit card reforms. But there was "little evidence" of merchants passing on their $500 million bonanza to consumers.



So, for those who model their behaviour on the RBA, it would pay to take aboard this development as well.

McKinsey calculates that Dutch banks lose € 100 m yearly on payments business

Today, the Financieele Dagblad reported that McKinsey presented a report to the European Commission, indicating that Dutch and Polish banks lose on their payments business. The Polish lose 700 million yearly because their cost of cash is too high. The Dutch are quite efficient, but lose money as they are for historic reasons unable to price their consumers the real price for the payment instruments.

Still, major Dutch banks make billions of euros profit on other business (mostly outside of the Netherlands). And the average consumer is unable and unwilling to make a difference. So the perception will remain to be for some time, that Dutch banks do make huge profits on payments.

First parliament discussion of draft bill Crone to re-institute the bank branch

Yesterday Dutch parliament started the discussions on a draft bill of a social MP, Mr Crone. Essentially it obliges banks to have reasonable fees, security etc for all payment and savings products. Furthermore, if the number of bank branches is too low in a certain area (3 kilometers, 5000 people) it allows the Ministry of Finance the role to hold a tenderprocedure so that banks put a bank branch back in place.

Not only is the draft bill trying to reverse a global trend of bank branches getting a different role in the distribution mix (see Cap Gemini posting), it is also not to the liking of many local municipalities. One of their spokesman, himself a mayor of a small town, was very clear in an article in the Financieel Dagblad this week. No more rules please; give us, small communities, the flexibility to design taylor-made local solutions.

Generally speaking, two major parties CDA and VVD, were opposed to the bill, with smaller parties wondering if the draft bill is not too heavy a canon to kill a musquito. So this bill is unlikely to fly.

World Retail Banking Report 2006 clouds the issue of direct pricing

The new World Retail Banking Report 2006 can be downloaded now from CapGemini's site. Whereas previous versions just listed average prices for payment packages in all countries, the consultants have now anonymized their information.

So we used to be able to see that the Netherlands was cheapest in offering payment services with an average price of about € 31. But now, the consultants have made a bunch of categories to prevent such lists from being the summary of the report. Apparently their customers in Italy (which were highest on the list of average payment cost) didn't appreciate these explicit rankings.

Still the Financieele Dagblad figured out that effectively the new Dutch figure for average payment package costs is € 33. And instead of cheering at the fact that this was still the lowest in Europe and, the newspaper brought the news as a considerable increase (4,5% in their calculation) of payment costs.

It's also interesting to note that the second part of the report did not get much attention. It demonstrates the shift from bank branch banking towards multi-channel distribution of financial services. So there also are nice figures of bank branches becoming less important as a delivery channel. See also the posting on Crone.

Article: Australian businesses plan credit card surcharges

This is an interesting article outlining that Australian businesses plan credit card surcharges. And explaining that:
"The Reserve Bank of Australia re-regulation assumed merchants wouldn't surcharge as this would push customers away, but the surcharging sea change that is taking place now seems to be having the opposite effect."

Now, interestingly, the Australian Reserve Bank did look at the Dutch situation, where the no-surcharge rule was lifted but had no effect on merchant pricing behaviour. Yet, the reason for this little effect in the Netherlands may have been the limited spread of credit-card use in the Netherlands and the availability of a good and cheap POS-debit-card-system as an alternative.

Which may go to show that you just can't copy policy reasoning from the one country to another.

Eufiserv announces it will live by SEPA Cards framework

See the press release here. We can expect more of those announcements from all over the place as the market will hurry to explain they all go for SEPA.

Bank fails; deposit guarantee increases...

At the end of last year, a small Dutch bank failed. And Parliament got involved some 2 months later, when the Minister of Finance explained how all this could occur (and how supervision is never a guarantee that banks will not go broke). As a part of the discussion he also promised to investigate if the 20.000 euro deposit guarantee limit could be raised to 40.000 euro.

In this letter (in Dutch) he explains that he will indeed do so, but that he will most likely introduce a 'own risk' for the consumer as well. So while a larger sum of money may be protected, the first 500 or 1000 euro will not be paid back.

Interestingly, the Dutch banks jointly decided to apply the 40.000 rule for the current customers of van der Hoop (the bank that went broke) and just for this time, even without a 'own risk' rule.

Once more, this shows that incidents are the best trigger for regulatory intervention. Whether incidents are simultaneously the best argument for such interventions remains to be seen of course...

Paypal experiments with GSM-payments

Dutch technie magazine Automatisering Gids informs us that Paypal is experimenting with GSM-payments for a small user internal user group. A spokesman of the company explained that Paypal would be providing more information in a number of weeks.

TILEC study on universal services in banking

The tilburg university has done something worthwhile by applying the concept of universal services to banking. This line of thinking may be(come) quite relevant, if not now, then in the next decades (as cash is replaced with private digital currencies and we all wonder if there is one single currency to allow partcipation in society). Read their report here.

RBA: Speech-The Evolution and Regulation of the Payments System

See this link for the speech "The Evolution and Regulation of the Payments System"

Study on improving the efficiency of workers’ remittances by EIB

It's remittance time this week....

Here's another report, now by the European Investment Bank, on the efficiency of workers’ remittances in Mediterranean countries.

The interesting question is of course, if one compares different ways of sending money back to one's home country, what would you do...?

If you knew your brother or nephew would be visiting the home-country, would you then give the money to him, or would you go to Western Union...?

Could it be that it is not just the financial side of sending money that is relevant in choosing the optimum method for remittances.... but that the trust factor needs to be factored in....?

And if so, do studies, assuming a rational choice based on the price of remittance instruments in order to achieve maximum efficiency, make sense?

General principles for international remittance services - BIS consultative report

See this draft report with general principles for international remittance services. It's a consultative report of the Bank for International Settlement, so one may react.

Generally, however, the BIS does not really change the contents on the basis of such reactions. So unless one really has an additional contribution, don't bother... ;-)

European payments are coming.....

This week, a lot of news dealt with the effect and impact of the upcoming standardisation of European payments. That had to do with a conference on SEPA in Amsterdam. In the aftermath a couple of interviews shed more light on topics such as:
- the approval of the EPC-rulebooks; banks can now start develop their systems so that cross-border payments and direct debits in euro may be standardised as of 1-1-2008,
- the possible effect on jobs, with a Unisys official stating that in Europe a total of 100.000 jobswould be lost as a result of SEPA,
- the effects on the clearing houses in Europa, now about 25, but most likely some seven or nine remain,
- the disappearance, in the long run, of the local debit- (PIN) and e-purse schemes (Chipknip); with those being replaced with about on of the five remaining panEuropean products (2 of which undoubtedly Visa / Mastercard).

Whether or not all this will be enough in the eyes of the Commission and the European Central Banks remains to be seen. I am quite confident however that in 20 tears time, we will look back at this period in time, wondering how the regulators could be so stupid to force this European standardisation and the speed of consolidation for the sake of increased competition. While the end game will be more efficient and beneficial to all, we musn't speed ourselves too much.

Clearing and settlement: Competition and Internal Market Commissioners will act unless there is further action from industry

And the beat goes on, as demonstrated in this press release:
Unless market players come forward with effective and realistic changes to improve the clearing and settlement (C/S) of securities in the EU, the European Commissioners for Competition and the Internal Market intend to propose action on the basis of EU competition and single market rules before the summer break. The current fragmented national monopolies in trading infrastructures such as exchanges, clearinghouses and securities depositaries, create high costs for the EU economy and represent significant impediments to efficient cross-border trading in the EU. The securities Industry needs to accelerate work on removing a number of barriers significantly, and provide a firm timetable for change.

Been there, seen it, done that. And the SEPA discussion shows that the Commission will regulate regardless of what happens in the market.

This banging on the EU-drum.... is that really what the citizen wants..?

'Cheerful message': Commission will intervene in EU-Cards market

The Financieele Dagblad reported yesterday that Commissioner Kroes left a prepared speech aside during the Hofstad Lecture in the Netherlands. Just to inform the banks around Europe that price differences between bank-cards in Europe varied more than 400 % in the EU-market. Which will result in further measures by the Commission. In the speech, she called this the 'cheerful mesage'.

The basis for the intervention would be that it is 'incomprehensible' why prices would vary so much in Europe. As Mrs Kroes stated.

Well, perhaps a bit of evolution theory might do good here. What if the Commissioner would just imagine that commercial behaviour, law and history between the EU-countries varies in such a respect that each national retail payment domain is a perfect equilibrium, resulting in the most efficient payment solutions for that specific environment.

Now let's try the comparison with nature. Imagine we take one single rabbit, plant it in 25 EU member states, and wait a couple of hundred years. It would disappear from some EU-states while breeding happily in others. Meanwhile nature would evolve and the rabbit would be distinct in each natural habitat.

Let's go on to imagine that the Commission would decide that this variety of rabbits (some varying even more than 400 % on distinct features) would be no good for the European Integration and market. So the Finnish rabbit, with too much fur compared to the EU-average, needs to be stripped. And the Spanish rabbit, with little fur, needs to grow hair. And so on for all the other countries.

My guess is that, unless you complete egalize the natural habitat in all EU-countries, there's not much use in killing the country-specific variations of rabbits and replacing them with an average rabbit. That average rabbit will freeze in Finland and overheat in Spain.

Let's hope the Commission has the wisdom to intervene in such a manner that a 'guided evolution' of the EU-cards-market may occur, rather than a quantum leap into an ice-age where cards business will not be as interesting any more. Because that ice-age would result in prolonged use of good old costly cash rather than the more efficient cards.