Internet shopping report by EIAA

See the report here. With a number of qualitative date on e-shopping 2005 in Europe.

Record growth or natural growth...?

Interpay reports over 2005 a record growth in processed and authorized transactions. As good as this is, certainly if processing occurs with a minor number of glitches, these 'records' are not that stunning of course. Where economies and populations increase with a small percentage each year, the amount of payments is bound to grow as well. So as long as one processor captures the majority of such transactions, it is bound to set records. And achieve 'record growth'.

By the way, the numbers:
-3,3 billion giro transactions,
-1,75 billion POS and ATM (guest use) transactions
-peak at POS: 8 million transactions (day before Christmas).

Remittances and anti-money laundering

A somewhat under-estimated part of payment business is the remittance industry. Those looking for more information and a discussion on the good, bad and ugly of anti-money laundering for this industry/the public may want to read the following:

Remittance, big business by ethan zuckerman

Remittance and money laundering by Adam

Remittances - the bane of the Anti-Money Laundering Authorities by Ian Grigg


Update... the US government also dug into the subject... by producing an overview of money laundering techniques for different sorts of players in the market (banks, money transmitters, currency exchangers etc..). The title is US Money Laundering Threat Assesment and the funny thing is that they have completely missed the channel of payments via the telecommunications bill/infrastructure.... (a blind spot that they will eventually come to appreciate.)

Rabobank starts notabox: easier invoice payments via the web

Planet Multimedia reports that Rabobank has just launched Notabox. With notabox, the regular Dutch acceptgiro (bill payment) is sent in digital format to the e-banking environment of Rabobank. In that environment, the user may choose to pay the bill whenever it suits him/her. The services is a bank extension of TPG's longer existing Privver-service (which had a more cumbersome payment facility for which users had to sign up separately). Later on this year, more Dutch banks will follow and launch the same interface.

PBS acquires PBS International ... the road to SEPA?

Just a week ago, PBS announced that is buying PBS International, explaining that SEPA is coming and that this is part of a move to anticipate consolidation in the European processing market. Whilst the latter argument may receive most attention, it is the first that may actually be most relevant.

We should recognize that the road to SEPA is paved with good intentions such as in development in the SEPA Cards Framework (nobody knowing exactly what to think of it). The thing that is clear however is that ECB will stick to its 'demands' to ensure that all payment cards can be accepted at all terminals.

If that demand would really stick the only sensible solution for the Danish would be to abolish the local card brands and go international. And in that case Danish banks could better own PBS international (and so influence achieving the SEPA Cards goal) than try sell it to the highest bidder.

The ultimate paper on interchange fees...

Why I ran into this paper only just now I don't know. But suffice to say that once the renowned Brookings Institution bites into any subject one can only expect an analysis that does away with al the regular mumbo-jumbo on interchange fees. This excellent paper: The Economics of Interchange Fees and Their Regulation: An Overview by David S. Evans and Richard L. Schmalensee dates from July 2005 and comes up with the conclusion that neither regulators nor market players will be able to prove that a certain interchange fee is right or wrong...

In their words:
Since there is so much uncertainty about the relation between privately and socially optimal interchange fees, the outcome of a policy debate can depend critically on who bears the burden of proof under whatever set of institutions and laws the deliberation takes place. There is no apparent basis in today's economics - at a theoretical or empirical level - for concluding that it is generally possible to improve social welfare by a noticeable reduction in privately set interchange fees. Thus, if antitrust or other regulators had to show that such intervention would improve welfare, they could not do so.
(...) ...
By the same token, there is no basis in economics for concluding that the privately set interchange fee is just right. Thus, if card associations had to bear the burden of proof - for example, to obtain a comfort or clearance letter from authorities for engaging in presumptively illegal coordinated behavior - it would be difficult for them to demonstrate that they set socially optimal fees.

The only policy relevant conclusion can thus be that whoever has the power (be it legal, be it with the public, with the judge or the power of persuasion) will win the debate on interchange fees...

Which IMHO is true for both the discussion between players in the market (setting the fee) as for the discussion of market with regulators (is the fee appropriate...).

E-money: what the Japanese think....

Online market researcher Interwired has announced the results of a survey on electric money. The company conducted the survey of 6,430 men and women in Japan from December 7 through 12, 2005. When asked about what they associate e-money with, 1,956 of the respondents answered "Edy", followed by "Suica" (603 persons) and "mobile phones" (477). The most popular e-money type chosen by the current users was "Suica" (31.4%), followed by "Edy (card)" 21.4%) and "Web Money" (8.0%).

As for the reason for selecting the type of e-money they use now, 52.0% of the Suica users answered that "they shop frequently at train stations", and 42.0% said "it can be used as a train pass", while more than 30% of the Edy users (both mobile and card) said "there are many ways to be charged", and 36.1% of the mobile Edy users answered "it is easy to check the balance".

When asked about in which situation they wish they could use e-money, 700 users replied "at supermarket", followed by "at convenience store" (446 persons), "for public transportation systems" (427), and "for vending machines" (251).

When asked about if they want to continue using e-money, about 80% of the current users expressed a continued interest, while 36.8% of the non-users said they are interested in using e-money.

Webpay, another IPO coming op...

In some niches payment systems may do well. Webpay operates in the digital content domain and has just raised 20 million euro for further expansion. After which the investment company 3i will sell out to make more money. But will that actually work....?

Time will tell.

E-gold under attack

For quite some years now, e-gold is operating on the web. It is a gold-deposit account with no fixed monetary value. And it allows to some extent anonymous banking (only telling the policy with a warrant, who are its customers). But now that the size of e-gold reserves are well beyond the reserves of many a small central bank, the regulators come in. Ian Grigg reports about it here.

Ideal: hickups and progress

Planet Multimedia reports that 25 % of the payments at Internet shop Coolblue occurs via IDEAL, the joint web-payment mechanism of large Dutch banks. Meanwhile Emerce reports that ABN AMRO has trouble in getting merchants online. A spokesman for ABN AMRO explains (or hopes) that this is temporary.

Dutch competiton authority re-engineers judgment on POS-case

Yesterday the Dutch competition authority NMa issued a press-release to inform the public that in the discussion on the monopoly situation for providing POS-services, it maintains its fees for banks. The eight shareholders of Interpay have to pay a collective fine of EUR 14 million. The NMa has decided to withdraw the fine of EUR 30 million for Interpay.

While the NMa remaines the opinion that it might be possible that Interpay has abused its economic market position, it feels that further research is required to make this case final. In the light of recent events (the agreement of banks and retailers which lowers POS-fees ; the restructuring of the Dutch market so that each bank now competes on POS-fees where Interpay used to be the collective agent ; the actual observations that competition is taking place in the market for POS-authorisation services) the NMa decided not to further pursue this case.

All in all, this is a quite balanced and forward-looking view of the NMa. Why keep on researching the past and determining fines etcetera if all players in the market are looking towards the future and working collectively to make payments more efficient?

Meanwhile, the press release of Interpay does twist the issue a little bit. Interpay states that the NMa withdrew its previous allegations and finds that Interpay has no position of power and does not maintain excessive rates. This is too brief a conclusion which is legally not justified. NMa has not withdrawns its allegations but has ended the work on the case and only withdrew its penalty.

Then again: try explaining such technical detail to the public..... no wonder the European Commission is seeking further guidance on the market abuse issue.

Recurring theme: on patents in payments

Ian Grigg notes that the one-click payment systems of e-cash was already there before Amazon invented (and patented) their system. Which leads to the question: is there really much to patent in payments?

Technically perhaps, but in a functional way money needs to go from A to B. So while many keep on dreaming of making money by inventing payment mechanisms, they better focus on selling something rather than doing this payment stuff.

Before you know, you end up signing your own regulatory measures.. ;-)

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....