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De Nederlandsche Bank. Efficiency and innovations in retail payment systems Thijs Kettenis Third Macedonian Conference on Payment and Securities Settlement Systems Ohrid, 29 June 2010. Agenda. Efficiency and costs of retail payments: Dutch example and European perspective - PowerPoint PPT Presentation
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De Nederlandsche Bank Eurosysteem
Efficiency and innovations in retail payment systems
Thijs Kettenis
Third Macedonian Conference on Payment and Securities
Settlement Systems
Ohrid, 29 June 2010
De Nederlandsche Bank
De Nederlandsche Bank Eurosysteem
Agenda
Efficiency and costs of retail payments: Dutch example and European perspective
Incentives to enhance efficiency
Innovations: POS
Innovations: remote
De Nederlandsche Bank Eurosysteem
Efficiency?
Confusing efficiency debates
Users’ perspective: mainly low prices
Banks’ perspective: low costs
Society’s perspective: low social costs,
but also focus on security and accessibility
De Nederlandsche Bank Eurosysteem
Efficiency: No Free Lunch
Main results:
Social costs POS payments 0.65% gdp
per POS transaction: € 0.35
per € sales: 2.4% per household per
annum: € 400
De Nederlandsche Bank Eurosysteem
Variable costs of cash, debit card, e-purse
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0 5 10 15 20 25
transaction amount
E-purse
cost per transaction
Cash
11.63
Debit card
De Nederlandsche Bank Eurosysteem
Efficiency: the banking sector
Exhibit 1
Overview of result for banks from payment services€ million
-779Cash transactions
-101Debit card transactions
-18E-purse transactions
-329
75Other*
Balance-related income
-23Result before tax
-105Cost of invested capital
Direct debits
Economic profit
Giro slips
Current accounts
-94
-159Cross-border payments
-44
Credit transfers
-128
Result per main group
POS payments
Transfers
Balance-related income
Current accounts
Main group
-898
-467
-1,215
* Credit cards (+69) and result from other revenues (+6)Source: Payment Services Analysis
2,6412,641
-1,215
De Nederlandsche Bank Eurosysteem
Efficiency: Merchants’ report
Retail business
Cash € 0.18
Debitcard (PIN)
€ 0.20
e-Money (Chipknip)
€ 0.14
Creditcard € 2.70
Retail 2001:
Cash € 0.17
Debitcard € 0.27
Average costs per transaction
De Nederlandsche Bank Eurosysteem
Main policy theme
Substitution paper-based by electronic payments
POS payments: cash → debit card
Remote payments: paper transfers →
internet banking, e-invoicing, direct debit
De Nederlandsche Bank Eurosysteem
Trends in payments in the EU
Source: ECB
Payment transactions in the euro area (billions)
0
2
4
6
8
10
12
14
16
18
20
2000 2001 2002 2003 2004 2005 2006 2007 2008
debit and credit cards credit transfers direct debits cheques E-money cards
De Nederlandsche Bank Eurosysteem
Efficiency: Room for improvement?
Value of banknotes and coins as a % of GDP
Source ECB SDW,NBU,IMF,HNB
0
2
4
6
8
10
12
14
16
18
20
Euro area Euro area(excl. 200 &
500 euro)
Bulgaria CzechRepulic
Macedonia Romenia Ukraine Albania Croatia
2003 2004 2005 2006 2007 2008
De Nederlandsche Bank Eurosysteem
Efficiency: Room for improvement?
Number of card payments as a % of national payments
Source: ECB SDW
0
5
10
15
20
25
30
35
40
Euro Area Bulgaria CzechRepublic
Hungary Romania Slovenia Poland TheNetherlands
2003 2004 2005 2006 2007 2008
De Nederlandsche Bank Eurosysteem
Efficiency: Room for improvement?
Number of POS terminals per million inhabitants
Source ECB SDW,NBU Note: Data Ukraine and Macedonia excl imprinters
0
5,000
10,000
15,000
20,000
25,000
Euro area Bulgaria Hungary Macedonia Romenia Ukraine Slovenia Poland TheNetherlands
2003 2004 2005 2006 2007 2008
De Nederlandsche Bank Eurosysteem
Agenda
Efficiency and costs of retail payments: Dutch example and European perspective
Incentives to enhance efficiency
Innovations: POS
Innovations: remote
De Nederlandsche Bank Eurosysteem
Incentives to stimulate efficiency
Financial incentives
Non-financial incentives
Positive incentives
Negative incentives
De Nederlandsche Bank Eurosysteem
Financial incentives (1)
Currently costs are covered via:
• Retailers (direct and related to actual use)
• Consumers (indirect, hidden, not linked to actual use)
Overuse of inefficient payment instruments
NEED FOR TRANSPARANT TARIFF STRUCTURE
De Nederlandsche Bank Eurosysteem
Financial incentives (2)
+ Rewarding efficient behaviour
- Penalising inefficient behaviour
by transaction tariff or merchant surcharge First-mover dilemma Competition dilemma Ensuring accessibility
De Nederlandsche Bank Eurosysteem
Non-financial incentives (1)
1) Changing consumer perception
and creating trust
→ 1 clear message needed!
De Nederlandsche Bank Eurosysteem
Non-financial incentives (2)
2) Increasing acceptance of efficient instruments
• Increasing number of POS-terminals
• Improving visibility of POS-terminals
• Increasing coverage of e-invoicing, iDEAL etc.
De Nederlandsche Bank Eurosysteem
Non-financial incentives (3)
3) Innovation and competition
De Nederlandsche Bank Eurosysteem
Role of DNB
Role of DNBCatalyst and facilitator of national discussionsActive contribution in European discussions Research on payment patterns and
underlying motives
De Nederlandsche Bank Eurosysteem
Agenda
Efficiency and costs of retail payments: Dutch example and European perspective
Incentives to enhance efficiency
Innovations: POS
Innovations: remote
De Nederlandsche Bank Eurosysteem
Overview of innovations: POS
Time
Technology
Cash
Mag-stripe
EMV-chip
Contactless
Mobile/NFCBiometrics ?
De Nederlandsche Bank Eurosysteem
Mag-stripe cards
Number of transactions and acceptance network development per inhabitant, 2001-2006
(Source: World Payments Report 2008, CapGemini)
De Nederlandsche Bank Eurosysteem
EMV-chip
EMV compliance progress December 2009
0%10%20%
30%40%50%60%70%
80%90%
100%
FR IE LU BE AT FI CY IT SI NL PT DE EL MT ES SK Euroarea
Debitcards POS ATM
(Source: European Payments Council)
De Nederlandsche Bank Eurosysteem
Contactless card Payments
EU: public transport• London (Oyster card)• Netherlands (“OV
Chipcard)
De Nederlandsche Bank Eurosysteem
Mobile Payments
Expected number of NFC mobiles: 2010: 300 million 2013: 600 million
De Nederlandsche Bank Eurosysteem
Biometrics Security
De Nederlandsche Bank Eurosysteem
Agenda
Efficiency and costs of retail payments: Dutch example and European perspective
Incentives to enhance efficiency
Innovations: POS
Innovations: remote
De Nederlandsche Bank Eurosysteem
Overview of innovations
Technology
Paper-based
Online payments& EBPP
2-factor Authentication
Mobile/ SMS
TV?
Time
De Nederlandsche Bank Eurosysteem
Internet banking (1)
Percentage of households having internet access (Eurostat, Dec. 2009)
De Nederlandsche Bank Eurosysteem
Internet banking (2)
Percentage of households having internet access (Eurostat, Dec. 2009)
0
10
20
30
40
50
60
70
80
90
100
EU27
Albania
Bulgaria
Croatia
Czech Rep.
Hungary
Macedonia
Montenegro
Netherlands
Poland
Romania
Serbia
Slovakia
Slovenia
Srpska
Turkey
2007 2008 2009
De Nederlandsche Bank Eurosysteem
Internet banking (3)
Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009)
De Nederlandsche Bank Eurosysteem
Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009)
Internet banking (4)
0
10
20
30
40
50
60
70
80
EU27
Albania
Bulgaria
Croatia
Czech Rep.
Hungary
Macedonia
Montenegro
Netherlands
Poland
Romania
Serbia
Slovakia
Slovenia
Srpska
Turkey
2007 2008 2009
De Nederlandsche Bank Eurosysteem
Online shopping (1)
Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)
De Nederlandsche Bank Eurosysteem
Online shopping (2)
Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)
0
10
20
30
40
50
60
EU27Bulgaria
Czech Rep.
Hungary
Netherlands
Romania
Slovenia
Croatia
Macedonia
Serbia
Albania
Poland
Montenegro
Srpska
Slovakia
Turkey
2007 2008 2009
De Nederlandsche Bank Eurosysteem
iDEAL: Dutch standard for online banking based electronic payments
Launched in October 2005
Three major banks in the
Netherlands (market share > 90%)
Existing internet banking interfaces used for authentication and authorization
Additional banks
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem
iDEAL: advantages
Customer:• Easy to use (pre-filled transaction form; familiarity with
electronic banking and security)• Safe and trusted payments
Merchant:• Guaranteed payment (no charge-backs)• Low cost• Large potential customer base
Bank:• Further usage of electronic banking systems• Further reduction of “paper based payments”
De Nederlandsche Bank Eurosysteem
iDEAL: transactions
iDEAL transactions
0
1,000
2,000
3,000
4,000
5,000
6,000
Oct
.N
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v.D
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2005 2006 2007 2008 2009 2010
Mo
nth
(x
1.00
0)
0
20
40
60
80
100
120
Cu
mu
lati
ve (
x m
iljo
en)
Month Cumulative 12 months sliding cum.
De Nederlandsche Bank Eurosysteem
Electronic Bill Presentment and Payment
New way of receiving and paying bills
Step 1:Customer receives a link to new billby e-mail or in internet banking environment
Step 2:After review, customer can click “I want to pay” button
Step 3:Customer is directed to internet banking application of “his” bank
Remainder of the process is similar to iDEAL
Estimation: potentially € 50 - € 100 billion yearly efficiency gains in European Union
De Nederlandsche Bank Eurosysteem
Questions?
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