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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
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Eurosysteem Agenda Efficiency and costs of retail payments: Dutch example and European perspective Incentives to enhance efficiency Innovations: POS Innovations: remote
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De Nederlandsche Bank Eurosysteem Efficiency? Confusing efficiency debates Users perspective: mainly low prices Banks perspective: low costs Societys perspective: low social costs, but also focus on security and accessibility
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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
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De Nederlandsche Bank Eurosysteem Variable costs of cash, debit card, e- purse
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De Nederlandsche Bank Eurosysteem Efficiency: the banking sector
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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
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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
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De Nederlandsche Bank Eurosysteem Trends in payments in the EU Source: ECB Payment transactions in the euro area (billions)
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De Nederlandsche Bank Eurosysteem Efficiency: Room for improvement? Value of banknotes and coins as a % of GDP Source ECB SDW,NBU,IMF,HNB
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De Nederlandsche Bank Eurosysteem Efficiency: Room for improvement? Number of card payments as a % of national payments Source: ECB SDW
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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
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De Nederlandsche Bank Eurosysteem Agenda Efficiency and costs of retail payments: Dutch example and European perspective Incentives to enhance efficiency Innovations: POS Innovations: remote
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De Nederlandsche Bank Eurosysteem Incentives to stimulate efficiency Financial incentives Non-financial incentives Positive incentives Negative incentives
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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
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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
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De Nederlandsche Bank Eurosysteem Non-financial incentives (1) 1)Changing consumer perception and creating trust 1 clear message needed!
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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.
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De Nederlandsche Bank Eurosysteem Non-financial incentives (3) 3)Innovation and competition
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De Nederlandsche Bank Eurosysteem Role of DNB Catalyst and facilitator of national discussions Active contribution in European discussions Research on payment patterns and underlying motives
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De Nederlandsche Bank Eurosysteem Agenda Efficiency and costs of retail payments: Dutch example and European perspective Incentives to enhance efficiency Innovations: POS Innovations: remote
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De Nederlandsche Bank Eurosysteem Overview of innovations: POS Time Technology Cash Mag-stripe EMV-chip Contactless Mobile/NFC Biometrics ?
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De Nederlandsche Bank Eurosysteem Mag-stripe cards Number of transactions and acceptance network development per inhabitant, 2001-2006 (Source: World Payments Report 2008, CapGemini)
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De Nederlandsche Bank Eurosysteem EMV-chip EMV compliance progress December 2009 (Source: European Payments Council)
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De Nederlandsche Bank Eurosysteem Contactless card Payments EU: public transport London (Oyster card) Netherlands (OV Chipcard)
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De Nederlandsche Bank Eurosysteem Mobile Payments Expected number of NFC mobiles: 2010: 300 million 2013: 600 million
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De Nederlandsche Bank Eurosysteem Biometrics Security
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De Nederlandsche Bank Eurosysteem Agenda Efficiency and costs of retail payments: Dutch example and European perspective Incentives to enhance efficiency Innovations: POS Innovations: remote
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De Nederlandsche Bank Eurosysteem Overview of innovations Technology Paper- based Online payments & EBPP 2-factor Authentication Mobile/ SMS TV? Time
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De Nederlandsche Bank Eurosysteem Internet banking (1) Percentage of households having internet access (Eurostat, Dec. 2009)
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De Nederlandsche Bank Eurosysteem Internet banking (2) Percentage of households having internet access (Eurostat, Dec. 2009)
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De Nederlandsche Bank Eurosysteem Internet banking (3) Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009)
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De Nederlandsche Bank Eurosysteem Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009) Internet banking (4)
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De Nederlandsche Bank Eurosysteem Online shopping (1) Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)
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De Nederlandsche Bank Eurosysteem Online shopping (2) Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)
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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
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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
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De Nederlandsche Bank Eurosysteem iDEAL: transactions
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De Nederlandsche Bank Eurosysteem Electronic Bill Presentment and Payment New way of receiving and paying bills Step 1:Customer receives a link to new bill by 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
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De Nederlandsche Bank Eurosysteem Questions?
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