Costs of retail payments and payment habits of the public sector

1. Costs of retail payments and payment habits of the public sector Dr. Anikó Turján 1 April2011.

2. STARTING POINTS AND OBJECTIVES Starting points Implementing payments involves costs Network market Market mechanisms alone are not enough to achieve the maximal social benefits Costs studies by a number of NCBs Excessive use of cash in Hungary Market share of the public sector in the „retail” payments is about 30% Costs - dr. Anikó Turján Objectives of MNB Estimating the number of „retail” payments and their costs Overhauling payment habits of the public sector and identifying the most in-effective areas Investigating the options for the increase in efficiency Outlining the ways for achieving greater efficiency

3. SCOPE OF THE TWO PROJECTS Costs - dr. Anikó Turján

4. DATA COLLECTION in CoP Costs - dr. Anikó Turján

5. Number and values of transactions, • Motivations • Local governments DATA COLLECTION IN PHP * Based on data supplied by credit institutions • CR(26)85%* Costs - dr. Anikó Turján

6. DEFINITIONS • PRIVATE COSTS • Total used resources, including the fees paid within the payment chain • SOCIAL COSTS • Total used resources, excluding the fees paid within the payment chain •  the costs of MNB, PSP-s, CiT-s, households, companies and public sector(excluding the fees paid within the payment chain) • PAID AND RECEIVED FEES • within the payment chain • e.g. CiT, banking, interchange, merchant fees, etc. • NET PRIVATE COSTS: RETURN ON COSTS • Private costs less received fees. Costs - dr. Anikó Turján

7. OVERALL RETAIL PAYMENTS IN HUNGARY IN 2009 Costs - dr. Anikó Turján

8. RETAIL PAYMENTS IN CASE OF PULIC SECTOR  Cash related payments 17 % of GDP Each third payment involved the use of cash Costs - dr. Anikó Turján

9. CASH: SOCIAL COSTS AND FLOW OF FEES IN THE PAYMENT CHAIN (TOTAL IN FT BILLIONS) Costs - dr. Anikó Turján

10. CURRENT SOCIAL COSTS Costs - dr. Anikó Turján

11. TYPES OF COSTS Costs - dr. Anikó Turján

12. HYPOTHETICAL SOCIAL COSTS Costs - dr. Anikó Turján

13. SAVINGS IN THE CONTEXT OF CoP Costs - dr. Anikó Turján

14. SAVINGS IN THE CONTEXT OF PHP Note: in case of full electronisation non-payment related aspects/factors should be also considered  Actual size of saving depends on a.m. factors Állami fizetési szokások - Lajos Brigitta

15. COMBINED SAVINGS After excluding the overlaps the potential annual saving: about 107 Ft billion (0,41% of GDP) Costs - dr. Anikó Turján

16. RETURN ON COSTS, I.E. NET PRIVATE COSTS IN CASE OF CASH TRANSACTIONS AND POSTAL INPAYMENT MONEY ORDERS W/O SEIGNIORAGE (FT BILLIONS) Costs - dr. Anikó Turján

17. INTERNATIONAL EXPERIENCES • Cautious, sporadic measures, no clear trend or best practice • Fight on cheques • Cost/transaction-based pricing (Norway) • Plans (Ireland, Malta, UK) • Payment cards • Regulation on interchanges fees (Spain, Australia, US) • Subsidy, VAT reduction (the Netherlands, Argentina, South-Korea) • Surcharges allowed (the Netherlands) or forbidden/limited (Sweden) • Administrative intervention against cash • above a value limit and related to fight on money laundering (Belgium, Italy, the Netherlands, Bulgaria) • More ambitious and stronger regulation affecting retail payments from/to the public sector • Payroll payment for Govt. officials exclusively in scriptural money (Belgium, Latvia, Denmark) • Tax payments exclusively in scriptural money (Belgium, Greece) • Paying pensions almost exclusively in scriptural money (Lithuania) Costs - dr. Anikó Turján

18. SOME IDEAS FOR HUNGARIAN POLICY MEASURES AT VARIOUS TIME HORIZONS • to create an incentive system for encouraging the use of non-cash payment instruments from/to public sector, and thus prompting changes in payment habits • to establish a joint fund for setting up POS terminals at SME retailers (in the undersupplied sectors and regions) • to introduce Govt control above the size of interchange fees • to further electronise the voucher market (via incentive system) and to implement the turnover at the POS terminals • to charge the payer for the use of postal inpayment money order or at least to make its costs transparent for the payer • to establish an overall EBPP open to all users and service providers • to further improve the access to payment services in the countryside:  full electronisation of the postal payment services • to make unambiguous to all that cash payments may be rejected • to improve the overall infrastructure • to centralise the liquidity management in the entire Govt. sector Costs - dr. Anikó Turján

19. CONCLUSIONS • Strong cross-subsidisation between payment instruments at payment service providers • Annual potential savings: Ft billion 107 (0,41% of GDP) • Modernisation is worthwhile • Actual savings depends on the changes in the use of payment instruments • Enough input to launch war on cash • Social dialogue: underway

20. THE IMPORTANCE OF DIALOGUE With public sentiment, nothing can fail; without it nothing can succeed. (Abraham Lincoln) Costs - dr. Anikó Turján

21. AUTHORS Costs of payments Anikó Turján Éva Divéki Éva Keszy-Harmath Gergely Kóczán Kristóf Takács Costs - dr. Anikó Turján Paymenthabits of publicsector Éva Divéki Brigitta Lajos Miklós Luspay