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Efficiency and Innovations in Retail Payment Systems - Dutch Perspective

Explore efficiency, costs, and innovations in Dutch retail payment systems with a European perspective. Learn about incentives, remote and POS innovations, user, bank, and societal viewpoints, and key trends in the industry.

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Efficiency and Innovations in Retail Payment Systems - Dutch Perspective

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  1. 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

  2. Agenda • Efficiency and costs of retail payments: Dutch example and European perspective • Incentives to enhance efficiency • Innovations: POS • Innovations: remote

  3. 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

  4. 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

  5. Variable costs of cash, debit card, e-purse

  6. Efficiency: the banking sector

  7. Efficiency: Merchants’ report Average costs per transaction Retail 2001: Cash € 0.17 Debitcard € 0.27

  8. Main policy theme Substitution paper-based by electronic payments • POS payments: cash → debit card • Remote payments: paper transfers → internet banking, e-invoicing, direct debit

  9. Trends in payments in the EU Payment transactions in the euro area (billions) Source: ECB

  10. Efficiency: Room for improvement? Value of banknotes and coins as a % of GDP Source ECB SDW,NBU,IMF,HNB

  11. Efficiency: Room for improvement? Number of card payments as a % of national payments Source: ECB SDW

  12. Efficiency: Room for improvement? Number of POS terminals per million inhabitants Source ECB SDW,NBU Note: Data Ukraine and Macedonia excl imprinters

  13. Agenda • Efficiency and costs of retail payments: Dutch example and European perspective • Incentives to enhance efficiency • Innovations: POS • Innovations: remote

  14. Incentives to stimulate efficiency • Financial incentives • Non-financial incentives Positive incentives Negative incentives

  15. 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

  16. Financial incentives (2) + Rewarding efficient behaviour - Penalising inefficient behaviour by transaction tariff or merchant surcharge • First-mover dilemma • Competition dilemma • Ensuring accessibility

  17. Non-financial incentives (1) • Changing consumer perception and creating trust • → 1 clear message needed!

  18. Non-financial incentives (2) • Increasing acceptance of efficient instruments • Increasing number of POS-terminals • Improving visibility of POS-terminals • Increasing coverage of e-invoicing, iDEAL etc.

  19. Non-financial incentives (3) Innovation and competition

  20. Role of DNB Role of DNB • Catalyst and facilitator of national discussions • Active contribution in European discussions • Research on payment patterns and underlying motives

  21. Agenda • Efficiency and costs of retail payments: Dutch example and European perspective • Incentives to enhance efficiency • Innovations: POS • Innovations: remote

  22. Overview of innovations: POS Technology Biometrics ? Mobile/NFC Contactless EMV-chip Mag-stripe Cash Time

  23. Mag-stripe cards Number of transactions and acceptance network development per inhabitant, 2001-2006 (Source: World Payments Report 2008, CapGemini)

  24. EMV-chip EMV compliance progress December 2009 (Source: European Payments Council)

  25. Contactless card Payments EU: public transport • London (Oyster card) • Netherlands (“OV Chipcard)

  26. Mobile Payments Expected number of NFC mobiles: • 2010: 300 million • 2013: 600 million

  27. Biometrics Security

  28. Agenda • Efficiency and costs of retail payments: Dutch example and European perspective • Incentives to enhance efficiency • Innovations: POS • Innovations: remote

  29. Overview of innovations Technology TV? Mobile/ SMS 2-factor Authentication Online payments & EBPP Paper- based Time

  30. Internet banking (1) Percentage of households having internet access (Eurostat, Dec. 2009)

  31. Internet banking (2) Percentage of households having internet access (Eurostat, Dec. 2009)

  32. Internet banking (3) Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009)

  33. Internet banking (4) Individuals using the internet for internet banking in the last three months (Eurostat, Dec. 2009)

  34. Online shopping (1) Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)

  35. Online shopping (2) Individuals having bought goods online in the last three months (Eurostat, Dec. 2009)

  36. 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

  37. 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”

  38. iDEAL: transactions

  39. 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

  40. Questions?

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