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

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 Societys 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

De Nederlandsche Bank Eurosysteem Efficiency: the banking sector

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)

De Nederlandsche Bank Eurosysteem Efficiency: Room for improvement? Value of banknotes and coins as a % of GDP Source ECB SDW,NBU,IMF,HNB

De Nederlandsche Bank Eurosysteem Efficiency: Room for improvement? Number of card payments as a % of national payments Source: ECB SDW

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

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 Catalyst and facilitator of national discussions Active 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/NFC Biometrics ?

De Nederlandsche Bank Eurosysteem Mag-stripe cards Number of transactions and acceptance network development per inhabitant, (Source: World Payments Report 2008, CapGemini)

De Nederlandsche Bank Eurosysteem EMV-chip EMV compliance progress December 2009 (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)

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)

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)

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

De Nederlandsche Bank Eurosysteem iDEAL: transactions

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 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 billion yearly efficiency gains in European Union

De Nederlandsche Bank Eurosysteem Questions?