Costs of retail payments and payment habits of the public sector Dr. Anikó Turján 1 April 2011.

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% 2 STARTING POINTS AND OBJECTIVES 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 Costs - dr. Anikó Turján

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

DATA COLLECTION in CoP 4 Costs - dr. Anikó Turján

DATA COLLECTION IN PHP Costs - dr. Anikó Turján 5 CR(105)  90% Dec. financial funds Social security system Central government Local governments CR(26)  85%* * Based on data supplied by credit institutions - Number and values of transactions, - Motivations

6 DEFINITIONS 1.PRIVATE COSTS Total used resources, including the fees paid within the payment chain 2.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) 3.PAID AND RECEIVED FEES within the payment chain e.g. CiT, banking, interchange, merchant fees, etc. 4.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

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

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 14 Cash withdrawals from/ cash deposits to payment accounts  6 million Postal payments  60 million Payments from/to own cashier‘s office  34 million Annual saving at the level of society  21 Ft billion

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

The primary objective of the MNB shall be to achieve and maintain price stability. CONCLUSIONS 19 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

Costs of payments Anikó Turján Éva Divéki Éva Keszy-Harmath Gergely Kóczán Kristóf Takács 21 AUTHORS Payment habits of public sector Éva Divéki Brigitta Lajos Miklós Luspay Costs - dr. Anikó Turján