De Nederlandsche Bank Eurosysteem Card Payments and Internet Banking Thijs Kettenis 2nd Conference of the Macedonian Financial Sector on Payments and Securities Settlement Systems Ohrid 29 June 2009 De Nederlandsche Bank
Eurosysteem Contents Retail payments and central banks? Cards Innovations Mobile payments Internet banking Efficiency
De Nederlandsche Bank Eurosysteem Retail versus wholesale payments Low value ↔ Large value High volume↔ Low volume Consumers and ↔ Financial institutions businesses Time less important↔ Time critical Low systemic risk↔ High systemic risk
De Nederlandsche Bank Eurosysteem Task of DNB By law (Bankwet 1998): “fostering the well-functioning of payment systems” In practice: safeguarding and promoting safety, stability, continuity, trust efficiency availability and accessibility
De Nederlandsche Bank Eurosysteem Payments: different roles of DNB Operator - Cash - Large value payment system: TARGET2 - Services to securities settlement systems Overseer - Payment systems - Payment products Catalyst
De Nederlandsche Bank Eurosysteem Catalyst Consultation with market parties, government agencies and international forums monitoring developments intervene when deemed necessary
De Nederlandsche Bank Eurosysteem Innovations in retail payments 1. What is happening? 2. When mass adoption of these new applications? Contactless payments at the point-of-sale (POS) Mobile phone Internet
De Nederlandsche Bank Eurosysteem Overview of innovative developments Verified by Visa / MasterCard Securecode
De Nederlandsche Bank Eurosysteem Contactless Payments US case MasterCard Visa American Express Cards: 2005: 5 mln 2006: 30 mln Terminals: 2005: :
De Nederlandsche Bank Eurosysteem Mobile Payments Near field communication (NFC) Contactless chip in mobile phone Wave & Pay vs Chip & Pin NFC can be used for all kinds of applications contactless payment at POS Also P2P payments possible
De Nederlandsche Bank Eurosysteem Mobile payments Screen information on products, balance Keyboard enter information communicate Authorize large payments by PIN Top up from online bank account
De Nederlandsche Bank Eurosysteem Characteristics of Mobile Payments Simple (user friendly) Secure (fraud free) Inter-operable (mobile)
De Nederlandsche Bank Eurosysteem Different systems of Mobile Payments Bank-account-based / wallet system Telco-billing-based Credit-card-based
De Nederlandsche Bank Eurosysteem Proximity / NFC Expected number of NFC mobiles: 2010: 300 million million
De Nederlandsche Bank Eurosysteem Biometrics Security
De Nederlandsche Bank Eurosysteem
De Nederlandsche Bank Eurosysteem Consumer online banking penetration per country Source: Eurostat
De Nederlandsche Bank Eurosysteem Advantages and risks of internet banking Advantage: Efficiency Risks: Unwanted access to bank accounts Reputation risk Operational risk Reputation risk, liquidity risk, credit risk, strategic risk, legal risk…
De Nederlandsche Bank Eurosysteem Regulation of internet banking in the Netherlands Principle-based (↔ rule-based) Approach: Compliance to law and rules Law: “controlled operations” Two-factor authentication Best practices BIS: Risk Management Principles for Electronic Banking Self-regulation of banking sector code of conduct
De Nederlandsche Bank Eurosysteem Two-factor authentication Something you know (password) Something you have (token, TAN) Safer than one-factor Common in European Union “Factors” in use: ► Account number, username, password… ► TAN (paper, SMS), token… Future: hardware token combined with EMV authentication
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
De Nederlandsche Bank Eurosysteem User experience: the webshop
De Nederlandsche Bank Eurosysteem User experience: choice of payment method
De Nederlandsche Bank Eurosysteem User experience: choice of issuing bank
De Nederlandsche Bank Eurosysteem User experience: payment authorisation
De Nederlandsche Bank Eurosysteem User experience: back to the webshop
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
De Nederlandsche Bank Eurosysteem Payment Systems Policy Various payment devices available: Cash, debit card, e-purse, credit card, cheques Instruments are different: costs, convenience, safety Question: How could we pay efficiently?
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: McKinsey Report
De Nederlandsche Bank Eurosysteem EFFICIENCY: McKinsey Report
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 CASH-LESS SOCIETY? Condition: debit card should be cheaper for any transaction size User convenience and safety Anonymity
De Nederlandsche Bank Eurosysteem CASHLESS SOCIETY? LESS-CASH rather than CASH-LESS