Policy actions to increase payment efficiency – some experiences from Norway Knut Sandal, Norges Bank Joint ECB-MNB conference on retail payments, Budapest, November 2012

 Payment efficiency  Payments in Norway today  Norges Bank mandate  Tools  Current policy 2 Agenda

 Many aspects  Cost-efficiency  Speed  User-friendliness  Security ( trust)  …  Will focus mainly on cost-efficiency 3 Payment efficiency

4 Payments in Norway today

Sources: Norges Bank, ECB, BIS/CPSS and Central Bank of Iceland Cash as a share of means of payment (M1) Per cent. 2010

Number of card transactions per inhabitant Payments and cash withdrawal Sources: Norges Bank, ECB, BIS/CPSS and Central Bank of Iceland

Use of payment cards. NOK billions – 2011 Source: Norges Bank 7

Credit transfers and direct debit transfers (retail customers) Millions of transactions – 2011 Source: Norges Bank 8

2007 Banks’ cost recovery on payment services Income in per cent of costs. Norway, Source: Norges Bank * Interchange fees between banks are excluded in 2007

 Social costs of payments: 0,5% of GDP  Quite low compared with other countries  Payments almost fully electronic (excl. cash)  Two main reasons  Extensive standardisation and cooperation within the banking industry  Prices roughly mirror relative differences in production costs 10 Quite low payments costs

Mandate  Central Bank Act  Norges Bank shall promote an efficient payment system  Payment System Act  Norges Bank shall license and supervise important clearing and settlement systems for banks  Finanstilsynet (FSA) shall receive notifications from payment services systems 11

 No supervisory role towards retail payments  Publish analysis and policy advice  Publish data  Number and value of transactions  Prices  Costs  Speed of transaction 12 Tools

 Annual report on payment systems   Cost surveys  Can compare prices/income with costs  Input to policy  Banks can compare with industry average  Write opinions, give speeches 13 Tools

Former Governor Gjedrem in Dagbladet, May 2010: Banks must raise fees! Must mirror banks’ costs

Industry’s self regulation  Norges Bank role has changed over time  Until early 1990s: Participated extensively in work groups with industry on payment develpment, took ”operational” initiatives  Since then: More analytical/oversight role, occasional participation in work groups  Norges Bank has no intention of describing in detail how payment services should be produced, developed and/or marketed  Good experiences with self regulation  Norges Bank has supported industry initiatives  Harmonising card, giro and ATM systems etc 15

 Payment fees should mirror production costs  Sufficient income gives banks incentive to invest in updating and improving systems  Pricing gives users incentives  Welfare maximation, not cost minimation  Users should pay in the way that maximises their welfare  But welfare maximation with the right conditions (prices)  Zero prices not in customers’ best interest  Very low fees per transaction + annual fee might be relevant  Current card pricing might give incentives to reduce usage of cost-efficient national debit card 16 Current policy advice: Pricing

 Norges Bank has no view on the level of cash usage in society – this is for users to decide  Our cost surveys have revealed that  banks’ cost recovery for cash is very low  cash is efficient in the payment situation  but cash handling infrastructure is expensive  Cash services should be priced according to costs  Banks should increase prices rather than make cash services unavailable  User welfare maximation  Cash still an important contingency solution 17 Current policy advice: Cash

Current policy advice: e-invoicing  Paper-based giro is expensive and not easily integrated with accounting systems  The processing of invoices and giro processing should be fully electronic  From this summer, governmental institutions in Norway should be able to send and receive electronic invoices  Huge savings are to be reaped, both in the governmental and the private sector 18

 Has supported industry moves to  increase number of daily mass payment settlements from 2 to 4  introduce instant payments (project stage)  run pilot projects with near-field communication (NFC) technology  …while highlighting the need for security and operational stability  In general, banks must take clearer responsibility for services operated by external providers 19 Current policy advice: Payment speed

Policy actions to increase payment efficiency – some experiences from Norway Knut Sandal, Norges Bank Joint ECB-MNB conference on retail payments, Budapest, November 2012