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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
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Eurosysteem Contents Retail payments and central banks? Cards Innovations Mobile payments Internet banking Efficiency
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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
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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
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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
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De Nederlandsche Bank Eurosysteem Catalyst Consultation with market parties, government agencies and international forums monitoring developments intervene when deemed necessary
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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
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De Nederlandsche Bank Eurosysteem Overview of innovative developments Verified by Visa / MasterCard Securecode
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De Nederlandsche Bank Eurosysteem Contactless Payments US case MasterCard Visa American Express Cards: 2005: 5 mln 2006: 30 mln Terminals: 2005: 20.000 2006: 200.000
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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
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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
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De Nederlandsche Bank Eurosysteem Characteristics of Mobile Payments Simple (user friendly) Secure (fraud free) Inter-operable (mobile)
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De Nederlandsche Bank Eurosysteem Different systems of Mobile Payments Bank-account-based / wallet system Telco-billing-based Credit-card-based
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De Nederlandsche Bank Eurosysteem Proximity / NFC Expected number of NFC mobiles: 2010: 300 million 2013 600 million
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De Nederlandsche Bank Eurosysteem Biometrics Security
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De Nederlandsche Bank Eurosysteem
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De Nederlandsche Bank Eurosysteem Consumer online banking penetration per country Source: Eurostat
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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…
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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
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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
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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 User experience: the webshop
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De Nederlandsche Bank Eurosysteem User experience: choice of payment method
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De Nederlandsche Bank Eurosysteem User experience: choice of issuing bank
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De Nederlandsche Bank Eurosysteem User experience: payment authorisation
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De Nederlandsche Bank Eurosysteem User experience: back to the webshop
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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”
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De Nederlandsche Bank Eurosysteem iDEAL transactions
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De Nederlandsche Bank Eurosysteem
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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?
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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
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De Nederlandsche Bank Eurosysteem Variable costs of cash, debit card, e- purse
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De Nederlandsche Bank Eurosysteem EFFICIENCY: McKinsey Report
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De Nederlandsche Bank Eurosysteem EFFICIENCY: McKinsey Report
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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
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De Nederlandsche Bank Eurosysteem CASH-LESS SOCIETY? Condition: debit card should be cheaper for any transaction size User convenience and safety Anonymity
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De Nederlandsche Bank Eurosysteem CASHLESS SOCIETY? LESS-CASH rather than CASH-LESS
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