An innovative payment system
With the migration to IBAN on 1 August 2014, the final curtain fell on the Dutch system of credit transfers and direct debits. This year also saw the end of the processing of other Dutch payments, including Chipknip electronic purse payments. This discontinuation of the national infrastructure marked the end of a 100-year era of Dutch non-cash payments. The Dutch payments market in the second half of the previous century was characterised by a combination of competition and collaboration between two separate systems: the Postcheque- & Girodienst (PCGD) and the banks of the BankGiroCentrale (BGC). The government established the PCGD – which became Postbank, and is now part of ING Bank – in 1918 to promote non-cash payments. The banks set up the BGC – which became Interpay, now Equens – in 1967 for the automated processing of payments between the banks.
As a result of differences in standards and processing methods, payments between the PCGD and the BGC banks were slow and not very efficient. Back in 1975, Minister of Finance Wim Duisenberg called on the banks to remove the obstacles and develop a uniform national payment circuit in order to improve efficiency. This was a complex process in technical and commercial terms, which took over twenty years to complete. This resulted in a uniform and efficient system for the user with equal processing times, and full non-customer use of ATMs. Customers of the then Postbank were now able to withdraw banknotes from the ATMs of the other banks, and vice versa.
Nevertheless, this interplay resulted in numerous innovations. From stiff paper punched cards to standardised optically readable credit transfer forms and inpayment transfer cards to online payment orders; from the giro transfer order (PCGD) and payment and eurocheques (banks) to full-scale debit card payments, now also contactless without PIN code.
Importance of collaboration on infrastructure
The successful innovations in the Netherlands were the result of the competitors working closely together on the technical standards. Sometimes, this required some pressure from the authorities. For example in the case of debit card payments, DNB was involved in getting the parties round the table to develop a single standard, one open system and one national PIN brand to ensure that consumers could pay in the same way at all POS terminals. This means that banks did not compete in terms of the technical standard, as they did ten years later when the Chipper e-purse of the Postbank and Interpay's Chipknip were introduced. They did so at huge cost while obstructing rather than accelerating e-purse use. A more recent success story is that of iDEAL, a Dutch invention of a common standard for internet payments, which are now processed using the European standard.
The European challenge
A European infrastructure has now replaced the national structure. European rules and regulations have made it possible to process all euro payments in the EU using the same standards (including IBAN). The European payments market no longer protects national processing organisations and banks from foreign forces. The current challenge is to integrate the national markets into a single competitive and innovative market with a high degree of efficiency on a European scale.
Lessons drawn from experience in the Netherlands
The Dutch experience shows that it is better to strive for technical collaboration at an early stage to arrive at an open infrastructure. Market parties should no longer protect their own markets, but instead should make their systems and products ready for cross-border use. This means that businesses and consumers can increasingly also make use of foreign providers of payment services.
Experience gained in the Netherlands also teaches us the importance of discussions between providers and users of payment services to move the market forward and resolve problems. One example is the agreement between banks and petrol companies and retail chains 25 years ago to get debit card payments off the ground and further improve such payments later on. Another is the National Forum on the Payment System that DNB set up in 2002 at the request of Minister of Finance Hans Hoogervorst. Under the chairmanship of DNB, Dutch representative organisations of consumers, businesses and banks discuss societal issues related to the security and efficiency of the payment system, including the reliability of the debit card payments network.
At the European table, the Euro Retail Payments Board (ERPB) can encourage the market to move forward. This is a European forum on the payment system comprising European representative organisations of stakeholders, chaired by the ECB. The ERPB's agenda includes removal of obstacles to integration, for example the fact that some businesses still refuse to collect payments from foreign accounts (IBAN discrimination). In addition, the ERPB is examining the pan-European use of innovations, including real-time online, contactless and mobile payments.
The extent to which the European market parties manage to jointly tackle the payment system will determine the benefits they can reap from SEPA in the form of reduced costs and payment convenience.