Policy actions to increase payment efficiency – some experiences from Norway

Knut Sandal, Norges Bank

Joint ECB-MNB conference on retail payments,

Budapest, 15.-16. November 2012

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

Agenda

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Many aspects Cost-efficiency Speed User-friendliness Security ( trust) …

Will focus mainly on cost-efficiency

Payment efficiency

4

Payments in Norway today

UK

Sweden

Norway

Denmark

Iceland

Canada

Switzerland

Japan

Euro area

Singapore

Hong Kong

US

0 5 10 15 20 25 30 35 40 45 50 55

Sources: Norges Bank, ECB, BIS/CPSS and Central Bank of Iceland

Cash as a share of means of payment (M1) Per cent. 2010

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Number of card transactions per inhabitant Payments and cash withdrawal. 2010

Sources: Norges Bank, ECB, BIS/CPSS and Central Bank of Iceland

PolandGermany

SingaporeSwitzerland

IrelandBelgium

NetherlandUK

FinlandDenmarkSwedenCanada

USNorwayNorwayIceland

0 50 100 150 200 250 300 350 400

2011

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Use of payment cards. NOK billions. 2001 – 2011

Source: Norges Bank

01 02 03 04 05 06 07 08 09 10 110

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700Domestic credit cards

International payment cards

BankAxept cards

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01 02 03 04 05 06 07 08 09 10 110

20

40

60

80

100

120

140

160

180

200

220

240

0

20

40

60

80

100

120

140

160

180

200

220

240

Online banking

Mail giroDirect debit

Telegiro

Credit transfers and direct debit transfers (retail customers) Millions of transactions. 2001 – 2011

Source: Norges Bank

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2007

All services Card services

Giro services

Cash services

0 %

50 %

100 %

150 %

71 % 61 % 140 %

27 %

Banks’ cost recovery on payment servicesIncome in per cent of costs. Norway, 2007

All services Card services

Giro services

Cash services

0 %

50 %

100 %

150 %

71 % 61 % 140 %

27 %

Source: Norges Bank

26 %39 %

70 %

88 %

71 %

41 % 15 %

33 %46 %

30 %

12 %

29 %

0 %

50 %

100 %

1988 1994 2001 2007 2007 incl. cash

Cross-subsidy Float Income

*

*

* Interchange fees between banks are excluded in 2007

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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

Quite low payments costs

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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

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No supervisory role towards retail payments

Publish analysis and policy advice

Publish data Number and value of transactions Prices Costs Speed of transaction

Tools

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Annual report on payment systems http://www.norges-bank.no/en/about/published/publications/annual-report-on-payment-syste

ms/

Cost surveys Can compare prices/income with costs Input to policy Banks can compare with industry average

Write opinions, give speeches

Tools

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

costs

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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

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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

Current policy advice: Pricing

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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

Current policy advice: Cash

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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

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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

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, 15.-16. November 2012