Payment and the Dutch payment infrastructure

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Payment and the Dutch payment infrastructure

• Sander Hille
• Project manager GigaABP
• Internet NG - GigaABP accounting workshop
• Friday, June 22, 2001

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Agenda

• Money - what is it?
• Payment
• what is it?
• payment culture
• players
• Commercial banks
• deposit taking money creation
• The banks payment infrastructure
• presentation by examples
• Banks and ICT
• Relation to GigaABP work-in-progress

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Money
Money makes the world go round
smeermiddel van de economie

• There must be enough of it in circulation for
  letting economic transactions take place (the
  money supply)
• It is a scarce good...

But what is it?
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Money (2)
Types of money
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Payment
It is all about efficiency, risk management and
security - reduce transaction costs,
aggregation
1 Bank of International Settlements (BIS), Basel
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Payment (2)

• The Netherlands has one of the most
  efficientpayment infrastructures in the world
• Banks hardly make a profit from payment
• low transaction costs, e.g.
• Automatic collection (incasso) 20-50 cents
  (DFL)
• Credit card DFL 1.00 - 4.00 plus of
  transaction amount
• small margins
• Must distinguish value flow from information flow
• Notion of payment finality
• Giro collection card (acceptgiro)
• Automatic collection (automatische incasso)

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Payment - elementary functions
Payment is a transaction - with information,
negotiation, order and settlement phase
- ordering a (legally) indisputable proof of
payers will must be provided
Functions

• Transaction processing
• identification
• authentication (highly important!)
• transaction authorisation
• Clearing
• Netting
• Settlement
• Reconciliation

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Payment (4)

• involves many topics
• Legal issues
• Risk management (guarantees)
• Security
• Transaction costs
• Convenience

• Payment is a dissatisfier
• Users are dissatified if the system does not
  work properly
• Users are not more satisfied if it works
  properly

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Payment culture

• Varies strongly
• per country - examples will follow
• per sector - in the Rotterdam harbour cash
  payment for collection of containers -
  veemarkten
• per payer and payee - Each individual has its
  own preferences elderly people may prefer
  cash, no PIN - Not everyone may have a bank
  account! Example BT in UK has BT Payment
  Card (replacing of phone stamps) - here lie
  possibilities for personalisation...

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Payment culture per country
Paperlesscredit transfers
Paper-basedcredit transfers
Direct debits
Debit cards
Credit cards
Cheques
Bron S. Kappelhof, Giraal betalings- en
effectenverkeer. Nationaal en internationaal,
1998 BIS, Payments systems in the group of ten
countries
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Payment culture (3)
Late payment is also part of payment culture...
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Payment culture (4)
Reasons for late payment
Intentional a cheap way of obtaining credit...
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The players
?
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The players (2)
Central banks De Nederlandsche Bank N.V. (DNB)
ISPs, Telcos
Credit institutions Commercial banks
Interpay
Telecom/Internetsector
Financialsector
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Banks and deposit taking

• A success story
• ca. 18 million (demand deposit) bank accounts in
  NL
• payment of salaries through demand deposits is
  arecent success (1960s)
• Market for demand deposit accounts is now
  saturated
• Achieved by
• offering a pervasive bank branch network
  (now to be reduced...)
• marketing, branding, trust
• Value added services bank transfer, PIN,
  home-, e-, web-banking.
• Increased convenience

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Banks and money creation lending
Money creation
Thus ca. two thirds of the money supply is
created by private commercial companies!
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Banks and payment
1. Credit transfer between customers of one bank
RaboBank
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Bank and payment (2)
DeNederlandscheBank N.V.
2. Credit transfer betweencustomers of 2
differentbanks
Interpay
ABN-AMRO
RaboBank
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Bank and payment (2)
DeNederlandscheBank N.V.
2. Credit transfer betweencustomers of 2
differentbanks
Interpay
ABN-AMRO
RaboBank
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Banks and payment (3)
3. Acceptgiro

• Some figures (2000)
• For bill payment 198 million per year
• I.e. 800.000 per working day (on average)

• Must be optically read, digitised, stored
• Paper is stored for 5 days
• Digitised accceptgiro must be archived for 10
  years (!)

Truncation
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Banks and payment (3)
3. Acceptgiro
Interpay
ABN-AMRO
RaboBank
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Bank and payment (3)
DeNederlandscheBank N.V.
3. Acceptgiro
Interpay
ABN-AMRO
RaboBank
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Bank and payment (3)
DeNederlandscheBank N.V.
3. Acceptgiro
Interpay
ABN-AMRO
RaboBank
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Banks and payment (4)
4. Cross-border payments
ABN-AMRO
DeutscheBank
Account
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Banks and ICT
What are the issues?

• Authentication
• Availability
• Dealing with large volumes, high value
• Security
• Reliability

Banks are large volume billers,like Telcos,
Utilities and Government
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Relation to GigaABP
In GigaABP we want to know

• Where to plug-in into the banks payment
  infrastructure?
• How to connect to these interfaces
• network requirements
• protocols and formats
• Payment systems architectures
• at business, functional and system level
• Which payment instruments are available that can
  be used on-line?
• How do they integrate with web-enabled (service)
  applications?

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• Sander Hille
• hille_at_telin.nl
• http//gigaabp.telin.nl

Other GigaABP presentations http//gigaabp.telin.
nl https//extranet.telin.nl/docuserver/dscgi/ds.p
y/View/Collection-1060
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Jalda payment API

• Modified RTSP client
• Applet

Service user
Service Provider
Jalda API
Payment server(e.g. EHPT Safetrader)
Payment Service Provider(Bank, ISP, Telco,)
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Jalda payment API
Unmodified RTSP client
Service user
Service Provider
Jalda API
Payment server(e.g. EHPT Safetrader)
Payment Service Provider(Bank, ISP, Telco,)