The cost of point-of-sale payment transactions in

Transcription

1 The cost of point-of-sale payment transactions in 2012

2 This survey has been financed by the Stichting Bevorderen Efficiënt Betalen (Association for the Promotion of Efficient Payment). Frans Pleijster en Arjan Ruis Zoetermeer, 10 October 2013 The responsibility for the contents of this report lies with PANTEIA. Quoting numbers or text in papers, essays and books is permitted only when the source is clearly mentioned. No part of this publication may be copied and/or published in any form or by any means, or stored in a retrieval system, without the prior written permission of PANTEIA. PANTEIA does not accept responsibility for printing errors and/or other imperfections.

3 Table of contents Management summary 5 1 Introduction Background, objective and definition Strategy of the survey Structure of report 13 2 Cost model Introduction The expense items General expense items Expense items linked to cash and electronic money Internal and external costs of payment Fixed and variable costs 19 3 Incoming payment transactions Introduction Definition of the point-of-sale establishments Degree of acceptance of payment methods Number of point-of-sale transactions in point-of-sale establishments Relative importance of payment methods 27 4 Costs of payment transactions Total cost of payment transactions Internal and external payment costs of payment Fixed and variable payment costs Costs per transaction and cost pressure Saving opportunities 41 5 Development of costs Development of incoming payment transactions The development of the payment costs: the parameters The development of the total cost of payment The development of the costs per sector The development of the cost per payment method Development of the cost pressure 51 6 The payment costs in supermarkets Several properties of payment transactions The payment cost in the supermarket Pin-only cash registers versus combination cash registers 57 7 Fact sheets Introduction The 13 fact sheets 61 3

4 APPENDIX I Research methodology and accountability 75 APPENDIX II The questionnaire 79 APPENDIX III Number of points-of-sale 99 APPENDIX IV Cost concepts 101 4

5 Management summary Background and assignment Representatives of banks and joint point-of-sale establishments agreed to the Payment Transactions Covenant on 17 November The Stichting Bevorderen Efficient Betalen (Association to Promote Efficient Payment) (hereafter to be called the Association) was formed within the framework of this Covenant. The Further Agreement of May 2009 includes the new agreements to the collaboration agreements. The Association has asked PANTEIA to calculate the cost for the entrepreneur of accepting point-of-sale payment methods in This analysis is build on the cost evaluation carried out by PANTEAI at the request of the Association and DNB (The Dutch Central Bank) for 2006 and serves to continue the baseline measurement in , particularly by using the same method of measurement and cost arrangement. Survey strategy The core of the survey is a telephone questionnaire among small and medium-sized companies. Information about their incoming payment transactions and the costs is obtained from a total of 904 small and medium-sized companies. In addition, a written questionnaire is held among the (very) large retail companies at concern level. A total of 22 large companies in the retail trade participated. This has been supplemented with details received from the banks, De Nederlandsche Bank and Currence/Betaalvereniging (The Dutch Payments Association). Finally a time registration was carried out on location to assess the front office time (handling time) per transaction per payment method. The handling time was measured for a total of 3,100 transactions in 23 companies. Definition The survey is directed at point-of-sale transactions in the retail trade, the hotel and catering sector, street trading and filling stations. Pointof-sale transactions in sectors other than these four have not been included in the survey. This means that payments made by cash, debit cards, Chipknip and credit cards in other sectors than the four mentioned are not included in the survey. The survey covers an estimated 85 per cent of all point-of-sale spending and also an estimated 85 per cent of all payments linked to point-of-sale spending. 1 See The point-of-sale payment transactions in The Netherlands; Charting the cost and profit for point-of-sale establishments, EIM 21 December 2007 and the 'Point-of-sale payment transactions in 2009' report, EIM 11 May See also 5

6 Results of the survey Features of the incoming payment transactions Compared to 2009, acceptance of the debit card as a payment method has increased both in street trading and in the hotel and catering industry. Acceptance by retail trade has also increased slightly, but it was already at a high level. The debit card 2 is now accepted by all the large retail companies, by 95 per cent of the small and medium-sized companies in the retail trade, 100 per cent of the filling stations and over 70 per cent of companies in the hotel and catering sector. Acceptance of the debit card by street traders is now more than 50 per cent. 3 The total number of point-of-sale transactions at companies within the scope of this survey amounts to around 5.7 billion. 58 per cent of these were cash transactions and 37 per cent were pin payments. Compared to 2009, the total number of transactions at point-of-sale establishments is at a same level. With respect to 2009, an increase in the number of payments only occurred for the hotel and catering sector. The share of pin payments increased considerably (from 27 per cent to 37 per cent) between 2009 and 2012 causing the relative importance of cash payments to greatly decline (from about 67 per cent to 58 per cent). The differences in payment structure between the surveyed sectors are large. There were 4.0 billion payments in the retail trade, of which 55 per cent were cash payments and 43 per cent were pin transactions. There were 0.6 billion transactions in filling stations, of which proportionally fewer were cash transactions (42 per cent) in comparison with the retail trade. Electronic transactions at filling stations are usually made with debit cards (35 per cent) and with fuel passes (18 per cent). Payments in the hotel and catering sector amount to 0.9 billion, of which at least 78 per cent were cash payments and 15 per cent were made with debit cards. The number of transactions in the street trading sector amounted to 0.2 billion in 2009 of which 83 per cent were cash payments and 11 were payments made with a debit card. A considerable increase in the proportion of pin payments has been determined in all sectors. Pin payments in the street trading sector have even doubled. Spending by using pin payments increased in 2012 to 61 million. This was 52 billion in Cash spending amounted to 39 million in 2012 and was substantially less than the turnover from pin payments. The average size of pin payments dropped further, partly due to the success of the Klein bedrag? Pinnen mag! (Small payment? Pay with debit card!) campaign (from an average of 33 in 2009 to an average of 29 in 2012). There are also great differences in regard to the sales segmentation between the surveyed sectors. Cash turnover in the retail trade amounted to 27.1 billion (33 per cent of the total retail trade spending) and the turnover from pin payments amounted to almost 50 billion (60 per cent). This was 3.7 billion and 6.4 billion respectively at filling stations (respectively 24 per cent and 42 per cent of spending at filling stations). 2 The debit card referred to is the PIN debit card used in the Netherlands. The debit card and pin card concepts will both be used in this report for the same type of payment (with a debit card). 3 This is based on data from the entrepreneur's questionnaire. 6

7 In the hotel and catering sector this was 6.9 billion and 4.5 billion respectively (respectively 48 per cent and 31 per cent of spending in the hotel and catering sector). Finally cash turnover in the street trading sector was 1.3 billion and the pin turnover amounted to 0.4 billion (respectively 72 per cent and 20 per cent of spending in the street trading sector). The cost of payment transactions The total cost of payment transactions at all point-of-sale establishments within the framework of the survey amounted to 1.38 billion in The largest share (about 66 per cent) was from the retail trade. The hotel and catering sector amounted to about 22 per cent, street trading to about 4 per cent and filling stations to about 8 per cent. Regarding to the payment method used, 57 per cent of the payment costs came from cash payments and 31 per cent from pin payments. The credit card counted for 10 per cent of the costs and the fuel pass, lastly, counted for 2 per cent. The rest was born by other payments (gift vouchers, transfers, Internet payment, return vouchers and packaging vouchers, giro slips, Chipknip etc.). These rest types of payment are not dealt with in the survey because they only make up a negligible part of the payments and costs 4. Besides this, the Chipknip will also no longer be available as a payment method after The total of payment costs increased by about 7 per cent between 2009 and The cost increase in the period was partly caused by a rise in the wages for shop workers which are of importance when calculating the cost of payment transactions. In addition the value of the payments has slightly increased, whereby the increase in particular of credit card spending has caused an increase in the costs. Finally, the extra time required to handle payments at the point-of-sale has also caused an increase in the cost. On the other hand the rates for some important cost factors have decreased (the list price for payment terminals for example). The banks' standard charges for settling pin payments have remained unchanged. The payment costs amount to about 1.2 per cent in terms of the turnover inclusive VAT and duty (this was 1.2 per cent in 2009 as well). If we look at individual sectors, we see that the total payment costs in the retail trade amounted to 905 million (1.1 per cent of the consumptive spending in the retail trade) in At the filling stations it amounted to 112 million (0.7 per cent of spending in this sector), the total payment costs in the hotel and catering sector amounted to 305 million (2.1 per cent of the spending) and the comparative figures for the street trading sector were 56 million and 3.1 per cent. Calculated across all the sectors, the cost per cash transaction amounted to 24 cents, 21 cents for pin transactions, 22 cents for fuel passes and 215 cents for credit card transactions. The cost per credit card transaction is considerably higher than the other methods 5 particularly due to the fact that a commission of approx. 2 to 3 per cent of the value of the 4 The results for the Chipknip in 2012 will be presented in this survey to enable a full comparison of the payment costs using the results of 2009, but they will not be discussed further. 5 Credit cards are clearly other payment products: the customer is offered a purchase insurance and a guarantee that is included in the commission the entrepreneur pays. 7

8 transaction is levied on these payments. The average payment in 2012 was almost 69. The cost in the retail trade sector per cash transaction has risen by 1 cent, by 3 cents in the street trading sector, by 2 cents in the hotel and catering sector and by 4 cents at filling stations. The costs per pin transaction in the retail trade sector and at filling stations have remained the same; they have risen by 1 cent in the street trading sector and dropped by 3 cents in the hotel and catering sector. The rise has remained small or has even become a decline because the fixed cost per pin transaction now has much smaller effect on the final cost per transaction due to the great increase in the number of pin transactions. The cost of pin payments in proportion to the turnover achieved is considerably lower than the cost of, for example, cash payments. The marginal cost of an average-sized transaction (2012: 19.81) for cash payments is now 26 cents and 16 cents for pin payments. A further shift from cash to pin could therefore mean a substantial saving in payment costs for many point-of-sale establishments. The supermarket The supermarkets have an increasingly larger market share in retail trade. Spending at supermarkets has risen by 9 per cent to 34 million in the last 3 years. The total number of payments also increased accordingly from 1.8 billion in 2009 to 2.1 billion in The number of pin payments at supermarkets particularly increased sharply (by 40 per cent). The number of cash payments in supermarkets also rose by 14 per cent. 54 per cent of all payments were settled in cash. The pin transaction share is 44 per cent. The cash and pin share in the total turnover is respectively 34 per cent and 65 per cent. The payment costs in the supermarkets rose between 2009 and 2012 from 224 million to 283 million, an increase of 26 per cent. The most important reason for this was the 20 per cent increase in the number of transactions in the same period. A shift in the payment costs from cash to pin has been noticeable in the growing number of pin payments. In per cent of the payment costs at supermarkets related to cash payments and 42 per cent to pin payments. In 2009 this was 64 and 35 per cent respectively. There were about 1,400 supermarkets with one or more pin-only cash registers among the almost 5,500 supermarkets in the Netherlands in It is estimated that this includes about 4,000 (16 per cent) of all 25,000 cash registers in supermarkets. On average about 83,000 payments are made per cash register yearly. In 2012 the costs of the combination cash register amounted to an annual average of 11,400. 7,660 related to cash payments and 3,725 related to pin payments. The costs of a pin only cash register amount to 10,250 annually. The average pin-only cash register is 1,190 (or 10 per cent) cheaper than the combination cash register. 8

9 1 Introduction 1.1 Background, objective and definition Survey has been agreed in Further Agreement The analysis of 2009 is a baseline measurement. The analysis of 2012 is a followup measurement. Cash payments, pin payments, Chipknip payments and credit card payments Background: the Further Agreement and the four -year plan Representatives of banks and joint point-of-sale establishments agreed to the Payment Transactions Covenant on 17 November The Stichting Bevorderen Efficient Betalen (Association to Promote Efficient Payment) (hereafter to be called the Association) was formed within the framework of this Covenant. The Agreement of May 2009 includes the new agreements to the collaboration agreements. Part of this is the Four-year Plan in which the agreements have been concretised in activities. Article 11 of the Further Agreement indicates that an Evaluation will take place in 2013 (before 1 September 2013). This will be both an evaluation of the results of the Four-year Plan and an investigation into the development of the point-of-sale payment transactions in The Netherlands in the period between 1 January 2009 and 31 December 2012 (hereafter: the Survey ). The Evaluation is intended to determine by means of a baseline for 2009 and a follow-up measurement for 2012 whether the objectives in the agreements made, have been met to in the period Objective of the survey The Association asked PANTEIA to calculate the costs to the entrepreneur relating to accepting point-of-sale payment methods in This analysis is build on the cost evaluation carried out by PANTEAI at the request of the Association and DNB (The Dutch Central Bank) for 2006 and serves to continue the baseline measurement in , particularly by using the same method of measurement and cost. The 2012 analysis serves as a follow-up measurement within the scope of the Survey. Definition The survey must provide insight into the composition and level of the costs linked to transactions within the framework of point-of-sale payment transactions made with various types of payment, namely: cash payments, pin payments 8, credit card payments and Chipknip payments for entrepreneurs in The costs entailed in other forms of payment such as bank transfers, automatic collection etc. will not be dealt with in this survey because they form only a small part of the payments and costs. The Chipknip will no longer be available as a form of payment within the foreseeable future. 6 Stichting BEB (2009). Safer and more efficient payment transactions as quickly as possible. Four-year Plan Leidschendam. 7 See The point-of-sale payment transactions in The Netherlands; Charting the cost and profit for point-of-sale establishments, EIM 21 December 2007 and the 'Point-of-sale payment transactions in 2009' report, EIM 11 May See also 8 Although a PIN brand no longer exists the expressions, pinning and pin payments will be used in this report and will refer to payments made with a debit card. The verb to pin has become so normal in the Netherlands that it is no longer associated by definition with the PIN brand. The report also speaks of a pin pass when a debit card is meant. 9 The results for the Chipknip for 2012 will be presented in this survey to enable a full comparison of the payment costs using the results of 2009, but they will not be discussed further. 9

10 The costs will be shown on three levels, the same as in the 2009 analysis: macro: the total cost for all point-of-sale establishments meso: the cost per sector or payment cluster in the sector micro: the cost per method and per transaction Results for 2012 with comparison in respect to 2009 and 2006 The survey will only take place among point-ofsale establishments The survey relates to The survey will result in an overview of the costs for 2012 and a comparison of these costs with A comparison with 2006 will be provided whenever possible. The survey relates to the costs made by companies whose core activity is supplying products and services to consumers on the basis of direct customer contact from a fixed or ambulant site (shop, restaurant, filling station, market stall). This group of companies is referred to as point-ofsale establishments. The point-of-sale establishments within the scope of the survey will be sub-divided into the following sectors: (1) retail food and non-food products, (2) street trading, (3) hotel and catering sector and (4) filling stations with shop 11. Other sectors where consumer products or services are paid for by point-of-sale payment methods (such as public transport, tourist attractions and the provision of services) will not be included. Payment clusters Analysis will take place of 4 sectors sub-divided into 12 payment clusters Payment clusters which are derived from the characteristics of payment conduct will be indicated within the defined sectors. The payment clusters for this survey can be found in the following overview, in line with the 2009 survey of payment costs. The ratio of point-of-sale establishments per sector and payment cluster is included in table 1. Several topics will also be clarified in this publication that were not included in the 2009 report or the 2006 report. This applies for example to the payment costs in supermarkets and the costs relating to pin-only cash registers in A comparison with 2009 will be given in chapter 7 of the fact sheets. 11 Information was gathered about filling stations without a shop in 2009 but this was not reported given the limited participation by companies in this cluster. Filling stations without a shop and unmanned filling stations have not been included in the analysis for the 2012 survey to ensure the comparability with the 2009 results. 10

11 Table 1 Cluster arrangement Sector Payment cluster 1 Retail trade 1. large-scale non-specialist retail trade with high purchase frequency and large purchase sums, such as supermarkets, departmental stores, builder's merchants 2. specialist food retail trade with relatively low purchase frequency and low transaction sums, such as delicatessens, butchers, bakers, greengrocers 3. non-food specialist businesses with relatively low transaction sums but with high purchase frequency, such as chemists and tobacco and leisure shops 4. non-food specialist businesses with high transaction sums but with low purchase frequency, such as fashion shops, shoe shops, sporting equipment shops 5. non-food specialist businesses (also) with deliveries to order such as kitchen and furniture shops 2 Street trading 6. in food 7. in non-food 3 Hotels and catering 8. businesses supplying alcohol (cafés, discotheques, clubs) 9. businesses supplying food (cafeterias, lunch rooms, ice cream parlours, fast food) 10. businesses supplying meals (restaurants) 11. businesses supplying accommodation (hotels, guest houses, conference centres) 4 Filling stations 12. Filling stations with shop Source: PANTEIA, 2013 Analysis of the small and medium-sized companies at independent branch level and of the large retail companies at total enterprise level Both the large companies (the large retail companies in the retail trade) and the small and medium-sized companies were investigated. Large companies include all companies employing over 100 persons at enterprise level. The individual site applies as the reference unit. Companies from the small and medium-sized sector with more than one branch and franchise organisations have been asked to provide information about one certain branch. The larger companies (such as the large retail shops and oil companies) have been asked to provide information about the payment transactions in The Netherlands for the company as a whole. 1.2 Strategy of the survey The survey has been built up from the following: 1. Actualisation of the cost model 2. Data collection 3. Cost analyses 4. Comparison of the costs between 2009 and

12 Actualisation of the cost model Actualisation of rates and measuring method The cost model used by PANTEIA in 2010 (for the 2009 analysis) has been used for measuring the costs in The model used in 2010 has been actualised in respect to the variables used in the model and the rates against which certain activities are valued. Data collection by entrepreneurs Data gathering at small and medium-sized companies and large companies at branch and concern level and at the level of the individual transaction The data (the input needed for the arithmetical model) was gathered by means of: A telephone questionnaire among small and medium-sized entrepreneurs at an individual site level. Information was received from a total of 904 small and medium-sized companies. A written questionnaire among the (very) large retail shops and petrol companies. A total of 22 large multiples in the retail industry have participated. Large companies in the other sectors were approached but have not provided information. The information provided by these retail multiples related to 1 billion transactions with a total value of about 19 billion (this is slightly less than half the turnover of all the large retail shops together in 2012). Time registration on location for the purpose of assessing the front office time (handling time) per transaction per payment method. The handling time was measured at 23 locations for almost 3,100 payments, of which about 1,600 were cash and about 1,500 were electronic payments (mostly payments with debit cards). The composition of small and medium-sized companies and large companies in the survey is shown in table 2Table 2. Appendix I contains a more extensive survey justification. Appendix II contains the questionnaire used. Table 2 Response per sector Retail Street Hotels Filling trade trading and stations catering Number of clusters Net response from small and medium-sized companies Response from large retail companies 22 Source: PANTEIA, 2013 Cost analyses for all point-of-sale establishments per sector with an extra level for supermarkets and pin-only cash registers Cost analyses The cost analyses relate to the following sections: Calculation of the costs per payment method for all point-of-sale establishments together, per sector and per payment method. The costs are divided into the cost categories as stated in appendix IV. The development of payment costs between 2009 and 2012 per payment method for all point-of-sale establishments together and per sector. A comparison with 2006 will be given whenever possible. 12

13 The level and composition of payment costs in supermarkets in 2012, with a comparison of these costs in This has not been previously analysed (in the baseline report of 2009). The amount and composition of payment costs for pin-only cash registers in supermarkets in 2012 compared to combination cash registers. This has not been previously analysed (i.e. in the baseline). 1.3 Structure of report After this introductory chapter the report is structured as follows: The cost model used will be discussed in chapter 2. The incoming payment transactions are discussed in chapter 3. The cost of the payment transactions are discussed in chapter 4. Chapter 5 discusses the development of the costs for the period Chapter 6 discusses the development of payment costs for supermarkets and also the current ratio of these costs between combination cash registers and pin-only cash registers. Chapter 7 offers fact sheets for payment costs at all point-of-sale establishments, for the various sectors and for the various payment methods. 13

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15 2 Cost model 2.1 Introduction The cost of incoming payment transactions occupies a central place in the survey The survey is aimed at the cost of incoming payment transactions at point-of-sale establishments. These are the payment transactions between the customer and the entrepreneur. The outgoing payment transactions transactions between the entrepreneurs and their suppliers and business service providers will be omitted, with the exception of the payments needed to facilitate the takings (bank charges, telecommunication costs etc.). The cost of incoming payment transactions made by the entrepreneur involve a large range of components which will eventually define the payment costs. Good insight into the composition of the costs is necessary if a balanced policy aimed at controlling and/or forcing back the payment costs is to be implemented. The composition of the costs will be presented in this chapter. The individual expense items will be given first. Then various arrangement options for the payment costs will be discussed. This insight is especially important to be able to see how the costs react to changes in transactions (fixed versus variable costs), where savings are possible (wages, capital costs) or which player could implement these savings (internal costs: the entrepreneur; for external costs: the bank, the service provider, etc.). 2.2 The expense items In this survey the cost of payment transactions at point-of-sale establishments are given to mean: the costs made by point-of-sale establishments in connection with the use of the point-of-sale payment methods they accept. The 2009 cost model 14 different expense items relating to incoming payment transactions are distinguished by PANTEIA. This cost outline, with a few small changes, was used for the present survey (see table 3Table 3). No loss of interest as a result of keeping value dates Loss of interest as a result of value dates for cash and electronic payments are no longer included as expense items. The reason is that this method of interest calculation is no longer permitted by European legislation. Consequently 12 expense items are now (in 2012) defined, not 14. These expense items are shown in table 3Table 3 and sub-divided into costs of a general nature and directly payment method related costs. Costs of a general nature are costs made irrespective of the payment method (general costs). 15

16 Table 3 Outline of payment costs per payment method (cash versus electronic) General costs Cost of cash payments Cost of electronic payments back office costs cost of giving change cost of payment terminals front office costs cost of money transport cost of data communication cost of depositing cash loss of interest for cash bank charges for pin and Chipknip payments credit card company charges Source: PANTEIA, 2013 cost of money insurance cost of peripheral equipment A detailed description of the various cost components is given in appendix IV. Further information about the expense items and the data sources used for calculating the expense items in Table 3table 3 is given below (in paragraphs 2.3, 2.4, 2.5 and 2.6). 2.3 General expense items General costs cannot be attributed in advance to a specific payment method. General costs are costs which cannot be ascribed in advance to a specific payment method. They mostly involve administrative affairs and actions linked to the handling of transactions but which can only be ascribed afterwards on the basis of a specific distribution code (such as the ratio of a specific payment method to all payments or an estimation of the time taken for a specific payment method). Back office and front office costs are included as general costs. The results of the questionnaire for entrepreneurs in point-of-sale establishments are used for calculating the back office costs. The back office costs could be calculated by asking how much time the entrepreneurs spend on average per week on back office activities. 12 PANTEIA held a separate survey in 23 point-of-sale establishments to determine the front office costs (see paragraph 2.3). Front office costs include the personnel costs involved in the actual payment settlement. PANTEIA has registered the average time per payment moment and multiplied it by the average gross hourly wage for cash register operators (2012: 15.35) An average gross hourly wage for entrepreneurs in point-of-sale establishments of was used here. A gross hourly wage of was used in An average hourly wage of was used in

17 2.4 Expense items linked to cash and electronic money Expense items linked to cash There are eight different expense items linked to cash As well as the two general cost categories, another six expense items linked to cash payments are presented in table 3Table 3 (therefore a total of eight expense items). The results of this questionnaire have been used to determine to what extend entrepreneurs are confronted with these expense items. These results formed one part of the analysis method. The parameter values, external data by which the results of the questionnaire were multiplied, formed the other part. For example: entrepreneurs were asked in the questionnaire how much small change they fetched from their bank and how often they did this. The commission for withdrawing small change in 2012 can be seen in the data from the various banks. The cost of withdrawing small change can be calculated by multiplying one by the other 14. The loss of interest resulting from using small change is calculated by starting with the average daily money float and valuing it against the debit interest percentage for business current accounts of 0.5 per cent valid for Expense items linked to electronic money Six different expense items have been determined for electronic money As well as the two general expense items, another four expense items linked to electronic money have been presented in table 3Table 3 (a total therefore of six expense items). The information given above (see paragraph 2.3) also applies to these expense items. For example the questionnaire asks how many payment terminals there are in the company and whether use is made of a maintenance contract. This number is multiplied by the parameter value for the purchase of a payment terminal, the depreciation period and the cost of a maintenance contract. The results of these expense items are added together to calculate the total cost of the incoming payment transactions at the point-of-sale establishments. 2.5 Internal and external costs of payment Internal costs Internal costs arising from inside the company Internal costs are defined in the cost model as the costs arising in the company as a result of the acceptance of payment methods. These are the costs to the entrepreneur accepting pin payments from the customer. Seven internal cost components have been defined in the cost model. They are presented in table 4 for each payment method. 14 The charges used to calculate the banking costs (for all forms of payment) are the standard charges offered by the banks In practice large customers with large volumes will be able to insist in negotiations on lower charges, whereby pin transactions are part of the various services purchased by these customers. Therefore the cost of pin transactions in practice will be lower and consequently the difference to cash payments will be more than reported in this report. 17

18 Table 4 Outline of internal costs per payment method Costs Cash Debit card Chipknip Credit card Fuel pass Front office costs X X X X Back office costs X X X X Cost of own money transport Loss of money (theft, fraud) Cost of loss of interest with cash money X X X Fixed cost of payment equipment X X X X Fixed costs for peripheral equipment (cash register etc.) X X X X Source: PANTEIA, 2013 Table 4 shows that three internal cost components apply to cash only. The other four apply to all payment methods. The depreciation and maintenance of payment and peripheral equipment is also included in the internal costs. It should be noted that not all internal cost components need to be perceived by the entrepreneur as expense items. For example, many entrepreneurs will interpret the front office costs, back office costs and the cost of money transport as activities related to a wider packet of tasks the company External costs External costs relate to services to the companies and are charged to the company by third parties. External costs are defined in the cost model as costs invoiced to the entrepreneur by external parties in respect to payment transactions, such as by financial establishments, insurance companies, money transporting companies and telecommunication suppliers. A specific example: the invoices the entrepreneur receives from his Telecom provider because he has an ADSL connection for his payment terminals. Eight external cost components have been distinguished in the cost model: These are arranged in table 5 for each payment method. The individual entrepreneur can reduce his internal costs by creating more efficient business operations. The entrepreneur can reduce his external costs by making the correct choices; for instance when choosing the type of data connection or by choosing an 'all-in-payment package' suitable for his situation and by negotiating the rates as much as possible or by choosing a type of subscription for settling low value payments (LVP). Table 5 Outline of external costs per payment method 18

19 Debit Credit card/fuel Costs Cash card Chipknip pass Deposit costs for cash X Cost of small change at bank X Professional money transport X Bank costs for pin X Bank costs for Chipknip X Credit card costs X Telecommunication costs X X X Insurance costs X Source: PANTEIA, 2013 shows a more varied picture than table 4. It should be noted that all these cost components will be perceived by the entrepreneur as expense items because he has received invoices for them. The individual entrepreneur can reduce his internal costs by creating more efficient business operations. The entrepreneur can reduce his external costs by making the correct choices; for instance when choosing the type of data connection or by choosing an 'all-in-payment package' suitable for his situation and by negotiating the rates as much as possible or by choosing a type of subscription for settling low value payments (LVP). Table 5 Outline of external costs per payment method Debit Credit card/fuel Costs Cash card Chipknip pass Deposit costs for cash X Cost of small change at bank X Professional money transport X Bank costs for pin X Bank costs for Chipknip X Credit card costs X Telecommunication costs X X X Insurance costs X Source: PANTEIA, Fixed and variable costs Many point-of-sale establishments offer the customer various payment options. An important issue then is whether it is attractive for customers to use their pin pass as much as possible. This includes the cost of an 19

20 extra pin transaction is in relation to that of an extra cash payment. These marginal costs (costs of one extra transaction) can be determined by dividing the total costs into fixed and variable costs (see table 6) 20

21 Table 6 Division of payment costs into fixed and variable 15 costs Cost components Fixed Variable Variable Cash Electr transaction sales onic Back office cash X Back office electronic 100 X Front office 100 X X Loss of interest 100 X X Own money transport 100 X Depreciation of cash register 100 X Depreciation of counterfeit money detector 100 X Depreciation cost of safe 100 X Change 100 X Loss of money 100 X Professional money transport 100 X Cost of depositing cash 100 X Insurance costs 100 X Payment equipment for debit cards 92 8 X Debit card subscription costs 100 X Telecommunication subscription for debit cards 100 X pin rates 100 X Telecommunication rate for debit cards 100 X Chipknip payment equipment 92 8 X Chipknip subscription costs 100 X Telecommunication subscription for Chipknip 100 X Rates for Chipknip 100 X Telecommunication rates for Chipknip 100 X Batch processing of Chipknip transactions 100 X Payment equipment for credit card payments 92 8 X Telecommunication subscription for credit cards 100 X Telecommunication tariff for credit cards 100 X Credit card companies' commission 100 X Source: PANTEIA, 2013\ 15 The division of some expense items into fixed and variable is the result of the allocation of components within these cost components into fixed and variable costs and the results of the cost analyses based on this allocation. The allocation is determined in the Cost Model as was used for the analyses in 2006 and

22 Variable costs change as a result of the number of transactions or the transaction sum Fixed costs do not depend on the number of transactions and the sales. This does not apply to variable costs. Variable costs can be linked to whether or not the transaction is achieved. In that case we speak of transaction-related variable costs. They could also depend on the transaction sum. In that case we speak of sales-related variable costs. The presumption of the time horizon is of importance when differentiating between fixed and variable. In the long term all costs have a variable character. A medium time horizon of 7 years for all investments in payment equipment such as cash registers, payment terminals and fuel pumps with built-in payment terminals, has been chosen for this study. A larger share of the costs would have a fixed character with a shorter horizon, and a longer horizon will have a smaller share. Some expense items have a fixed and a variable component Table 6 shows the division used in fixed and variable costs for all the cost components distinguished. The last two columns show whether the cost components apply to cash or electronic payments. The variable costs of a pin payment are almost all transaction-related. This shows that the cost of an extra pin payment of 25 Euros will not differ much from the cost of a pin payment of 50 Euros. The sales-related variable costs for cash payments are relatively important. After all more bank notes are generally involved in larger transactions so that the variable costs increase along with the transaction sum. Table 6 shows that some cost components do not have a copmpletely fixed or variable character. The cost of a payment terminal is for instance 92 per cent fixed and 8 per cent transaction-related variable. Extra pin transactions could after all be processed partly by the already present payment equipment, but extra investments such as payment terminals will be imperative if the number of transactions increases. Back office costs are not claimed for 100 per cent as fixed. A number of activities, such as preparing cash registers for operation, occur every day regardless of the turnover or the number of transactions but an important part of the required activities, such as maintaining sufficient small change, is directly related to the number of transactions. The questionnaire carried out in the framework of this study shows that 18 per cent of the back office costs for cash payments have a fixed character. The majority of variable costs are sales-related. 22

23 3 Incoming payment transactions Introduction The definition of point-of-sale establishments in the framework of this survey will be discussed first in this chapter. This chapter then looks into the acceptance of the payment methods by point-of-sale establishments and their use by consumers for purchases at point-of-sale establishments (incoming payment transactions). The characteristics of incoming payment transactions at the point-of-sale establishments in the year 2012 are described further in this chapter. In chapter 5 more information is presented about the developments since 2006 and All the figures given the text and the tables in this chapter relate to 2012, unless explicitly stated otherwise. 3.2 Definition of the point-of-sale establishments The focus lies on point-of-sale transactions at point-of-sale establishments The survey relates to the cost of paying for point-of-sale transactions at point-of-sale establishments. Point-of-sale establishments include all the companies in retail trade, the hotel and catering industry, street trading and the filling stations which sell over the counter products to the consumer. Transactions made by point-of-sale establishments which are not made over the counter (such as sales via their own website or sales via a mail-order company) fall outside the scope of this survey; this policy was also practiced in the 2006 and 2009 analyses. Other companies outside the selected industries that have point-of-sale transactions, such as recreation parks, museums, transport companies, caravan company shops, associations, pharmacies etc. also fall outside the survey. These companies are not considered to be point-of-sale establishments within the scope of this survey. Product domain: consumptive expenditure on retail trade products, hotel and catering services and fuel and filling station products. The survey aimed at payments made by consumers for goods and services at point-of-sale establishments. However, not all categories of consumptive spending fall within the scope of the survey (the product/service domain). In particularly spending on energy, rent, acquiring transport means, travel tickets, the repair of goods etc. fall outside it. They are not part of the retail trade assortment, the provision of services by hotel and catering companies and/or the sales area of filling stations. Transactions between companies using one of the defined payment methods fall entirely outside the survey. 23

24 The research area covers 113 billion Euros of spending. This equals 85 % of the total spending It can be determined, based on data from the CBS and taking these definitions into consideration, that 41 per cent of all consumptive spending (113 billion Euros) falls within the research area. This equals 85 per cent of the total point-of-sale spending. Table 7 shows how spending within the survey domain is derived from the total consumptive spending. Figure 1 shows the ratio of all the transactions across the point-of-sale establishments in the other sectors. Table 7 From consumptive spending to spending at point-of-sale establishments, 2012 (rounded off values) Expenditure value ( billion) % % Total consumptive spending Non point-of-sale expenditure Point-of-sale expenditure total /- Expenditure at non-point-of-sale establishments on point-of-sale expenditure Expenditure at Point-of-sale establishments (in accordance with analysis definition) from institutional retail trade from filling stations with shop from hotel and catering establishments from street trading Source: CBS, Industrial Board for Hotels and Catering, PANTEIA, Transactions within the recreation, culture and amusement sectors, service provisions, wholesale trade, car trade and repairs, parking and vending industry fall outside the research area Figure 1 Ratio of transactions across point-of-sale establishments and other sectors*, % 86% point-of-sale establishments other sectors * This relates to: recreation, culture and amusement sectors, service provision, wholesale trade, cars (garage, dealers, traders etc.), parking, vending and other. Source: PANTEIA based on data from DNB (The Dutch Central Bank) and Currence,

25 Debit card Chipknip Credit card Cards from lease companies international trucker cards Cards from petrol companies Local service cards 3.3 Degree of acceptance of payment methods The degree of acceptance of the various payment methods at the pointof-sale establishments is shown per sector in Table 8table 8 with the exception of cash. The degree of acceptance of cash is as good as 100 per cent in all sectors 16. The fuel pass is sub-divided into the different types of passes usually presented at filling stations (passes from lease companies and from oil companies, trucker cards and local service cards). Debit cards can now be used at the market Table 8 shows that the debit card is accepted by almost all shopkeepers in retail trade. Every company and every branch of the large retail companies and the filling stations accepts debit cards. In the hotel and catering industry 71 per cent accepts the debit card; this now applies to 54 per cent of street traders. Compared to 2009 there is a clear increase in the degree of acceptance in both the small and medium-sized companies (from 91 per cent to 95 per cent) and the hotel and catering industry (from 64 per cent to 71 per cent). 17 The increase in street trading was even greater (from 30 per cent to 54 per cent). Table 8 Degree of acceptance of payment methods in 2012, per sector Sector Retail trade, small and medium-sized companies Retail trade, large retail companies 95% 26% 38% % 21% 94% Street trading 54% 10% 11% Hotels and catering 71% 16% 37% Filling stations 100% 12% 100% 97% 59% 84% 68% Source: PANTEIA, 2013 Only a minority of point-of-sale establishments in all the defined sectors still accepts the Chipknip. Acceptance of the Chipknip by point-of-sale establishments has clearly declined in 2012 with the exception of street trading, but acceptance there is also low. In practice the Chipknip is only incidentally presented as a payment method. 16 There is only a small number of shops within the point-of-sale establishments where payment cannot be made with cash. This number is really so small that the degree of acceptance for cash can be rounded up to 100 per cent. 17 The degree of acceptance of the various payment methods and their development is based on the answers from the entrepreneurs who participated in the questionnaire about payment costs for the years 2009 or

26 Most large shops in retail trade and most filling stations accept credit cards. The degree of acceptance in other sectors is clearly lower. The total number of payments made with a credit card at point-of-sale establishments is relatively small (see paragraph 3.4). Fuel passes appear in many varieties. Cards from lease companies are accepted by almost all filling stations. International trucker cards are accepted by about 60 per cent of the filling stations. Of course this also relates to the fact that trucker cards are of particular interest to filling stations on main routes used by truckers. Compared to 2009 the degree of acceptance of the various fuel passes has hardly changed. Only the degree of acceptance of the local service card is slightly lower. Paying for using debit cards for small amounts is not yet in the past A number of years ago it was quite usual for some entrepreneurs to ask consumers for a small sum (usually 25 cents) if they wished to use a debit card for a low value payment. Fewer and fewer point-of-sale establishments now require this extra. Nevertheless 5 per cent of the entrepreneurs (who accept electronic payments) state that consumers must pay a charge if they want to use their debit card for less than a certain amount. This happens more often in the street trade and the hotel and catering industry than in retail trade and at filling stations. Moreover in practice an entrepreneur frequently has a sign next to the cash register, but does not charge the customer. The entrepreneurs probably use the signs to encourage customers to pay really small amounts with cash. Furthermore it is presumed that entrepreneurs who have not accepted debit card payments for long, work with a charge. A charge is also made for payment by credit card by about 5 per cent of the entrepreneurs (who accept credit card payments). Most of them always charge an extra. Others only do this under or above a certain sum. 3.4 Number of point-of-sale transactions in point-of-sale establishments. The number of payments per payment method is shown below. The total and average value of these transactions also are also shown. The data are based on information gathered in a sample of small and mediumsized companies in the sectors concerned and from information gathered among large multiples in the retail trade (see also Appendix I). The information from the sample has been upgraded to national level and the upgrade is based on or emulates information from external sources across the total spending per sector and cluster within (CBS, HBD [National Board of Retail], PANTEIA), the registered payments with debit cards (The Dutch Payments Association) and with Chipknip (Currence) per sector and cluster and the analyses of cash, pin, Chipknip and credit card payments from De Nederlandsche Bank. Total number of point -of-sale transactions 5.7 billion transactions Based on an analysis of the data obtained, the total number of point-ofsale transactions is estimated at 5.7 billion (of which 4.1 billion in the retail trade). These 5.7 billion transactions amounted to 113 billion Euros spending in This corresponds with an average transaction sum of 26