The Four-Year Plan of Debit Card Transactions

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1 Rapidly moving towards even securer and more efficient payment transactions Four-Year plan paying by debit card: quick, secure and simple! 1

2 This is the Four-Year Plan of the Stichting Bevorderen Efficiënt Betalen (Foundation for the Promotion of Efficiency in Payments). The Foundation was established as a result of the Convenant Betalingsverkeer 2005 (2005 Payment Transactions Covenant) that was concluded between banks and OTC (over-the-counter) institutions. A Further Agreement was concluded between the aforementioned parties in May This plan indicates which activities the Foundation will perform between 2009 and The most important challenge is a smooth and quick transition from magnetic strip payments to EMV chip payments. In this regard, the Foundation is working towards achieving 100% operational and active EMV terminals by the end of 2011 and supporting OTC institutions in getting their customers used to actually performing EMV transactions as smoothly as possible. Essentially, the Foundation also wants consumers to be able to pay with electronic money at every conceivable place. The Foundation is specifically aiming to extend the number of POS (point-of-sale) terminals to 270,000 by the end of From the Foundation's perspective, debit card payments must increase from 1.7 billion transactions as counted in 2008 to 2.7 billion transactions in This requires an annual growth of 11%. The Foundation wishes to contribute towards this growth through its activities. Lastly, the Foundation is involved in various projects aimed at optimising electronic payments. The Foundation depends on constructive and creative contributions from Everyone involved in the flow of payments to make payment transactions even more efficient. 2

3 Table of Contents Introduction 4 Objectives 7 Current situation 8 Activities for EMV programme 10 POS terminals at more locations 14 Optimisation of electronic payments 17 More debit card payments 21 Assessment 21 Organisation, coordination & communication 22 3

4 Introduction Further growth in the number of debit card transactions is making payment in the Netherlands significantly securer, easier, more efficient and more effective. Paying by debit card will become even safer through the use of EMV chip technology. Everybody involved in the Maatschappelijk Overleg Betalingsverkeer (MOB, or National Forum on the Payment System) agrees on this. Debit card transactions and the use of EMV chip technology must therefore be encouraged. A radical market transformation is underway: from a purely Dutch market in which only one so-called scheme (PIN) is active, to a European market in which various schemes and even more providers will be active. The use of EMV is crucial in this market shift as POS terminals and cards are being equipped with EMV chip technology throughout Europe. This will offer many benefits, such as further international standardisation, an international market operation and joint investment in security and innovation. We are currently in a transitional situation and facing considerable challenges: how to quickly reach that new situation, based on new technology without sacrificing past achievements; how in view of the new circumstances to build a strong enough card payment infrastructure to handle the expected growth; how to ensure the envisaged security and efficiency; how to quickly get customers accustomed to the new method of payment; how to encourage customers to pull out their cards more frequently and pay even small amounts electronically. In order to face these and other challenges, banks and representatives of OTC institutions have joined forces in the Foundation for the Promotion of Efficiency in Payments. The Foundation manages a fund which supports projects that increase the security and efficiency of payment transactions. The Fund was established as a result of the 2005 Payment Transactions Covenant, which was tightened up and updated by means of a Further Agreement. 4

5 Originally it was agreed that the banks and OTC institutions would work together in the Foundation until the end of That cooperation was extended to at least the end of 2012 in the Further Agreement. It was further agreed to intensify a number of activities. Among other things, these additional efforts should lead to all POS terminals in the Netherlands only processing EMV technology transactions by the end of 2011, if this is reasonably possible in practice, instead of by the current deadline of the end of This is necessary in the interest of secure electronic payment transactions. The additional efforts will also aim at an even greater increase in the number of debit card transactions and POS terminals, so further reducing the number of cash transactions. The objectives and activities of the Foundation for are outlined in this Four-Year Plan. More detailed working plans will be drawn up each year and approved by the Board of the Foundation. This also means that if circumstances change in the years to come, this can also have repercussions on the working plans. More information about the Foundation's completed and current projects is available on and 5

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7 Objectives Debit card transactions are a quick, secure and simple payment method for consumers and OTC institutions. Carrying cash around, for instance, is no longer necessary you do not have to draw money at an ATM every time or fear losing your money. Recent research has moreover shown that debit card payments are a very efficient payment method for OTC institutions as well as banks, and are more efficient than paying by cash, for example. The general aim of the Foundation is to encourage measures that provide the right incentives to steer the behaviour of all parties in Dutch payment transactions to the most efficient and secure payment method possible. The social costs of payments may decrease, taking into account the interests of all parties and the security of payments. More specifically, this involves: encouraging OTC institutions to accept debit cards (any brand) as a Payment method and to acquire POS terminals that are EMV-compatible with long-term data communication solutions for this purpose. The Foundation is aiming for 270,000 POS terminals by the end of 2012; encouraging businesses that already accept debit card payments to adapt their infrastructure (POS terminals and data communications) to the extent that this has not already been done so that they can accept EMV card payments. The Foundation is aiming for 100% operational EMV terminals by the end of 2011, so that all transactions can take place using EMV technology, instead of the magnetic strip on cards issued by Dutch banks; encouraging consumers via the employees of the OTC institutions and their employees to pay by debit card instead of cash. The Foundation is aiming for the ambitious number of 2.7 billion electronic debit card transactions by the end of The current solutions cannot always be used to achieve the aforementioned objectives. Specific obstacles have to be removed in a number of cases. The Foundation's responsibilities also include promoting solutions. For example, solutions must be found for vulnerable groups of consumers who find debit card transactions difficult because of their functional limitations. The Foundation also has to look at solutions for people who are currently used to controll their expenditure by paying cash. Solutions must also be found for payment situations in which it is difficult to imagine not paying cash. Lastly, it is also important that the debit card payment infrastructure is strong enough to be able to deal with the expected growth and increased importance of this payment method. The Foundation also wishes to contribute in this regard. 7

8 Current situation It has been possible to make purchases in the Netherlands with a bank card and pin code since There are currently more than 25 million debit cards in circulation which can be used with a pin code in the Netherlands. Practically every Dutch adult over the age of 18 has one or more bank cards. The number of debit card transactions has grown year-on-year since In 2005, when the Payment Transactions Covenant was concluded, 1,334 billion transactions were processed Because growth stagnated at the beginning of this millennium, the parties to the Payment Transactions Covenant agreed in 2005 that the Foundation's activities must contribute towards an increase in the annual number of debit card transactions by one billion quicker than may be expected on the basis of independent growth forecasts. The target figure was fixed at 2,334 billion transactions by the end of ,756 billion transactions were recorded by the end of It was also agreed in 2005 that the Foundation's activities would lead to a significant increase in the number of POS terminals for consumer use. There were 206,392 POS terminals in This increased to 234,393 by the end of Debit card transaction according to a trend with grow situation at the beginning of this milenium 8

9 We can confirm that the tide is turning, growth is no longer stagnant. The growth rate for 2008 debit card transactions has exceeded ten per cent. This change was particularly evident during the last months of This is mainly due to the Klein bedrag? Pinnen mag! (Small amount? Pay by debit card anyhow!) campaign in the supermarket sector, a joint initiative of CBL (Institution for Supermarkets), Currence and the Foundation. This has not only led to an increase in the growth rate of debit card transactions in the supermarket sector, but also spread out to other sectors. Signs on which OTC institutions indicate that they levy a surcharge on small transactions are quickly disappearing. In this way, consumers are increasingly receiving the message that they may pay for small amounts with their debit card. More than that, that it is even a preferred payment method. The growth in the number of transactions continued in POS terminals (including growth in relation to last year) The number of transactions & objectives for 2009 and 2010 set by the Foundation 9

10 Activities for The purpose of all activities in this Four-Year Plan is to promote socially efficient, reliable, secure and cheap payment transactions. Most activities last longer than one year. 2009, in particular, is seen as the run-up and development year for the various activities that the Foundation wishes to carry out. Most of the expenditure will be incurred after EMV programme With EMV, the same technological standard will be used throughout Europe for debit card payments, meaning consumers can all pay in the same way with their bank card and pin code at all European POS terminals. EMV chip technology is also an important way to combat skimming. The most important challenge for the coming years is a smooth and quick transition from magnetic strip payments to EMV chip payments. This will affect everyone involved in OTC payment transactions. Banks, for instance, must provide consumers with cards that have an EMV chip in addition to the existing magnetic strip. Banks must also enter into so-called acquiring contracts with their business clients for the acceptance of EMV technology-based payment transactions from different brands. Schemes must make their specifications and certification compatible with EMV and inform consumers, POS terminal suppliers must supply POS terminals that can process these cards, processors and banks must adapt their systems, businesses must upgrade or replace their POS terminals and consumers must switch from swiping to vertically inserting their cards. The aforementioned parties will have to communicate with each other in this regard. Everyone has his own role to play in the transition to EMV. The Foundation for the Promotion of Efficiency in Payments will focus its activities in this regard on: 1. Achieving 100% operational and active EMV payment terminals by the end of Supporting and equipping OTC institutions (businesses and employees) to enable their customers to become accustomed to actually carrying out EMV transactions by a deadline(s) still to be determined. The breakdown of all POS terminals as at 31 December 2008 (currently 233,718 terminals) in relation to their ability to process EMV cards is provided in the picture below: EMV: 28%, EMV Prepared: 36%, Non EMV: 37% 10

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12 The following is specifically required to achieve the 100% EMV before The POS terminals that are currently EMV-compatible (i.e. 65,041 terminals) must actually be able to process EMV transactions when required. It is necessary that these POS terminals have the correct software version. The POS terminals that have the necessary EMV hardware (i.e. 82,150 terminals) must be upgraded to EMV so that they can actually process EMV transactions when required. It is known that part of this category of POS terminals (more than 40%) can be upgraded remotely. It is important to make progress in the area of debit card payments via broadband at the same time as this migration: the more businesses that migrate to TCP/IP, the better. The POS terminals that are not yet EMV-compatible and cannot be upgraded (i.e. 86,527 terminals) must be replaced by EMV-compatible terminals by the end of The deadline of some of these terminals coincides with this timing. Other terminals will have to be written off prematurely. POS terminals within the fuel sector require special attention in this category. It is known that some of these POS terminals are built into outside pillars at filling stations and replacing the terminals may lead to associated alterations. Newly purchased POS terminals must immediately be EMV-compatible and no old POS terminals without EMV will be sold any longer. 12

13 Suppliers are themselves responsible for upgrading POS terminals and having sufficient stock of replacement POS terminals for the market. As such, they have sold EMVprepared terminals with an upgrade guarantee. Now they have to fulfil their promises on time and ensure that their customers' terminals are quickly upgraded to accept EMV debit card transactions. Banks and OTC institutions will also have to make a concerted effort towards a migration that will take place quickly and successfully. This is based on the assumption that migrations are reasonably possible in practice. Intensive consultation will have to take place among the various stakeholders, particularly with Dutch suppliers of pay systems, resellers, and suppliers of cash register systems. We expressly refer to the last group here, because these suppliers provide connections (between POS terminals and cash register systems) that have led to problems during earlier replacement processes. Specific attention is needed in this regard. Businesses must be jointly encouraged to replace or upgrade their POS terminals in time. A solution is being sought for businesses that are unable to use their POS terminals for the agreed five years. Specific attention will be paid in the EMV programme to particular areas, such as the fuel sector in general and unmanned POS terminals, such as those used in the fuel sector and at Nederlandse Spoorwegen (Dutch Railways). The specific elaboration of this section will take place in The efforts and results will also be detailed in the coming years. The activities relating to the first objective (100% EMV point-of-sale terminals by 31 December 2011) and the communication activities relating to the second objective (assisting and supporting OTC institutions) require careful coordination with other parties that are involved in the EMV migration. This coordination takes place within the EMV coordination group that will report to the MOB (National Forum on the Payment System). 13

14 POS terminals at more locations Consumers must be able to set off without cash and be able to pay with electronic money in all conceivable places. The penetration of POS terminals in the Netherlands is already considerably high. However, consumers can still not pay with a bank card at 14% of retailers (particularly street traders and small and medium food retailers), at half of the catering sector (particularly cafes and snack bars) and at many other traditional and service sectors. The Foundation will continue over the coming years to encourage OTC institutions to accept debit cards as a payment method and to acquire EMV-compatible point-of-sale terminals with long-lasting data communication solutions for this purpose. The Foundation is aiming for 270,000 POS terminals by the end of The Foundation is also focusing on potential entrants in industries and sectors that are lagging behind. An industry-focused and geographical approach is being followed for this purpose. A subsidy scheme for entrants provides assistance in this regard. This will be an activity-based scheme. The Foundation also intends to focus attention on shopping areas where debit card payments are accepted everywhere. It will use debit card consultants to achieve 100% coverage in those areas and optimise and upgrade the debit card payment infrastructure, where necessary. The subsidy may provide assistance in this regard. The plans for this purpose must still be detailed. It is conceivable that shopping areas that achieve the required coverage will be rewarded in future. 14

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17 Optimisation of electronic payments The Foundation aims for the securest, most efficient and easiest possible payment transactions. These characteristics are inherent to debit card payments, but there is obviously always room for improvement. Sometimes these improvements relate to existing issues, but the Foundation also knows from experience that smaller or larger obstacles will still undoubtedly emerge over the coming years and have to be resolved. The following is a summary of the existing issues: Towards a stronger debit card payment infrastructure McKinsey was commissioned by the Foundation to carry out a process analysis of the debit card payment infrastructure in the Netherlands and make suggested improvements from December 2008 to February All stakeholders involved in debit card payments agree on the analysis and solution directions. It was concluded that debit card payments function well in the Netherlands but that a number of technical and organisational obstacles hinder further growth. These obstacles relate to identifying and solving system failures. It was also found that the delivery time for installing payment systems and telecommunication connections is variable and generally too long, and that the installation of broadband and POS terminals is not always successful first time and is poorly coordinated. McKinsey concluded that the main causes were the complexity of the infrastructure due to a large number of product combinations and the lack of a party that is ultimately responsible. The solution directions are threefold: the provider structure must be simplified (with a clear and accessible standard offer aimed at small and medium enterprises and customised solutions aimed at retail chains); a preferably neutral party to assume responsibility for incident management; certification of the infrastructure will have to be increased and made more stringent. The Foundation wishes to contribute together with the relevant stakeholders towards the short-term implementation of these solutions. It will encourage and boost initiatives. Meanwhile, it is clear that stakeholders have actively started implementing the recommendations. The Foundation expects to be able to introduce the improvements by mid

18 Making debit card payments more accessible for all target groups 18

19 In 2008, the Foundation subsidised a Viziris project together with the Dutch Central Bank (DNB). The project involved an experiment to determine the accessibility of debit card payment equipment for people with a limitation. Thorough research was carried out both in a laboratory situation and in practice. This led to practical suggestions for POS terminal suppliers to improve the ergonomics of POS terminals and the legibility of the display. As a result, acceptors were also advised on the choice of a POS terminal and where to place the equipment in their business. One of the suggestions is to place the POS terminal on a stable swivel arm, so that consumers can bring the terminal closer to themselves and manipulate how the light falls on it. Such a swivel arm could be placed in wide supermarket aisles and possibly also at other retailers. As yet, there is no such swivel arm for POS terminals on the market. This is where the initiative comes from to emphatically encourage the development and marketing of such an arm. The Foundation expects that industrial designers would want to capitalise on such a demand, or demands in the same context, together with POS terminal and/or cash register system suppliers. For this purpose, the Foundation wishes to create a Innovation Award that could be given each year to these types of initiatives. Task force for cashless supermarkets Over the last two years, there has been an increased number of supermarket hold-ups. These hold-ups are increasingly focusing on cash registers, as opposed to safes in the past. These hold-ups are an enormous problem for supermarkets, not only because of the material loss, but particularly in relation to being able to guarantee an attractive and safe shopping environment for customers and employees. This problem occurs in all regions and all supermarket formats. The supermarkets that belong to the Organisation of supermarkets (CBL, or Central Bureau for the Foodstuffs Trade) have been taking steps to jointly combat crime for years. In this way, they exchange information on offenders, methods and effective prevention measures and much attention is paid to the issue of hold-ups in the training and instruction of employees. This resulted in a drop in the number of hold-ups until mid The recent increase calls for new and more radical measures: without cash in the supermarket, these stores would be a less attractive target. For this reason, CBL has established a task force and asked the Foundation to support this initiative. The specific responsibility of the task force is to investigate what would be necessary to ban cash from the sector within five years and to search for and test solutions for this purpose. The Foundation contributes towards this special initiative within the scope of its objectives. 19

20 Promoting standardisation At this stage, systems linked to the POS terminal must often be replaced if a new POS terminal or cash register system is purchased. Alternatively, the business often has a very limited choice of POS terminals that can communicate with the rest of the store's back office. This arises because of the lack of standardisation and can delay the innovation and quick implementation of new POS terminals and cash register systems. This problem prevails in the retail and fuel sectors. Internationally operating companies have been striving for years towards global standardisation in the fuel sector. The Foundation wishes to promote standardisation in this area. It is evident that this is a complex task, which is all the more reason why standardisation is preferably approached from a European perspective. Proper coordination with the representatives of banks in the European Payments Council (EPC) is crucial. After all, the standardisation of debit cards and transaction processing is already on its agenda. Encouraging the use of Low Value Payment solutions In general, debit card payments are the cheapest payment method. There are however situations in which businesses prefer cash because of costs. This is particularly the case if businesses have relatively small transactions and low profit margins on their products or services. The chipknip or electronic wallet was originally conceived as a solution for this problem, but this payment method never achieved the scale or success necessary to attain this goal. As a result of the Single Europe Payments Area (SEPA), this product will most likely not continue to exist. Banks and OTC institutions have agreed that banks will carry out extensive research between now and April 2010 into the technical possibilities of replacing low value (cash) payments with electronic (debit card) transactions. The banks will discuss the initial results and lines of thought with the OTC institutions in 2009 and make a specific proposal by no later than April This alternative (or others, if applicable) must be brought to the attention of businesses. The Foundation will probably be able to play a particular role.. Promoting broadband debit card payments Debit card payments via broadband are more favourable for most businesses than having to dial up for each payment transaction via a PSTN or ISDN connection. For this reason, the Foundation has been promoting debit card payments via broadband for a number of years. Meanwhile, practically all retail chains and more than half of franchise businesses have switched to broadband (IP). 20

21 However, there is still significant work to be done in the SME sector: 100,000 POS terminals are still connected to PSTN or ISDN, even though KPN (a Dutch telecommunications company) will cease both types of data connection within a few years. The Foundation is therefore continuing to promote broadband. In addition, the migration to EMV will be used as a good reason to switch to broadband. It is also expected that convenient broadband packages will become available on the market as a result of the aforementioned project: Towards a stronger debit card payment infrastructure. The Foundation will also draw attention to this project. More debit card payments Since 2008, the Foundation has carried out promotional activities to further stimulate the growth of debit card payments. This requires careful coordination with other parties (banks and schemes) that also promote electronic payments. The Foundation has taken the lead in activities involving OTC institutions, their employees and industry organisations, as well as in removing remaining barriers. The schemes and banks are taking responsibility for communication towards consumers and for directly approaching the public. Maximum synergy can occur if public-oriented activities take place at the same time as activities towards OTC institutions. This was achieved for the first time in 2008 by a joint initiative in the supermarket sector. In 2009, there have been joint initiatives with the supermarket sector once again, as well as with the pharmacy sector and a number of national retail formats. Joint marketing campaigns are being supported even more than in The Foundation has an ambitious goal for 2.7 billion debit card payment transactions to take place each year in the Netherlands. This goal must be achieved by 2012 and it is intended that a major part of this growth will be at the expense of cash payment transactions. In order to achieve this goal, an annual growth of more than 11% in debit card payment transactions is required. Assessment Banks and OTC institutions agreed in the Further Agreement to the 2005 Payment Transactions Covenant to assess the results of the arrangements made in the Further Agreement by no later than 1 September The assessment is made up of two parts. It must firstly be established how OTC and other payment transactions develop between 2009 and the end of 2012 with regard to effectiveness, efficiency, security, reliability and cost levels. The second assessment will relate to whether the objectives mentioned in this Four-Year Plan are actually achieved. 21

22 Organisation, coordination & communication Management The Board of the Foundation for the Promotion of Efficiency in Payments has four members. Two of these members are appointed by the NVB (Netherlands Bankers' Association) and the other two are appointed by Platform Detailhandel (Dutch Retail Platform). The Board meets around four times a year. The Fund Manager is the secretary of the Board. The Board decides on an annual working plan for the following year and accompanying budget in November. The Board also decides on projects in excess of a certain amount. It further decides at the beginning of the calendar year whether the objectives determined for the previous year have been achieved and whether lines of activity must be adjusted to achieve the final objectives. Covenant team The Covenant Team is made up of representatives of the signatories of the 2005 Payment Transactions Covenant. The Covenant Team meets six to eight times per year. The Covenant Team is alternatively chaired by a representative from the banks and a representative from the OTC institutions. The secretarial work of the Covenant Team is carried out by the Foundation's secretariat. The Covenant Team draws up the annual working plans and accompanying budgets for the Board. The annual plans are based on plans for each activity and target group. Teams are established for the most important target groups and activities and submit their plans for approval to the Covenant Team. The chairpersons and secretaries of the Teams ensure proper coordination with the Covenant Team and the Four-Year Plan. At the end of the calendar year, the Covenant Team issues a report on the completed year with reference to the stated objectives. The Covenant Team looks in further detail at the content of projects and give support to projects, where necessary. Third parties sometimes approach the Foundation with a request for support. The Covenant Team deals with these requests. The Covenant Team can decide independently on projects up to a certain amount. Secretariat In order to carry out the aforementioned activities plan, the Foundation's secretariat needs to be adequately staffed. For the next few years, there will be 4 FTEs and the Fund Manager. Staff levels may be increased during peak periods. The secretariat is located at Overgoo 15, Leidschendam. 22

23 Coordination of the Foundation's EMV programme with the national EMV programme The emphasis of the Foundation's EMV activities is on promotional activities for a quick EMV transition, on the one hand, and communication with businesses and employees of OTC institutions and their agents regarding EMV migration on the other. Good cooperation with other parties and consultative structures will be necessary for this programme. Communication The objectives set out in this Four-Year Plan can only be achieved if stakeholders strive towards the same goals, if as many people as possible from various support groups are rallied together, and if there is coordinated communication with acceptors and end-users. The objectives and activities must also be actively promoted. To this end, the Foundation uses various resources such as websites, newsletters, press releases and meetings. Specifically, the message will be actively put across that EMV increases the security of OTC payment transactions, that EMV standards for debit card payment transactions must be used, that payment transactions based on EMV technology are accepted and that debit card payments, also in view of expected competition in the market, will continue to contribute towards social efficiency. In order to ensure unambiguous information for everyone involved, all communication in this regard will be coordinated between banks and OTC institutions. Publication Stichting Bevorderen Efficiënt Betalen (Foundation for the Promotion of Efficiency in Payments) P.O. Box AG Leidschendam May