Cross-border payment behaviour of Dutch consumers in 2009. Consequences of SEPA become visible. December 2010

Cross-border payment behaviour of Dutch consumers in 2009 Consequences of SEPA become visible December 2010 Nicole Jonker & Anneke Kosse De Nederlandsche Bank Secretariat of the National Forum on the Payment System

CONTENTS 1. INTRODUCTION... 3 2. SUMMARY OF MAIN OUTCOMES How do Dutch consumers pay in and to foreign countries?... 5 What do Dutch consumers think about paying in and to foreign countries?... 5 How do Dutch consumers view SEPA?... 5 What do Dutch consumers think about the changed General Banking Conditions?... 6 What do Dutch consumers think about foreign payment accounts?... 6 3. POINT OF SALE PAYMENT OUTCOMES Possession of payment cards... 7 Frequency of foreign visits... 7 Use of payment instruments abroad... 7 Assessment of payment instruments... 9 4. REMOTE PAYMENT OUTCOMES Familiarity with IBAN and BIC...11 Frequency and reasons for cross-border payments...12 Use of payment instruments for cross-border payments...12 Assessment of payment instruments...13 5. SEPA OUTCOMES Familiarity with SEPA...15 Familiarity with new General Banking Conditions...15 Expectations of SEPA...16 Opening payment accounts abroad...18 6. CONCLUSIONS AND POLICY RECOMMENDATIONS...20 LITERATURE AND USEFUL LINKS...22 APPENDIX I Composition of sample...23 2

1. INTRODUCTION SEPA is increasingly taking shape The payment system in the Netherlands is undergoing major reconstruction. We are moving towards a single European payments market: the Single Euro Payments Area, or SEPA for short. In January 2008, the European Credit Transfer was introduced in Europe and since 1 November 2010 all banks in Europe are able to process incoming European Direct Debits. Within a few years these European payment instruments are to replace their national counterparts, and identical payment instruments will be used across Europe. The debit card payment system is also being adjusted. European banks now exclusively issue EMV chip cards of internationally accepted brands. Retailers throughout Europe are adapting their POS terminals and are increasingly accepting these international brands. Slow start for SEPA instruments Debit card payment changes most noticeable abroad The use and acceptance of the European Credit Transfer and Direct Debit has got off to a slow start. This suggests that most consumers are still unaware of these new payment instruments. In August 2010, less than 1% of all credit transfers in the Netherlands were made using the European Credit Transfer, while the use of the European Direct Debit is virtually zero. For this reason, European legislation is being prepared to set a final date for abolishing the existing national credit transfers and direct debits. Most consumers are probably also largely unaware of the changes surrounding debit card payments. About 70% of Dutch retailers already have EMV-compatible POS terminals, but the majority still also accept magnetic stripe cards. Consumers who travelled abroad last year, however, may have noticed something of the transition to SEPA in many other European countries, most retailers have already switched over to EMV and are also increasingly accepting international card brands. So Dutch consumers may have found that their debit card is accepted more easily abroad and that this involves the new EMV procedure of inserting the chip card in the machine, keying in the PIN and waiting for the completion of the transaction. Annual DNB cross-border payments survey Since 2007, the Dutch Central Bank (De Nederlandsche Bank, DNB) has carried out an annual survey in order to gain insight into the extent to which all these changes influence the cross-border payment behaviour and payment perceptions of consumers. The purpose of this survey is to cast light on the payment behaviour, perceptions and wishes of Dutch consumers regarding payments to and in other euro countries, both now and over time. A comparison of the results with those for previous years provides an indication of whether and how the international payment patterns of Dutch consumers are changing. Report contains main outcomes This report describes the most important findings and conclusions of the fourth measurement conducted early in 2010. During the weekends of 26 February 2 March and 12 March 16 March, a survey was taken among more than 1700 members of the CentERpanel i, of which 1280 3

persons actually completed the questionnaire (see Appendix I for the composition of the sample). Most questions related to the payment patterns in 2009. Alongside a set of questions about payment patterns and satisfaction with acceptance, safety, costs, ease of use and speed, questions were also asked about the familiarity with and expectations of SEPA and about the reasons for or against opening a payment account with a foreign bank. This report deals successively with the following three subjects: The behaviour and perceptions of Dutch consumers regarding payments in other euro countries. The behaviour and perceptions of Dutch consumers regarding payments to third parties in other euro countries. The expectations and perceptions of Dutch consumers regarding SEPA and their reasons for using the services of foreign banks. The report ends with the main conclusions and recommendations. 4

2. SUMMARY OF MAIN OUTCOMES How do Dutch consumers pay in and to foreign countries? Dutch consumers use cash and credit cards more often when abroad than at home. The debit card, by contrast, is used less often than at home. Since 2006, however, there has been a clear upward trend in debit card usage in foreign countries, alongside a steady decrease in the use of cash. In 2009, the use of the credit card also declined. The overwhelming majority of payments to foreign countries are made via internet banking. Credit card and PayPal are also becoming increasingly used to pay for internet purchases at foreign webstores, marketplaces and holiday sites. What do Dutch consumers think about paying in and to foreign countries? Fewer people are dissatisfied with the acceptance, user friendliness and safety of the debit card abroad, while more are dissatisfied with the use of cash abroad. Within the Netherlands, too, dissatisfaction with debit card acceptance decreased in 2009. However, people have become considerably more concerned about the safety of the debit card in the Netherlands. The debit card is still perceived to be safer than cash in the Netherlands, while it is also regarded as easier to use for domestic payments. Abroad, cash comes out best in terms of acceptance while the debit card is seen as the safest payment instrument. For payments to foreign countries, internet banking is seen as the safest instrument, the credit card as the fastest and easiest-to-use instrument, and PayPal as the most cost-effective alternative. Internet banking is still perceived to be less safe, less easy to use, more expensive and slower for foreign payments than for domestic payments. Furthermore, domestic credit card and PayPal payments are perceived to be more expensive than cross-border credit card and PayPal payments. The dissatisfaction with the safety of internet banking and credit card payments to foreign countries has decreased. As for payments within the Netherlands, the perception of safety remained unchanged. How do Dutch consumers view SEPA? Of the respondents 55% do not yet know where to find their own IBAN and BIC. This is about the same percentage as last year. Even more, namely 73%, do not know where they can find the other party s IBAN and BIC. 5

Consumers prefer that creditors state their IBAN and BIC on invoices and banks adjust the internet banking environment. The name recognition of SEPA increased in 2009; 40% of the respondents had previously heard something about SEPA, as opposed to 28% in 2008. The number of respondents who heard about SEPA from their own bank grew from 5% to 10% within a period of one year. The lack of familiarity with IBAN/BIC and SEPA is relatively large among women and people who rarely make payments to or in foreign countries. Education and income also play a role. The majority of the respondents (65%) expect SEPA to be neither advantageous nor disadvantageous for them. The proportion of respondents who are negative about SEPA on balance, did not change significantly compared to last year. However, the attitude again became less positive and more neutral. Just like last year, most of the advantages mentioned regarding SEPA concern payments in and to foreign countries, while the disadvantages mentioned largely concern payments within the Netherlands; respondents mainly fear that everything will become more expensive. 16% expect SEPA to eliminate all differences between domestic and foreign payments. What do Dutch consumers think about the changed General Banking Conditions? 24% of the respondents say their bank informed them about the changed payment conditions introduced in November 2009. 16% believe that the bank provided them with proper information about the most important changes. Only 10% of the respondents recall the joint bank campaign about the changed General Banking Conditions. In addition, more than half of the respondents paid little attention to the new banking conditions. 18% think that bank charges will rise due to the changes, though 19% also think that their interests as a consumer are now better protected. About half of the respondents, however, are undecided about the consequences of the changes. What do Dutch consumers think about foreign payment accounts? A majority of the respondents say they have no need for a foreign payment account, mainly because they are satisfied with their existing bank. About a quarter of the respondents may want a foreign bank account, particularly in the case of lower banking package charges and higher interest rates on credit balances. Dutch consumers mainly associate foreign accounts with payments in or to foreign countries and not so much with payments within the Netherlands. 6

3. POINT OF SALE PAYMENT OUTCOMES 99% have a debit card for domestic and foreign payments Possession of payment cards Almost all respondents have a Dutch debit card which can also be used abroad (99%). Last year this percentage was 95%. This increase may be due to the abolition of the debit cards that could exclusively be used within the Netherlands. Since 2008 Dutch consumers can only make payments and cash withdrawals with debit cards that can be used both at home and abroad. Credit card ownership rises to 62% Alongside a Dutch debit card, almost 3% have a debit card issued by a bank with a head office in another euro country. In addition, 62% of the respondents have a credit card. That is 6 percentage points more than in 2009. This increase corresponds with the increase in credit cards issued in the Netherlands in 2009 (Source: DNB). Only a few respondents (1.4%) have a mobile telephone that can be used to make payments at specific places. 75% visited another euro country in 2009 Frequency of foreign visits Of the 1280 respondents, 75% visited another euro country in 2009. As in previous years, the neighbouring countries Germany (37%) and Belgium (23%) are mentioned the most often as the last-visited country, followed by France (14%) and Spain (9%). Holiday and a weekend break are overwhelmingly mentioned (83%) as the reason for foreign trips, followed by family visit (20%), shopping (19%) and a day out (16%). Cash still used the most Use of payment instruments abroad The respondents were asked what payment instrument they used most frequently when abroad in 2009. As in previous years and as in the Netherlands, the choice of payment instrument depends on the situation (see Chart 1). Cash is often still the preferred payment instrument, though in some specific situations, such as hotels, restaurants and petrol stations, the debit card or the credit card is also frequently used. Credit and debit cards are used almost equally when abroad this in contrast with the Netherlands where the debit card is used significantly more often than the credit card. but debit card usage is growing fast However, since 2006 there has been a clear downward trend in the use of cash. Up to 2008 inclusive, Dutch consumers increasingly paid using their debit and credit card. In 2009, however, the use of the credit card also decreased. This means that in 2009 Dutch consumers increasingly used the debit card rather than cash and the credit card. 7

Chart 1: Use of payment instruments in different payment situations (in %) Use of payment instruments in different situations 2009 Use of cash abroad 2006-2009 Supermarket 58% 36% 5% Supermarket Specialty food shop 85% 12% Specialty food shop Large non-food purchases 27% 47% 23% Large non-food purchases Small non-food purchases 80% 16% 3% Small non-food purchases Petrol stations Restaurants Other eateries Bar Hotel, campsite etc. Culture and recreation 22% 18% 46% 33% 62% 46% 88% 93% 27% 39% 27% 28% 26% 10% 5% 7% 10% Petrol stations Restaurants Other eateries Bar Hotel, campsite etc. Culture and recreation Drinks and snacks vending machines Drinks and snacks vending machines 95% 4% Parking ticket machines Parking ticket machines 82% 13% 4% Public transport Public transport 80% 14% 2% 4% Taxi Taxi 91% 4% 2% Road tolls Road tolls 46% 11% 41% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cash NL debit card Non-NL debit card Credit card Other Use of debit card abroad 2006-2009 2006 2007 2008 2009 Use of credit card abroad 2006-2009 Supermarket Specialty food shop Large non-food purchases Small non-food purchases Petrol stations Restaurants Other eateries Bar Hotel, campsite etc. Culture and recreation Drinks and snacks vending machines Parking ticket machines Public transport Taxi Road tolls Supermarket Specialty food shop Large non-food purchases Small non-food purchases Petrol stations Restaurants Other eateries Bar Hotel, campsite etc. Culture and recreation Drinks and snacks vending machines Parking ticket machines Public transport Taxi Road tolls 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2006 2007 2008 2009 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2006 2007 2008 2009 8

Growing satisfaction with debit card payments abroad Assessment of payment instruments ii The growing tendency of Dutch consumers to pay with their debit card abroad in 2009 appears to have gone hand in hand with increasing satisfaction with debit card payments abroad. Though the greatest dissatisfaction with debit card payments abroad still relates to the limited acceptance or the Dutch card s failure to function, the dissatisfaction with this aspect decreased from more than 14% in 2008 to 9% in 2009. The dissatisfaction with the ease of use and the safety of the debit card abroad also decreased (see Chart 2). This suggests that consumers can increasingly use their debit card abroad and, possibly, that they are increasingly less likely to be confronted with unknown procedures such as the use of a signature instead of a PIN. The fact that people experience the debit card as increasingly convenient abroad probably also explains the greater dissatisfaction with the usage of cash abroad. Growing dissatisfaction with debit card safety in the Netherlands Within the Netherlands, too, the dissatisfaction with the acceptance of the debit card decreased in 2009. So consumers clearly appreciate the fact that more and more points of sale accept the debit card. However, dissatisfaction with the safety of the debit card in the Netherlands almost doubled from about 3% to just over 5%. More than 60% of the respondents who consider the debit card to be unsafe say they fear falling victim to skimming fraud when using their debit card in stores. In addition, 57% fear being skimmed at an ATM. Other concerns among respondents relate to their PIN being detected at the check-out (24%) or at an ATM (18%). Foreign debit card usage just as safe as in the Netherlands Relatively few respondents are dissatisfied with the safety, acceptance and ease of use of cash and the debit card in the Netherlands or elsewhere in the euro area. The acceptance and safety of cash is perceived to be virtually the same in other euro countries as in the Netherlands. The ease of use of cash is perceived to be slightly higher in foreign countries than in the Netherlands. The acceptance and ease of use of debit card payments get a better rating in the Netherlands than elsewhere in the euro area. In terms of safety, consumers no longer perceive any difference whatsoever between debit card payments in the Netherlands or abroad. This is different from last year, when Dutch consumers felt paying with the debit card was safer in the Netherlands than abroad. In the Netherlands: debit card for ease of use and safety A mutual comparison of the various payment instruments shows that, just like last year, debit card acceptance has the same average rating in the Netherlands as cash acceptance. In terms of safety and ease of use, however, the debit card gets a higher rating. In foreign countries, by contrast, cash comes out best in terms of acceptance. However, the respondents see the debit card as safer than cash when abroad. This was different last year, when the two payment instruments were perceived to be almost equally safe. In terms of ease of use abroad, the debit card also made significant 9

Abroad: cash for acceptance and debit card for safety progress in 2009; cash and the debit card get equally high ratings on this aspect, whereas cash got a higher score last year. Chart 2: Dissatisfaction with payment instruments for usage at home and abroad 2009 (%) 14% 12% 10% 8% 6% 4% 2% 0% Cash in NL Cash abroad Safety Acceptance Ease of use % 2008 14% 12% 10% 8% 6% 4% 2% 0% Debit card in NL Debit card abroad Safety Acceptance Ease of use % 2008 10

4. REMOTE PAYMENT OUTCOMES Launch of IBAN BIC Service Familiarity with IBAN and BIC In order to carry out cross-border credit transfers, banks need the recipient s IBAN and BIC. These codes are also necessary to pay with a European Credit Transfer or European Direct Debit, both for cross-border and domestic payments. In mid-2009, Dutch banks launched the IBAN BIC Service which makes it easy for Dutch account holders to request the IBAN and BIC belonging to Dutch account numbers. In addition, each bank will assist its customers with the transition to IBAN and BIC in its own way. Majority is unable to find their own IBAN and BIC The majority (55%) of the respondents do not yet know where they can find their own IBAN and BIC, which is small progress compared to last year when 58% did not know this. Statistical analyses were used to ascertain whether certain personal characteristics influenced the ability to find the IBAN and BIC. These showed that the lack of familiarity with IBAN and BIC is greater among women than among men. In addition, the over-55s are less likely to know about the IBAN and BIC than the 25-55 age group. Moreover, respondents who made no payments or trips to foreign countries in 2009 are less familiar with the IBAN and BIC than those who had. Need for IBAN and BIC on internet banking site Just like last year, those who say that they do know how to find the IBAN and BIC mainly mentioned their bank statement (46%) or internet banking site (37%) as their source. Just over 4% mentioned the IBAN BIC Service as a means of tracing their own IBAN and BIC. Respondents who do not know where to find their IBAN and BIC say they would prefer to find it on their internet banking site (42%), bank statement (17%) or debit card (16%). 13% would prefer to call the bank. IBAN BIC Service for other people s IBAN and BIC Consumer: banks and business must lead the way Finding the other party s IBAN and BIC is even more problematic; 73% of the respondents are unable to find these codes. Those who are able to do so mainly mention invoices (63%) as their source of information. Surprisingly, 21% of this group make use of the IBAN BIC Service. So there is clearly a need for this service. Nevertheless, in many cases (14%) the respondents simply ask the recipient for their IBAN and BIC. Almost half (47%) of the people who do not yet know the other party s IBAN and BIC would prefer to find this on the invoices. In addition, 25% would like the bank to automatically put the IBAN and BIC in the address database in the internet banking environment, while 5% would prefer to search for the IBAN and BIC on a dedicated website. These results indicate that by no means everybody is aware of the existence of the IBAN BIC Service and that the transition to IBAN and BIC in the Netherlands can be made easier if banks implement changes in the internet banking environment and if creditors state their IBAN and BIC on invoices. 11

Frequency and reasons for cross-border payments 23% made cross-border payments 23% of the respondents transferred money to third parties in another euro country in 2009. That is 3 percentage points more than in 2008 and 2007. 36% concerned webstore purchases, followed by holiday bookings (32%), payment of purchases made in foreign countries (13%) and transfers to family or friends (12%). In addition, 10% indicated they had made cross-border payments in connection with internet purchases from private individuals abroad on an internet marketplace. Method of payment differs per payment reason Internet banking is favourite Use of payment instruments for cross-border payments The consumer s choice of payment instrument for their cross-border payments depends strongly on the reason for the payment (see Chart 3). There appear to have been major changes compared to last year, but this is mainly because relatively few respondents answered these questions. Small shifts in absolute numbers can therefore lead to relatively large percentage changes. For this reason, the differences compared to 2008 are not discussed in detail. However, it is clear that the use of written transfer forms is very limited and that most cross-border payments are made via internet banking. The few Dutch consumers who use a foreign account do this to mainly pay fixed costs abroad. Chart 3: Use of payment instruments by reason 2009 (in %) Family/ friends 91% 3% 3% 3% Service purchases 72% 20% 4% 4% Product purchases 79% 18% 3% Online marketplace 66% 7% 28% Online webstore 44% 39% 13% Holiday bookings 62% 29% 3% Fixed costs 79% 11% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Internet banking from NL account PayPal Paper credit transfer from NL account Other Credit card Internet banking from non-nl account Direct debit from non-nl account 12

but strong competition from credit card and PayPal Internet banking is particularly popular for transferring money to family and friends; as in 2008 about 90% of these transfers were made via the internet. Payments for goods or services purchased previously abroad are also principally made by means of electronic credit transfer. The credit card is the second-most frequently used payment instrument. Online purchases both at webstores and from private individuals and online holiday bookings are chiefly made by means of electronic credit transfer from the Dutch bank account too. But the credit card and PayPal also play an important role here. Payment method ratings differ per aspect Assessment of payment instruments ii The respondents perceive an electronic credit transfer as the safest way of making cross-border payments. The credit card gets the highest rating for ease of use and speed while PayPal gets the highest rating for costs. Written payment instructions get the lowest ratings on all four aspects. Paper credit transfers are even rated as insufficient in terms of costs and speed. Cross-border internet payments less safe, more expensive, slower and less user-friendly On average internet banking, the credit card and PayPal get positive ratings for all factors. However, dissatisfaction remains in certain areas (see Chart 4). The dissatisfaction with the use of internet banking is greater with cross-border payments than with domestic payments; cross-border internet payments are perceived to be less safe, less easy to use, more expensive and slower. However, the difference in perception between domestic and cross-border internet payments became smaller in 2009. SEPA is unlikely to be the cause of this as the number of consumers using a European Credit Transfer is still small, particularly for domestic payments: at the end of 2009 less than 1% of all credit transfers were made with a European Credit Transfer. A third of these were initiated by consumers, of which only 1% concerned a cross-border payment. Rising costs of domestic internet payments The greatest discontent about internet banking concerns the costs. Unlike last year, people now not only perceive the costs of cross-border payments as too high, but also those of domestic payments. The dissatisfaction in this area increased from 7% in 2008 to 16% in 2009, thus virtually eliminating the difference in cost perception between domestic and foreign payments. The reason for this may be the increased banking package charges. Consumers may mainly associate these higher charges with domestic payments. However, in order to draw more specific conclusions about the actual cause of this relatively large change, we propose to ask more detailed questions about this aspect in the next survey. Credit card and PayPal more expensive at home than abroad Cost is also the principal cause of dissatisfaction with the credit card and PayPal. Strikingly enough, both are perceived to be more expensive for payments within the Netherlands than for cross-border payments. With the credit card, the dissatisfaction with this aspect actually increased compared to last year. Retailers in the Netherlands are allowed to charge their customers extra for 13

the use of specific payment instruments. In practice this happens the most with online webstores and particularly for credit card payments. In other countries these extra charges are often not allowed, which may lead Dutch consumers to believe that the credit card is more expensive to use in the Netherlands than elsewhere. Whether this also applies to the use of PayPal is difficult to say. Few concerns about safety of internet and credit card payments Despite the increased media attention for cybercrime, the dissatisfaction with the safety of internet banking and the credit card for domestic payments remained unchanged. In fact, the concerns about the safety of cross-border internet and credit card payments actually decreased. The increased fears of payment fraud at points of sale in the Netherlands (see section 3) seems to have had no adverse impact on the perceived safety of remote payments. Chart 4: Dissatisfaction with domestic and cross-border usage of payment instruments 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% Internet banking within NL Internet banking to another euro country 0% Credit card within NL Credit card to another euro country Safety Ease of use Costs Speed % 2008 Safety Ease of use Costs Speed % 2008 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% Paper credit transfer within NL Paper credit transfer to another euro country 0% PayPal within NL PayPal to another euro country Safety Ease of use Costs Speed % 2008 Safety Ease of use Costs Speed 14

5. SEPA OUTCOMES 40% have previously heard of SEPA Familiarity with SEPA The respondents were asked whether they had previously heard or read about SEPA (other than via this or previous surveys). 40% confirmed this was the case iii. This suggests that, after falling to 28% in 2009, the name recognition of SEPA among consumers rose again. However, the level of 43% achieved in March 2008, just after the launch of the European Credit Transfer, has not yet been reached. mainly men, high incomes and frequent foreign payers Statistical analyses were used to ascertain whether awareness of SEPA was attributable to personal characteristics. It emerged that generally more men have heard about SEPA than women. In addition, people with a relatively high income have heard about SEPA more often than people from the lower income categories. It was also found that respondents who made no cross-border payments or trips in the previous year are less familiar with SEPA. This may suggest that people with cross-border payment experiences pick up information about SEPA faster than people who exclusively make domestic payments. Banks are stepping up communication As in the previous years, the newspaper is the most frequently-mentioned source of SEPA information (24%), followed by radio/tv (10%). The proportion of respondents who were informed about SEPA via their own bank increased sharply compared to the previous year, namely from 5% to 10%. The internet (6%), work (4%) and magazines (3%) are also mentioned as sources. Familiarity with new General Banking Conditions In order to promote the unification of the European payments market, the regulations for payment services in Europe were adjusted on 1 November 2009 at the instigation of the European Commission. The Dutch banks subsequently adjusted their General Banking Conditions to these new rules. In order to inform the Dutch public about this, the Dutch banks conducted a joint campaign in the period from 24 August to 4 September 2009. The campaign consisted of adverts in national newspapers, radio commercials and billboards. In addition, the banks provided their customers with individual information via letters or announcements on their internet banking sites. 25% received information from bank 40% of the respondents indicated that they had heard or read about the new payment conditions. Banks played an important role in this respect: 25% of the respondents said they received information from their own bank. Other sources of information included newspapers (16%), the internet (5%) and radio/tv (5%). 15

51% paid little attention to changed conditions To gain a better understanding of the effectiveness of the banking campaign, some assertions were put to the respondents. Their answers show that 10% clearly recalled the campaign. In addition, 16% believe that they were well informed about the most important changes in the General Banking Conditions, which is less than the aforementioned 25% who received information from the bank. Evidently, the information provided by the banks was not sufficient for everyone to understand what the most important changes were or many consumers have already forgotten the information. The campaign prompted 9% to read the new conditions while 1% contacted the bank. More than half (51%), however, say they paid little attention to the new conditions. 18% fear higher bank charges About half of the respondents have no real opinion about the possible consequences of the changed General Banking Conditions. Opinions among the other half vary strongly: 18% of the respondents think that the bank charges will increase as a result of the changes, but 19% think that their interests as a consumer are better protected now. One third of the respondents believe that the new conditions will lead to virtually no changes. Consumer moderately positive about SEPA Expectations of SEPA After a brief explanation about SEPA the respondents were asked to indicate on a 7-point scale to what extent they expect SEPA to be advantageous or disadvantageous for them. 13% of the respondents had no opinion. How the other 87% think is shown in Chart 5. The majority (65%) have a fairly neutral attitude, 13% expect SEPA to have mainly disadvantageous effects and 23% think the net effect will be advantageous. The number of respondents who see mainly disadvantages on balance has not changed significantly compared to the previous years. However, the overall attitude has become less positive and more neutral. In addition, the results show that people who had previously heard of SEPA are more positive than those who had never previously heard of SEPA (see Chart 6). Chart 5: Expectations of SEPA (in %) Average rating (Scale 1-7) 2010 4% 7% 65% 14% 8% 4,1 2009 5% 5% 59% 17% 9% 4,2 2008 4% 6% 22% 22% 29% 14% 5,0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Highly disadvantageous Neutral Highly advantageous 16

Chart 6: Expectations of SEPA (in %) People who had previously heard of SEPA Average rating (Scale 1-7) 2010 4% 7% 58% 18% 10% 4,2 2009 8% 9% 40% 22% 14% 4.3 2008 5% 7% 20% 23% 29% 14% 5.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Highly disadvantageous Neutral Highly advantageous People who had never previously heard of SEPA Average rating (Scale 1-7) 2010 4% 7% 69% 11% 6% 1% 4,0 2009 3% 3% 68% 14% 6% 2% 4,1 2008 3% 4% 24% 22% 29% 15% 5.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Highly disadvantageous Neutral Highly advantageous 68% see concrete benefits of SEPA mainly for payments in and to foreign countries The respondents were also asked to say what specific advantages and disadvantages they expect of SEPA. They could choose from a wide range of options. 68% of the respondents expect some benefit from SEPA, which is the same percentage as last year. Table 1 gives the six most-cited advantages and disadvantages. Some percentages have changed slightly, but the respondents largely mention the same advantages as last year, i.e. easier-to-use (40%), faster (16%) and cheaper (15%) payments to and from foreign countries as well as wider acceptance (16%) and greater safety (11%) of debit card payments abroad. In general, therefore, people mainly see advantages for payments in and to foreign countries. In addition, 16% expect the differences between domestic and cross-border payments to disappear entirely. Disadvantages mainly for domestic payments Nevertheless, almost half (48%) also expect SEPA to have concrete disadvantages. In contrast with the expected advantages, most of the disadvantages mentioned relate to payments within the Netherlands. People particularly expect to be financially worse off. Just like last year, many respondents expect the periodic banking package charges to rise as a result of SEPA (30%). In 17

addition, 8% expect lower savings interest rates and 5% anticipate higher retail prices. Besides these fears of lower interest rates and higher prices, people also expect that credit transfers within the Netherlands will become more complicated (11%) and more expensive (9%). Table 1: Top 6 most-cited advantages and disadvantages of SEPA (in %) Personal advantages 2010 2009 Personal disadvantages 2010 2009 1. Transferring money to and receiving money from abroad will become easier 2. Transferring money to and receiving money from abroad will become faster 3. Elimination of differences between domestic and cross-border payments 4. Debit card can be used more frequently to pay abroad 5. Transferring money to and receiving money from abroad will become cheaper 6. Paying with debit card abroad will become safer 40% 34% 1. Higher banking package charges 30% 25% 16% 18% 2. Transferring money within the Netherlands will become more complicated 16% n.a. 3. Transferring money within the Netherlands will become more expensive 16% 24% 4. Bigger probability of new bank crisis 15% 18% 5. Lower interest rates on payment/savings accounts 11% 11% 9% 10% 9% 3% 8% 3% 11% 15% 6. Higher retail prices 5% 3% Little need for foreign payment account Opening payment accounts abroad The unification of the European payments market will make it easier for consumers and companies to make payments within the whole of Europe from only a single payment account. In addition, European banks can opt to start offering payment services to consumers and companies in other euro countries because the unified market will cover the entire euro area and will no longer be bounded by national borders. To gauge the interest of Dutch consumers in purchasing payment services from foreign banks, the respondents were asked whether they would consider opening a payment account at a bank elsewhere in the euro area. 25% of the respondents said they might consider this, but the overwhelming majority (73%) has no need for a foreign payment account. These percentages are virtually identical to those of last year; the same applies to the most-cited reasons for deciding for or against opening a foreign payment account (see Table 2). Reasons for foreign account: finances, ease of use and foreign stay The main reasons mentioned for opening a payment account at a foreign bank are financial advantages such as interest on credit balances (48%) or lower banking package charges (40%). In addition, greater ease of use, such as arranging all your banking business online (18%) and wider debit card acceptance (11%), might persuade many Dutch consumers to open such an account. Moreover 13% of the respondents would only consider opening a foreign payment account if they were planning a long stay abroad. This indicates that in many cases a foreign account is still associated with cross-border payments; few people realise that SEPA will eliminate the differences between domestic and cross-border payments and that a foreign account can be used as well instead of a Dutch account for payments within the Netherlands. 18

Table 2: Top 5 most-cited reasons for and against opening a foreign payment account (in %) For Against 1. Interest on payment account 48% 1. Satisfaction with services from existing bank 75% balance 2. Lower banking package charges 40% 2. Need for bank branch nearby 23% 3. Option of doing all banking 18% 3. I only transfer money to account holders in 15% business online the Netherlands 4. Long stay abroad 13% 4. I (almost) never visit other euro countries 13% 5. Wider acceptance of debit card abroad 11% 5. I want to be helped in Dutch 12% High satisfaction with existing bank Foreign account mainly for crossborder payments The most-cited reason for not opening a foreign payment account is the satisfaction with the existing bank (75%), followed by the desire to have a bank branch nearby (23%). In addition, many respondents say they do not need a foreign account because they never transfer money abroad (15%) or (almost) never visit other euro countries (13%). This again shows that many people still associate a foreign account with payments in or to foreign countries. A lack of trust in foreign banks (7%), the hassle of opening a foreign payment account (6%) or difficulties retrieving money in the event of bankruptcy (9%) do not occur in the top 5. 19

6. CONCLUSIONS AND POLICY RECOMMENDATIONS First consequences of SEPA visible In connection with SEPA DNB has over the past four years carried out surveys among Dutch consumers to gauge their cross-border payment behaviour within the euro area. As with payments in the Netherlands, Dutch consumers are increasingly using electronic payment instruments for payments in and to foreign countries. The debit card is increasingly used at the check-out abroad in preference to cash or the credit card. Dutch consumers are also increasingly satisfied with the acceptance, ease of use and safety of the debit card abroad. This suggests that they can increasingly pay with their debit card and, as a corollary of this development, may also be less likely to be confronted with unfamiliar and, to their mind, unsafe procedures such as the use of a signature instead of a PIN. However, differences are still perceived between domestic and foreign usage of the debit card in terms of acceptance, safety, costs and ease of use. In other words, though the first consequences of SEPA are slowly becoming visible, a single European payment card market still does not exist in the consumer s perception. Internet banking perceived as most secure option Still no single payments market in consumer s perception As in the previous years, almost a quarter of the respondents transferred money to another euro country in 2009. Most of these payments were made by means of electronic credit transfer, followed by the credit card and PayPal. Internet banking payments get the highest rating for safety, but the credit card scores highest on ease of use and speed. PayPal emerged as the best in terms of costs. Here, too, consumers still notice differences between making payments to other countries and making payments within the Netherlands. In general, payments to other countries are perceived to be less safe, slower and less easy than payments within the Netherlands. In addition, they still consider internet banking as more expensive for payments to other countries than for payments within the Netherlands. The opposite applies to the credit card and PayPal, where domestic payments are actually perceived to be more expensive than cross-border payments. but differences are decreasing Though consumers still notice differences between cross-border payments and domestic payments, the difference in perception decreased in 2009. It seems unlikely that this is the consequence of SEPA as the number of consumers using a European Credit Transfer is still very small. A more probable explanation for the narrowing difference is that consumers have become more accustomed to and familiar with making payments to foreign countries. Due to the arrival of internet marketplaces and webstores, making payments abroad has become commonplace for a growing number of consumers. Most consumers are neutral or positive towards SEPA. Though they expect various advantages, such as cheaper, faster and simpler credit transfers to foreign countries and better cross-border card acceptance, they certainly also see disadvantages. Strikingly, they expect the greatest 20

Consumer moderately positive about SEPA advantages for cross-border payments, while most of the concerns relate to payments within the Netherlands. In addition, people s impression of reality is not always accurate, particularly when it comes to the expected disadvantages. The consumer s general impression of SEPA could therefore be improved through better communication and information. This could also enhance the awareness of SEPA; in 2009 40% had previously heard about SEPA. It is important for consumers to be informed of the fact that SEPA not only has consequences for payments in and to foreign countries but also, and above all, for domestic payments. Raise awareness of IBAN and BIC Most consumers still do not know where they can find their own or somebody else s IBAN and BIC. They would prefer to see creditors stating their IBAN and BIC on invoices and banks making appropriate changes to the internet banking environment. Given that European Credit Transfers and European Direct Debits cannot be made without these numbers, banks, government agencies and companies could play an important role in getting this information across to the public. They could, for instance, start providing their customers with more explicit information to encourage large-scale migration. The launch of the IBAN BIC Service in 2009 was a step in the right direction, but many consumers are still unaware of its existence. Thinking about SEPA communication to public This survey report provides a good picture of how Dutch consumers made payments in and to other euro countries in 2009, what they think about the various payment instruments and how they view SEPA. The results show that the first consequences of SEPA are slowly becoming visible, but that a single internal European payments market, whether in terms of payment behaviour or perception, is still not a reality. The survey also shows that the awareness and impression of SEPA is still incomplete and sometimes even incorrect. The situation regarding IBAN and BIC also remains unclear to many people. Though the consequences of SEPA for the consumer will only really become noticeable when the SEPA payment instruments are offered by all banks and used by all retailers, companies and government agencies, it is advisable to already start giving careful thought to the way in which SEPA can best be communicated to the consumer in terms of timing, content and form. 21

LITERATURE Jonker, N. and A. Kosse (2008), Towards a European payments market: survey results on crossborder payment behaviour of Dutch consumers, DNB Occasional Studies, vol. 6(1). Jonker, N. and A. Kosse (2009), Grensoverschrijdend betaalgedrag door Nederlanders in 2008: Verdere elektronisering, MOB Onderzoeksrapport, De Nederlandsche Bank, October 2009. Jonker, N. and A. Kosse (2010), Grenzeloos betalen in Europa; de consument wil wel!, Bank en Effectenbedrijf, March 2010. USEFUL LINKS http://www.allesoverbetalen.nl http://www.ecb.int/paym/sepa/about/indicators/html/index.en.html http://ww.cbs.nl http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database http://www.dnb.nl/betalingsverkeer/mob/index.jsp 22

APPENDIX I COMPOSITION OF SAMPLE Variable Population* Sample Man 49% 56% Woman 51% 44% Age: 15 24 15% 0% 25 34 14% 9% 35 44 18% 17% 45 54 18% 21% 55 64 16% 26% 65 and older 19% 27% Education: Primary education 8% 4% Lower vocational education 24% 24% General secondary education 10% 12% Intermediate vocational 30% 18% Higher vocational 18% 27% University 10% 15% *Source: Statistics Netherlands 2010 Number of respondents Percentage of respondents First-time participants in survey 393 31% Second-time participants in survey 126 10% Third-time participants in survey 137 11% Fourth-time participants in survey 624 48% Total 1280 100% i The survey was put to members of the CentERpanel of 16 years and older who are responsible for the financial decisions within the household. As a result, the sample is not exactly representative of the Dutch population. A second difference between the panel and the Dutch population concerns the panel s relatively high access to the internet. The CentERpanel is an internet panel and almost 95% of the panel members have online access at home. A small number fills in the questionnaire via a different medium. So the internet usage is slightly higher than that of the overall Dutch population (90% according to the CBS). This means that the respondents may use internet banking more often and be more positive towards this payment channel than the overall Dutch population. Despite these divergences, this survey provides a good indication of how Dutch consumers pay in and to other euro countries and what their wishes and perceptions are in this respect. ii Significance tests were used to test the extent to which differences between payment instruments and between different years are genuinely significant. So where this section refers to a difference in ratings, there is genuinely a significant difference. iii Statistical analyses show that the respondents who previously took part in this survey have not heard or read about SEPA more often than those who took part for the first time. The bias resulting from earlier participation in this survey is therefore zero. 23