Payments developments
and practices in the
Netherlands
May 2012
Developments in the Netherlands
The Netherlands have 16.6 million inhabitants, 24.1 million payment accounts, 25.0 million debit cards, 23.4 million electronic purses and 6.0 million credit cards. Of the remote payments less than 1% is paper-based and of the Point-of-Sale payments 65% of the payments in volume are made in cash, 0% cheques and 35% through electronic payments1.
The market share of electronic payments is growing. However, the general expectation is that cash will remain an important means of payment for the (midterm) future. This efficiency is due in part to a long-standing tradition of far-reaching mutual alignment and cooperation between providers and users (see box 1). At this moment, efforts for safety and efficiency focus on the smaller amounts. That is, consumers are encouraged to make small value payments (less than 10 euro) with their debit cards, because traditionally, the cards have been used predominantly to make larger value payments.
Furthermore, in 2011 a company called ‘Geld Service Nederland’ (‘Money Service Netherlands’) has been established that processes cash handling and takes care of the logistics for three banks in the Netherlands. This means cash handling is done in less locations, the central bank inspects less banknotes and more banknotes are recirculated by banks and retailers. This reduces the costs of cash and therefore reduces the total cost of the payment system. Overall the total costs of the payment system in the Netherlands is relatively low. This is also reflected in, for example the low prices in Dutch supermarkets, in comparison to other European countries.
Efficiency due to far-reaching cooperation between providers and users
Permanent efforts for efficient use of cash
The Netherlands have a history in terms of collective efforts towards a safer, more efficient payment system. As far back as 1984, the Dutch Ministry of Finance legislated the abolition of fl. 0.01 coins for reasons of efficiency, with the consent of both the user community and the Dutch Parliament. From that date, cash payments were rounded to the nearest multiple of 5 eurocent.
1 Cash usage in the Netherlands: How much, where, when, who en wherever one wants? DNB Occasional studies
Cash 65% Debit card 32% Electronic purse 3% Crebit card 0,5% 2010
Subsequently, during the 1990s, it was agreed for reasons of safety to discourage the use of the larger banknote denominations at points of sale, in order to reduce the amounts of change in cash registers and to make shops a less attractive target for robberies. Thus it became common practice, with the endorsement of De Nederlandsche Bank and the Ministry of Finance, for retailers to refuse 1000, 250 guilder bank notes and in some cases even 100 guilder bank notes, provided this was clearly announced outside the shop and/ or at the cash register.2
The acceptance of high denomination euro banknotes (100, 200 and 500) depends thoroughly on the (retail)branche. In general, as ATMs provide 10, 20 and 50 euro banknotes, the public is not often in the possession of high denomination banknotes. Besides, it is encouraged to pay in cash with a denomination that is appropriate in relation to the payable amount.
1984: official abolition of 1 guilder cent coins.
Reduction of large denominations at points of sale in 1990s The introduction of the euro banknotes and coins in 2002 saw the re-introduction of 1 eurocent coins, together with the re-introduction of the 2 eurocent coins, a denomination the Netherlands had never had.
Consultations in the National Forum on the Payment System revealed that consumers, but especially retailers, experienced the small coins as not practical to use. Partly, of course, this was due to the fact that many people remembered the convenience which the rounding rule had brought. Given the favourable results of a small-scale test run in mid-2004 in the town of Woerden (involving all relevant stakeholders), the Forum decided to introduce rounding-by-agreement on a national scale. Since 1 September 2004, payments at the cash register in the Netherlands have generally been rounded to the nearest multiple of 5 eurocents. It is up to individual retailers whether they apply the rounding rule. If they do, they must indicate clearly through shop window or counter stickers that they apply the rounding rule. However, contrary to the earlier guilder cents, eurocents are still legal tender. This means that consumers must still be allowed to pay the rounded amounts with 1 and 2 eurocent coins. However, rounding retailers will not give such coins as change. The rounding rule has been generally accepted, no protests were organised, and there have hardly been any complaints. Calculations have shown that this practice has saved the Dutch over EUR 30 million per annum.
Successful test run involving all stakeholders Retailers decide
Society saves 30 million each year
Reducing safety risks and costs by
less cash in shops
Declining use of notes and coins reduces safety risks and the cost of the pay-ment system for retailers and banks. If shop owners have less cash in their regis-ters they are a less appealing target for robberies. Businesses need less change, checkout processing and cash counting take less time, fewer mistakes are made in giving change and cost of cash processing is lower. Therefore less cash use in shops can lead to more safety and efficiency.
Conclusion
The euro is the only legal tender in the Netherlands. As can be seen from the graph on the first page, cash is still the most used means of payment in volume for point-of-sale transactions. The National Forum on the Payment system carefully monitores whether any problems occur (in general or for certain groups of people) in paying with the different payment products we have in the Netherlands. If problems do occur they will be solved within the Forum. Research has shown that Dutch consumers hardly experience any problems when paying.3
In conclusion the Netherlands are committed to the safest and most efficient possible way to pay in euro and hopes to uphold this commitment in the future.
3 Cash usage in the Netherlands: How much, where, when, who en wherever one wants? DNB Occasional studies
Box 2 The Rounding Rule
The Rounding Rule means that the total amount on a sales slip is rounded to the nearest 5 cent multiple. This means that an amount of €23.37 is rounded to €23.35 and one of €8.89 to €8.90.The Rounding Rule was introduced on a national scale based on the recommendation of the Forum made in its July 2004 report. There is no need to legislate the Rule. The Rule concerns only payments in cash. If the payment is made by another means, such as a debit card, e-purse or credit card, the exact amount continues to apply. In such cases, payments may not be rounded. At the same time, the 1 and 2 eurocent coins continue to be legal tender. Consumers must still be allowed to pay the rounded amounts with 1 and 2 eurocent coins. However, rounding retailers will not give back such coins as change. For more information, see the websites of the Ministry of Finance, Dutch consumers’ association (Consumentenbond), the Dutch Bankers’ Association (Nederlandse Vereniging van Banken) or the retailers’ umbrella organisation (Detailhandel Nederland): http://www.rijksoverheid.nl/documenten-en-publicaties/vragen-en-antwoorden/mogen- winkeliers-betalingen-afronden-op-5-eurocent.html#anker-1-en-2-eurocent-blijven-wettig-betaalmiddel http://www.consumentenbond.nl/actueel/nieuws/2004/59569/ http://www.dedetailhandel.nl/images/pdf/11.pdf http://www.nvb.nl/index.php?p=11823 Box 1 National Forum on the Payment System
The National Forum on the Payment System (Maatschappelijk Overleg
Betalingsverkeer) was established by the Ministry of Finance in order to further promote the general safety and efficiency of the payment system in the Netherlands. Participating in the Forum are umbrella organisations of users and providers of payment services, chaired by De Nederlandsche Bank, while the Ministries of Finance and of Economic Affairs, Agriculture and Innovation have observer status. Efforts towards more efficient use of cash and the promotion of debit card use at points of sale is a permanent point on the Forum’s agenda. The Forum accepts that certain shops in niche segments, where there is enough competition, do not accept cash.
Ten examples of how
debitcard payments
are promoted in the
Netherlands
In 2005, a joint Foundation was established in the Netherlands by banks and retailers which organises all kinds of national and regional activities to promote debit card payments. The goal of this foundation is that consumers should be able to leave home without cash and be able to pay with their debit card in all conceivable places. Below you see what campaigns and other activities have lead to the increase of debit card payments so far.
1
PoS terminals at more locations
First, it was necessary to have POS terminals at more locations. The number of POS terminals in 2006 was 214,000. 82% of the retailers accepted debit card payments, but only 25% in the catering sector and 10% of the street vendors. In 2011 the number of POS terminals was 280,000. Consumers can nowadays pay with a debit card at 92% of the retailers and more than half of the catering sector. The average growth of 13,200 POS terminals a year has been achieved by several activities:
• Retailers were encouraged to accept debit cards as a payment method. This was done by giving information about the costs of debit card acceptance compared to the acceptance of cash payment. The costs of debit card acceptance fell from three times as high as cash payments in the early nineties for the retailers to an even level nowadays. This proved to be the best argument for retailers to accept debit card payments and promote them. Also the fact that debit card payments are safer and more and more consumers were asking retailers to accept debit cards for payments caused the increase in POS terminals.
• Retailers that started accepting debit card payments for the first time received a small subsidy as an incentive.
• There were special activities to attract attention: new debit card accepting retailers could win a year debit card payments for free, for example.
2
Ambassadors for debit card payments
Now and then people with authority, like mayors, ministers, police inspectors, speak in favour of debit card payments and motivate retailers to buy a POS terminal, especially for the safety of consumers and employees.
Minister Opstelten of Interior and Kingdom Affairs and Mayor Aboutaleb of Rotterdam advocate the use of a POS terminal
3 Locations where every shop has a
PoS terminal
Shopping centres where you can shop without cash. That’s what is in scope in the project ‘100% debit card-area’s’. We have ten of them in the Netherlands. Of course consumers can still use cash if they want, but it is clear that the shopping centres favour debit card payments.
4 Lower the price for debit card payments
The cost of a debit card payment has been lowered in a few steps. First, a discount of one euro cent on every transaction has been given by the banks. Secondly, a cut on telecom costs for retailers has been achieved by the use of the internet instead of traditional telecom infrastructure. Furthermore, attractive debit card contracts have been offered by banks rewarding retailers who actively promote debit card payments. One can imagine that retailers and other merchants were much more motivated to promote debit card payments when they realised that a debit card payments actually did not cost them much.
5 Promoting debit card payments
Maximum synergy was achieved by letting consumer-oriented activities take place at the same time as activities aimed towards retailers. This was achieved for the first time in 2008 by a joint initiative in the supermarket sector, when the slogan ‘Small amount, please pay debit’ was introduced. From then on, other sectors where invited to participate in the campaign.
In 2011 all branches and sectors participated and were committed to the campaign. Nearly every single retailer and employee told their customers that they can pay for everything using their debit card, no matter how small the transaction amount is.
This campaign received a famous Dutch advertising prize for effective communication.
6 Incentives for retailers that promote
debit card payments
One of the crucial elements of card promotion campaigns in the Netherlands has been the rewards, competitions and incentives for the retailers and their employees. They are the ones that can influence the payment method at the point of sale by giving the right signals to the consumer. They display debit card promotion material at the cash register, they ask the customer to pay with his or her debit card, they put the POS-terminal in a well visible place, they point to prize-winning-possibilities when using the debit card. That’s why in the Netherlands many incentive programs have been executed.
• Retailers and their employees competed to win tickets to attractive events, they could win an amount of money (500 euro) to organise a nice event themselves for their employees etc.
• An enormous success was the debit card championship 2011: more than 2000 employees came to a concert hall as winners.
Employees of shops that stimulated debit card payments very well were labelled ‘debit card-champion’ and won tickets for a special concert.
7 Introducing debit card only checkouts
Nearly 500 supermarkets have introduced checkouts where customers can only pay with their debit card. Usually only one or two checkouts are debit card only. The other (typically five or even seven) checkouts are so called combined checkouts, where consumers can pay with cash or debit cards, just as they prefer.
• The supermarket sector in the Netherlands has to deal with several robberies a week. They want to make their shops less attractive for
criminals by reducing the amount of cash available. Therefore they promote debit card payments by promotional campaigns, they seek innovations to reduce cash (like self scanning and new payment methods) and they introduce debit card only checkouts. The introduction is coordinated by a Taskforce of the supermarket branche. Nearly all supermarket formulas participate. From 2008 onward, every supermarket organised the introduction on its own.
• In 2012 nine ‘hotspots’ are selected: cities where every supermarket introduces this kind of checkout and where central information and attractive promotional activities are organised for consumers.
The supermarkets do not intend to abolish cash. Nowadays still six out of ten customers pay with cash in supermarkets, despite all the promotional campaigns. Supermarkets will be very happy when seven out of ten customers will pay electronically in 2015.
8 No cash accepted only in a very small
amount of retailers and restaurants
Some retailers have decided to stop accepting cash payments. They do this for the safety of their customers and employees. There is an example of a store in the north-east of the Netherlands that after multiple consecutive robberies abstained from cash acceptance in the evening. The customers understood this measure well. Another example is of a small biological supermarket chain with four outlets: their customers know what payment methods are accepted and can buy their goods easily elsewhere if they want to pay cash. Also a telecom-formula and several individual retailers chose to stop accepting cash payments for efficiency and safety reasons. Research tells us that 75% of the Dutch customers understand and accept a no cash policy by retailers. Customers have enough choice to go to another shop, but they seem to respect the choice of the retailer.
At two of the checkouts in this super-market only debit card payments are accepted. At the other four checkouts people can choose between cash of debit card payments.
9 No cash acceptance in unmanned
environments
Are you in need of fuel in the night or evening? Do you want to park your car in the city? Don’t forget your debit card. In these situations cash is evaluated as too risky. Vandals try to get cash form parking meters, criminals pay visits to petrol stations. In unmanned environments we see more and more debit card payments only are being introduced.
Unmanned petrol station
10 Charming customers that use their
debit card
SME retailers are very creative when they want to stimulate their customers to pay with debit cards. A florist surprised his customers with a small plant when they paid a Christmas tree with their debit card. At the end of Ramadan a Turkish shop keeper gave his customers dades when they used their debit card. A tobacconist had a jar full of candy for every customer using his or her debit card. The employees of a textile discounter made a handwritten sign asking customers to use their debit card, because they could win a prize by achieving a large amount of debit card payments. These are only four of many examples. On a national level customers can also take part of ‘pay and win’-activities. All kinds of prizes can be won: gift cards, the amount of money you paid, a trip to Disneyland Paris, flowers etc.
