SEPACorporate StrategyDutch PIN Still Alive and Kicking

Dutch PIN Still Alive and Kicking

In the Netherlands, one of the leading corporate banks introduced its single euro payments area (SEPA) card strategy, which was divided into acquiring and issuing parts:

  • Acquiring: From June 2008, merchants could start acquiring Maestro and V-Pay via the bank. Other Dutch corporate banks will probably follow suite no later than the first quarter of 2009.
  • Issuing: Requires a completely different approach. It is clear that Maestro/V-Pay has advantages, but questions remain as to what concentration level of terminal acceptance is needed to start issuing Maestro or V-Pay only debit cards, and also whether the current dual-branded issued cards will be replaced by Maestro or V-Pay single-branded cards.

Dutch Retailers’ Response

For many years, retailers in the Netherlands have argued that Dutch prices are too high and that electronic payments must be made cheaper and even free below a certain amount. The fact that Dutch tariffs are already the cheapest in the world doesn’t seem to have any effect on tempering these demands. In reaction to Dutch retailers claiming high costs, the banks stated that they would not raise their prices under SEPA.

And yet retailers still don’t queue up to accept Maestro or V-Pay at point-of-sale (POS). Why is this?

One reason is that many retailers in the Netherlands have shops in tourist or border areas and are already offering their customers Maestro payments via PaySquare or EMS (international card schemes acquired by two non-banks). Retailers that don’t currently offer an international acceptance scheme are questioning why they should do it now? In the past, card issuers have not targeted these merchants because they expect a low number of cross-border transactions.

Another reason is that retailers believe that PIN is a strong and effective payment security product, so why should they replace it? Dutch retailers are bored of innovations that force them to purchase new terminals for every major change – this doesn’t encourage them to react quickly to new schemes. They feel more comfortable with PIN than a European-driven payment scheme where Dutch banks are nothing more than small players with small volumes moving through the large European network solution that Maestro and V-Pay are offering.

Migration Hurdles

The Dutch banks that are planning to migrate from PIN to Maestro are not willing to incur high costs during the migration. Past agreements made with merchants, which guaranteed POS terminals a lifecycle of at least eight years, are slowing the EMV migration. Also, moving from PIN to Maestro is not just a brand switch, but also a security shift.

Regarding this last point, banks also have to deal with another hurdle – Currence, the brand owner of PIN, has said it is willing to improve the safety of the PIN brand by moving to PIN EMV. The major banks that have chosen Maestro or V-Pay are not willing to invest in PIN EMV.

In this situation, the power that the multinational card companies MasterCard and Visa wield compared to the Dutch monopoly firm Currence is clear to see. Currence is not able to give incentives to Dutch banks to preserve PIN, while MasterCard and Visa are funding the banks to acquire or issue their brands.

For a successful migration from PIN to Maestro or V-Pay, small Dutch banks have an important role to play. There has to be a business case for migration but because MasterCard and Visa have not approached small banks with a proposal, these banks will try to keep the PIN brand as long as possible.

SEPA: Futuristic or Failure?

Under SEPA, which aims to harmonise the payments landscape across the eurozone, international brands will trigger international acquirers to propose that Dutch companies switch to their brand. Today, new players from abroad are facing a Dutch landscape in which PIN plays the leading role, and therefore the SEPA objective of creating a European platform for competing European banks is still far away.

At this time, PIN is a huge hurdle for new players coming into the Dutch market. Other hurdles include the terminal licences for using the CTAP protocol, as well as the EMV acceptance level in the market. All of this means that starting a new proposition will incur high entry costs.

The Dutch market situation provides one simple solution: let the market decide the speed of at which the players can phase out PIN and, at the same time, stimulate the market with incentives for EMV-certified terminals.

It is clear that banks are interested in acquiring Maestro or V-Pay, but in order to have a smooth and successful migration, they need the merchants to come onboard. It is important that merchants trust the banks and suppliers because they will need to make investments in order to switchover to the new brand.

There should not be any hurdles put in their way as they take these steps. The Dutch market needs low entry costs for terminal suppliers from abroad, funding and incentives from banks, guaranteed agreements from banks and terminal suppliers, correct and up-to-date information on the general operational processes, as well as workshops with the stakeholders, etc.

Merchants will be faced with a brand selection tool at the register and will be able to decide whether to see this as a fact, or move into a brand selection. The brand selection is needed because none of the brands have a priority above another at the terminal.

The issue with a brand selection at the register is that, in the end, there has to be only one SEPA brand on the debit card. On the other hand, a smooth migration path within the Dutch market will not happen unless there is a brand selection.

Conclusion

Dutch banks are facing many hurdles when it comes to implementing a SEPA card strategy. Because many of these issues originated in past agreements and the slow migration to EMV, banks can’t take big steps along the migration path. The issue of funding is crucial because merchants will not migrate without some help with the investment needed to implement SEPA card payments.

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