SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Electronic and mobile payments – moving towards a...

SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND

Electronic and mobile payments –moving towards a cashless society?

1 April 2008

Governor Erkki Liikanen

EPFSF & EIFJoint Dinner


Use of cashless payment instruments within EU15, number of transactions

Card payments are growing rapidly

Cheques

Card payments

Credit transfers

Direct debits

0

5 000

10 000

15 000

20 000

25 000

30 000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

millions

Source: ECB, Blue Book publications.


Number of card payments per inhabitant, 1994–2006

Good growth but big variations, the Nordic countries are leaders in card usage

0

20

40

60

80

100

120

140

160

180

BE DK DE GR ES FR IE IT LU NL AT PT FI SE UK

Number

1994 1996 1998 2000 2002 2004 2006

Source: ECB, Blue Book publications.


Use of cash and ATMs decreases when card payments increase

After about 70 card transactions/inhabitant/year, ATM usage decreases

BE

DK

DE

GR

ESFR

IE

IT

LU

NL

AT

PT

FI

SE

UK

0

5

10

15

20

25

30

35

40

45

50

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170Number of card payments per capita, 2002–2006

Nu

mb

er o

f A

TM

cas

h w

ith

dra

wal

s p

er c

apit

a,

2002

–200

6

Sources: ECB, Blue Book publications and author's estimate of ATM withdrawals in Denmark.


Number of electronic transactions per capita and automation level (e-trans./total trans.), 2002-2006

Strong growth but large variations in national e-payment levels

BE

DK

DE

GR

ESIE

IT

NL

AT

PT

FI

SE

UK

LU

0

50

100

150

200

250

300

0 10 20 30 40 50 60 70 80 90 100

Nu

mb

er o

f el

ectr

on

ic p

aym

ents

per

in

hab

itan

t,

2002

–200

6

Level of automation %, 2002–2006

Sources: ECB, Blue Book publications and Bank of Finland.


Mobile phones contain everything needed for paying

Versatile communication capabilities– Long-distance communication– Complete internet access– Near-field-communication (RFID, Blue Tooth, Infrared)– Camera scans & photos

Easy to use and familiar user interface– Quality colour screen– Secure PIN pad– Proper keyboards

Advanced processing capabilities– Processing power– Large data storage– Security module– Encryption processors

Everyone has a miniature PC in their pocket


Will cards be digitalised and stored in mobile phone?

A mobile phone could store many cards and select the correct card based on parameters and learning

Easier to provide and update cards completely remotely over the air

Back-ups safely in the network and down- loadable in case of hardware failures

Select

- VISA

- MC (Firm)

- Credit


Push & Go / Tap-to-pay

Check and accept payment just by tapping

Make person-to-person payments

Phone can also contain ticket info– Bus, train, flight, parking…– Theater, sport event, concert…

Automated payment data exchange between point-of-sale and mobile phone using RFID (Radio Frequency Identification)

Real-time card or bank account debit for presented payment proposals with just one click or click+PIN


Well-known risks of Internet

Distribution of viruses and

spyware

Trojan horses (‘Man in the middle’)

can seize control of the PC and

e-identity– read and change keyboard input– change screen output– change file content– change sent transactions and

information

Customers will need hardware-protected keyboards, screens, storage and security

processors.Mobile phones can be the security solution


The trunk network of identificationservice providers

A common secure ID service could be based 0n functions within the SIM card of mobile phones

Customers need to identify themselves to several e-service providers.There will be several e-ID providers in the open global e-world.

CustomerCustomer’ssecure IDprovider

Serviceproviders’ ID

provider

Serviceproviders’ ID

provider

Registrationoffice

Bank

Taxationauthority

Insurancecompany

Socialsecurityoffice

The open internet

The network ofconnected ID

providers


Mobile phones could becomegeneral authentication devices

Mobile phones can use the SIMs (Subscriber Identity Module) for general authentication (access control, e-signatures, identification etc)

Which will be the preferred technical solution?

TELCO-, bank- or handset provider-based development?

Could it be based on joint cooperation among all stakeholders incl. authorities?

Authenticate

Deal 2665

Enter PIN

* * * * *


Registration domain

Validation domain

Government selected CA

eGovernment service

2

12Source © Copyright Valimo

Wireless

Case: Mobile Signature Ecosystem in Turkey

Turkcell: business

mgr + invoicing

eGovernment service1

Online Bank1

Online Bank2

Corporate

service1

E-Güven: the Trust Center, CA, issuer of

quality certificates, legal validity

Tu

rkis

h s

tate

: Tu

rkis

h s

tate

: Th

e c

ata

lyst

for

cre

ati

ng

dig

ital sig

natu

re

Th

e c

ata

lyst

for

cre

ati

ng

dig

ital sig

natu

re

infr

astr

uctu

rein

frastr

uctu

re

Fle

xib

le b

usin

ess m

od

el: m

ob

ile

Fle

xib

le b

usin

ess m

od

el: m

ob

ile

sig

natu

re a

s a

cost o

r a re

ven

ue s

ou

rce

sig

natu

re a

s a

cost o

r a re

ven

ue s

ou

rce

for th

e s

erv

ice p

rovid

er

for th

e s

erv

ice p

rovid

er


Development incentives and disincentives

Forces pushing for change• Strive for higher productivity• Sufficient competition• Examples in other industries• Customer demand• Authority actions

Forces maintaining ’status quo’• Legacy investments• Monopolistic structures• Non-transparent pricing• Coordination problems• Regulatory requirements

New dominant payment

technology

Old dominant payment

technology


Based on Finnish experiences,payment developments are relatively slow and

follow a s-shaped diffusion curve

The technology is available for a cashless society, butthe diffusion process will still require a lot of efforts

1980 201019951985 1990 2000 2005

Latecomers

Late majority

Innovators

Early starters

Early majority

Cards andATMs

EFTPOSand corp.terminals

Accountstatement asaccounting

basis

Privatecustomere-banking

e-invoicing

Mobilepayments?


Paradox: But cash issuance has increased rapidly in the euro area and also in Finland!

0

100000

200000

300000

400000

500000

600000

700000

800000

1998 2000 2002 2004 2006 2008

Million € (euro area)

0

1000

2000

3000

4000

5000

6000

7000

8000Million € (Finland)

Banknotes put into circulation in Finland (right scale)

Banknotes put into circulation in the Euroarea (left scale)

Source: ECB and Bank of Finland.

Banknotes put into circulation in euro area and Finland

Finland

Euro area


Migration of euro banknotes has increased heavily due to common cash area and large part of the banknotes issued from Finland are used outside

Finland

0

1000

2000

3000

4000

5000

6000

7000

8000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Euro banknotes put into circulation in Finland

Total cash holdings by residents in Finland, million euro

Sources: BoF and ECB.

Banknotes put into circulation and cash in domestic holdings in Finland

Million euro


Only within a couple of years ATM withdrawals of euro banknotes have been slowing down

0

200

400

600

800

1000

1200

1400

1600

1999 2000 2001 2002 2003 2004 2005 2006 2007

Total value of card payment (billion euro), EU15 Cash withdrawals at ATMs located in the country (billion euro), EU15Total value of card payment (billion euro), Euro area Cash withdrawals at ATMs located in the country (billion euro), Euro area

Source: ECB Blue Book.

Cash withdrawals from ATMs and card payments in euro area and EU15

Billion euro

Card payment in euro area

ATM withdrawals in euro area

ATM cash withdrawals in EU15

Card payment in EU15

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