Download Dutch credit cards market: a growth niche?

COUNTRY SURVEY: NETHERLANDS
Cards International
Dutch credit cards market: a growth niche?
In order to gain insight into factors influencing credit card usage and acceptance in the Netherlands, the
Nederlandsche Bank, the country’s central bank, set up surveys of consumers and retailers. Anneke Kosse,
a policy adviser at the bank, looks at whether credit cards will ever become widely accepted in the country
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be such that retailers are willing to accept credit
cards and consumers are willing to use them.
If the consumer costs are too high, consumer
demand will be too low for retailers to accept
credit cards. At the same time, if the retailers’
costs are too high, credit card acceptance will
remain limited, making it useless for consumers
to have a credit card. Costs, however, are not
the only factor determining credit card usage.
Credit cards differ from the other payment
instruments with respect to safety, anonymity,
transaction speed, additional facilities such as
loyalties and insurance programmes, credit
and delay possibilities etcetera. On the basis
of the net sum of the total costs and benefits
of the different means of payment, consumers decide what payment instruments to use
and retailers decide which ones to accept. In
order to gain insight into the factors influencing credit card usage and acceptance in the
Netherlands, De Nederlandsche Bank (DNB)
set up two surveys.
In 2008, a questionnaire was distributed
among more than 2,000 Dutch consumers
to learn about their perception and attitude
towards credit card possession and credit card
usage. In addition to this consumer survey, two
years later 30 retailers were interviewed about
their stance towards credit card acceptance.
The results of both surveys provide an answer
to the question whether credit cards will ever
become widely accepted and broadly used as a
means of payment in the Netherlands.
Total transactions – share of different payment means
Consumers’ demand for credit cards
utch banks started to issue credit
cards in the Netherlands in the early
1980s; 10 years before the introduction of the debit card. Yet the Dutch
credit cards market has always lagged behind
the Dutch debit cards market in terms of
growth.
While debit cards rapidly became the dominating payment instrument at points of sale,
credit card use has always remained low and
largely confined to specific sectors.
In 2009, around 69 percent of all transactions and 38 percent of total sales at the Dutch
counter were paid by cash, with debit cards
accounting for the majority of all non-cash
transactions. Only 3 percent of all non-cash
transactions and 9 percent of total non-cash
sales were paid by credit card (see pie chart,
below).
The total number of credit card payments
made equalled 73 million, representing a total
value of €7.2 billion. About half the credit card
transactions and sales originated from foreign
credit card holders. The Dutch accounted for
47 percent of all transactions and 52 percent
of total sales. Like all card networks, the credit
cards market is a two-sided market.
This means that either side of the market, consumers and retailers, have to be kept on board
in order for the market to flourish. The fees
charged by the credit card companies need to
e-purse 8.1%
Credit card 3.3%
Debit card 88.6%
Source: Nederlandsche Bank
6 y June 2010
The number of credit cards issued in the Netherlands reached 5.8 million in 2009. Around
55 percent of the Dutch population aged 16
and over possessed at least one credit card.
This means that almost half the population
has no credit card and therefore is not able to
make any credit card payment at all.
The DNB survey results show that, by far,
the main reason for not having a credit card
is the lack of necessity. Forty-six percent of
consumers without a credit card indicated not
needing a credit card as they did not think it
necessary to spend money at times when their
budgets do not suffice. Moreover, debit cards
are perceived to be safer, more user-friendly
and cheaper.
Anneke Kosse, Nederlandsche Bank
Since debit cards are broadly accepted
domestically, the Dutch are able to manage
perfectly with this means of payment. One
of the main distinguishing features of credit
cards, the credit and/or delay function, is thus
a feature that many Dutch consumers can do
without.
The same holds for Dutch citizens who do
have a credit card. Only a small percentage of
them acquired the card for its delay and/ or
credit function. Some 67 percent of the credit
card holders said they had a credit card mainly
for paying abroad. Whereas in fact, for safety
and cost reasons, they would rather use their
debit card cross border, they often feel hampered by its limited acceptance and therefore
reach for the credit card. According to the statistics, Dutch consumers used their credit card
more often abroad, 56 million times, than at
home, 43 million times.
Moreover, internet purchases are often mentioned as the chief reason for having a credit
card. Here too, limited acceptance of alternative means of payment is the main driver. The
online payment method iDEAL, launched by
the Dutch banking community in 2005, has
provided the Dutch with a new way of paying
for online purchases.
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However, since iDEAL can only be used at
Dutch webshops and similar cross-border payment applications are lacking, the credit card
is still often the only payment instrument consumers can pay with on the internet. In sum,
the survey results underline that the strength
of the credit card lies in its broad cross-border
and online acceptance.
Rather than perceiving the credit card as
a replacement of the debit card, the Dutch
see it as a backup in case debit cards are not
accepted. Since debit cards are widely accepted
domestically, the Dutch mainly use their credit
card abroad and online.
Retailers’ acceptance of credit cards
In 2009, about 100,000 Dutch retailers
accepted credit cards. The number of debit
card accepting merchants was twice as high,
at 205,000.
Whereas debit cards are widely accepted
across different sectors, credit card acceptance is mainly concentrated in sectors where
the average transaction value is relatively high
and where foreigners make up a large share of
the total sales – petrol stations, hotels, restaurants and clothes shops.
The majority of the credit card accepting
retailers offer their clients the option to use
either a Visa or MasterCard card. Only a few
accept other brands. In some sectors, private
label cards play an important role, such as in
petrol stations or clothes shops. The results of
the DNB retailer survey show that most credit
card accepting retailers enable their clients to
use their credit card because of service and
customer-friendliness.
Not to lag behind their competitors and not
to miss sales are other closely related reasons.
Retailers do not want to hamper the free payment choice of their customers, especially if
the range of payment possibilities is limited
and the purchase would otherwise be cancelled. Since the credit card is often one of the
few payment instruments that business and
foreign clients can pay with in the Netherlands, credit cards are relatively important in
the hotel and catering industries.
Moreover, many hotels and restaurants ask
their clients for their credit card details when
taking a reservation, as a precautionary measure if a reservation is cancelled too late. The
transaction fees charged by the credit card
companies appear to be the main impediment
to credit card acceptance in the Netherlands.
Many credit card accepting retailers find
the credit card fees too high and would think
about terminating their credit card contract if
the fees were to be raised. Moreover, the high
transaction fees are cited as the most important
argument by the retailers that do not accept
credit cards. They would consider accepting
credit cards if the fees were to be cut.
Albeit to a lesser extent, safety is an important barrier for retailers in accepting credit
cards. A section of retailers do not accept
credit cards because of the high risk of fraud
and charge-backs, and will consider accepting credit cards if the safety and certainty of
credit card payments were to increase. Moreover, should credit card fraud and the number
of charge-backs rise, many retailers would be
persuaded to terminate their credit card contracts.
The choice of whether or not to accept
credit cards is a free merchant choice. The
DNB survey results show that credit cards
bring along some advantages for retailers
with respect to service, competition and sales.
On the other hand, safety and costs are perceived to be the main disadvantages. It is up
to retailers to weigh the pros and the cons and
to decide whether or not to enable their clients
to pay by credit card.
Retailer surcharges for credit card usage
Credit card acceptance is not a guarantee for a
large volume of credit card transactions. That
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POS Payments – domestic
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How did you react to the credit card surcharge
asked by the retailer?
I do not remember 6%
I decided not
to make the
purchase at all
17%
I paid differently 66%
I went to another merchant 11%
Source: Nederlandsche Bank
is, most retailers who do accept credit cards
prefer their clients to use alternative payment
instruments.
Preferring debit card payments, most retailers try to steer their clients’ payment choice.
They mainly do so by using non-financial
incentives, such as stickers and signs or by
simply asking them to pay by debit card. In
the Netherlands, retailers are allowed to surcharge consumers for payments.
According to the DNB retailer survey,
this rarely happens for credit card payments
though. The main reason corresponds to the
chief motive for accepting credit card payments in the first place: retailers do not want
to hinder their clients’ payment choice in
order not to raise competitive disadvantages
and barriers to buying.
Only a low percentage of Dutch retailers ask their clients to pay a surcharge when
using their credit card. They not only do so
to cover the credit card costs, but also to alert
consumers to the consequences of their payment choice and to steer them towards other
means of payment.
And it works. The DNB consumer survey
showed that more than 80 percent of consumers are unwilling to pay additional costs
for using their credit card. Many cardholders
decide not to use their credit card when being
confronted with a surcharge. Moreover, credit
card surcharges cause many consumers go to
another merchant or decide not to make the
purchase at all (see pie chart, above). The fear
of merchants to miss out on sales when asking
for a credit card surcharge is thus legitimate.
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Will credit cards become a mass market?
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Source: Nederlandsche Bank
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Credit card acceptance by Dutch retailers is
gradually increasing, from 36 percent in 2008
to almost 40 percent 2009. Whether this will
boost the use of credit cards in the Nether-4
June 2010 y 7
COUNTRY SURVEY: NETHERLANDS
4 lands is doubtful, buying “on tick” is simply
not in the nature of Dutch consumers and the
existing means of payment seem to perfectly
serve their needs.
As the domestic coverage of debit cards is
increasing even further (see chart, right) it is
unlikely that the need for using credit cards
at home will rise. Secondly, European consumers will increasingly be able to use their
debit cards abroad due to the initiatives and
steps taken by the European banking sector to
create one single European payments market
(Single Euro Payments Area, SEPA).
Currently, the Dutch mainly use their credit
cards if debit cards are not accepted. Therefore, the realisation of SEPA will reduce the
need for Dutch consumers to use their credit
cards abroad. The same holds for foreign credit card holders who actually prefer to pay by
debit instead of credit in the Netherlands. As a
result, the need of Dutch consumers to have a
credit card and the total number of credit card
payments made by foreign cardholders in the
Netherlands might both be negatively affected
by the materialisation of SEPA.
Recent developments seem to indicate that
the credit card is losing ground in the Netherlands. Although the total number of credit
card payments at the counter increased from
70 million in 2008 to 73 million in 2009, the
annual growth was less strong than in the
preceding years. Moreover, the overall credit
card turnover fell from €7.5 billion in 2008 to
€7.2 billion in 2009. The diminishing growth
of credit card transactions and the decrease in
total credit card sales can be entirely attributed to the declining credit card usage by Dutch
consumers.
As a result, 2009 was the first year in which
foreign consumers were responsible for the
largest share of all credit card transactions in
the Netherlands. Also abroad, Dutch credit
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POS Payments – number of cross-border transactions
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8 y June 2010
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card holders started to use their credit card
less often. The total number of credit card
payments made by the Dutch outside the
Netherlands decreased from 58 million in
2008 to 56 million in 2009.
In order for credit cards to grow into
widely accepted and broadly used payment
instruments in the Netherlands, they have to
compete with the existing means of payment,
and in particular with the debit card. Given
the continuously growing acceptance of debit
cards and the expected improvement of crossborder debit card acceptance in Europe, this
will be a fierce battle.
This battle could be won if the safety, userfriendliness and cost level of debit cards were
to deteriorate. In that case, the Dutch might
decide to start using the credit card, not as a
supplement, but as a replacement of the debit
card. This is, however, not plausible, since
banks and all other relevant stakeholders are
doing everything to guarantee and further
increase the safety and user-friendliness as
well as reducing the costs of the debit card in
the Netherlands.
Therefore, the battle can only be won if
credit cards can distinguish themselves by a
new feature that debit cards do not offer but
consumers need.
So, innovation is the key. If not, the credit
card should be expected to remain a niche
product in the Netherlands.
Key issuers
ABN AMRO
ABN AMRO is a retail bank owned by the
Dutch government. It was taken into state
ownership after the collapse of Fortis, which
had bought the Dutch retail business in 2007
as part of a consortium, including RBS and
Santander, which split the bank’s assets
between them in a €71 billion deal.
The bank had credit card receivables of
€327 million at the end of 2009, forming
a relatively small percentage of its overall
consumer loans of €107 billion. Mortgages
formed the bulk of its lending, at €95 billion.
CI estimates ABN has around 25 percent of
the current account market share in the country.
Rabobank
In comparison to ABN, Rabobank, the world’s
largest mutual, has been one of the strongestperforming financial institutions during the
financial crisis because of its focus on agricultural lending, microfinance and emerging
markets.
The mutual has a strong emphasis on sustainability, and has encouraged use of public
transport through the launch of its Dutch
Railways Business Card in 2007. The card
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Acceptance – number of locations with debit card EFTPOS terminal
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is available to business travellers who have
leased a car from the business, and saw an
increase in usage of 24 percent in 2009, representing a total of around 5.4 million kilometres of train journeys.
However, it cancelled a separate initiative
– a partnership with the World Wildlife Fund
(WWF) – which featured a card with a carbon-offset option. Rabobank said in its annual
report that the card did not meet expectations
and barely increased its customers’ CO2 awareness. As a result, the bank has shifted focus
from offsetting emissions to reducing them. CI
estimates Rabo has around 30 percent of the
current accounts in the country.
ING/Postbank
ING is the Netherlands’ largest bank, with
underlying income of €7.2 billion in its retail
banking business. The largest contributor to
this (around 53 percent) was its Dutch retail
banking business.
In February, ING announced a tie-up with
the domestic postal network, providing it
with a wider range of distribution points and
expanding its customer base to 8 million retail
clients and 600,000 business customers.
It offers a simple line of payment products,
all for a fee, which include bundled debit and
credit accounts. The basic package, which is
a checking account with a debit card, costs
€3.45 a quarter, the BetaalPakket Package
additionally includes a credit card, costing
€7.80 per quarter, while its RoyaalPakket
option, which costs €13.80 a quarter, includes
a platinum credit card. CI estimates ING/
Postbank has around 40 percent of the current accounts in the country. The remaining
5 percent are in the hands of the country’s
fourth-largest bank, SNS Bank. <
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