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Payments and profits

By davebirch posted Jul 17 2006 at 11:28 PM

[Dave Birch] I was reading a report in Finextra concerning a detailed study of the Dutch banks ABN Amro, ING, Fortis, SNS Reaal and Rabobank which reported that gross profits of EUR3.996 billion on all payment instruments were more than offset by EUR4.019 billion in costs. While small differences between big numbers are not always an accurate snapshot, this net loss on payments transactions caught my eye. The loss wasn't across the board: business payments generated net revenues of 700 million euros, consumer payments net losses of 640 million euros. The study was paid for by the Dutch central bank and the Dutch Association of Banks.

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The total loss to the banks (including the cost of capital) is given as 128 million euros. I hate to keep harping on about costs, but the future of retail e-payments is bound up with this issue. If banks can make more money by having someone else (whether that someone else is Transport for London, Disney or Vodafone) handle consumer payments, especially low-value consumer payments, then what's the problem? Non-banks can operate e-payment businesses under less onerous regulation and therefore with a lower cost floor than banks can, so everyone ought to benefit.

Linkdump kindly breaks the costs down further. You can read them for yourself, but in relation to the numbers above note some of the significant sources of bank costs: account maintenance (1.2 billion euros), cash handling (779 million euros) and paper-based credit transfer (cheque?) handling 329 million euros.


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