45 years ago: bankgirocentrale en betaalcheque announced

On this day, 45 years ago, the commercial banks in the Netherlands announced that they were going to set up the bankgirocentrale, a clearing platform for interbank payments. And while they were at it, they also announced the introduction of the betaalcheque, to facilitate point of sale payments by means of a cheque and cheque card. These announcements marked the beginning of the collective move of commercial banks to gain foothold in the retail market and penetrate the retail market with current accounts.

It should be noted that the decision to introduce a cheque payment system was inspired by the existing alternative of the credit-card. Banks had seen the cost involving the payment with credit cards and did not wish to penalize the shop owners with transaction fees of 2-5% of the amount paid. So they chose for the paper based system of guranteed cheques. This system existed 35 years and was abolished with the introduction of the euro.

Now, when in the 1980s technology had evolved and credit-cards moved to Europe, the threat of credit-card based Point-of-Sale systems made the Oil Companies of the Netherlands push the banks into building a Dutch point of sale system. And while it did take some time, we eventually ended up with the national PIN-system, as of 1987. And exactly this week, the system has seen its last transactions and is replaced by international debit-card systems.

It is interesting to see how the life-time of the cheque-system was 35 years and that of the PIN-system some 25-odd years. And while the credit-card penetration in the Netherlands is still comparably low, it is the mere threat of the expensive credit-card system that has made us introduce some inexepensive own Dutch-flavoured payment systems.

Bankgirocentrale building at Sloterdijkkade 22


Floriade.... and its link to payment history

Today the Dutch Floriade 2012 has opened its doors in Venlo. And that reminded me of the Floriade Amsterdam, which was held in 1972. Few people will know that the Floriade of 1972 has a link to the Dutch payment history. Because it almost became the place were the first electronic payments at the point of sale could have been trialled. So what happened in those days....?

In the early 1970s there were some discussions about a possible merger of the Amsterdam Municipal Giro (Gemeentegiro Amsterdam, known as GGA) with the Dutch national Giro (Postcheque- and Girodienst). While the national regulators wished the GGA to become part of the National Postal Giro, the City of Amsterdam was very much opposed to that idea, since the GGA generated a nice revenue. And its director Stofkoper, did everything he could to ensure that the GGA could prolong its life as an independent organisation. And for that, he chose the path of innovation into modern electronic payments and banking.

Stofkoper invested heavily in study trips to the USA and made sure that the GGA was the first to test and adopt new technology. And for the Floriade of 1972, his true goal was to set up an electronic payment system. So he discussed this idea seperately with the technical people of Bijenkorf and Albert Heijn. He tried to convince them to quickly join in this pilot, suggesting that another interested party would also be willing to step in this pilot and demonstrate an innovative approach.

Unfortunetely for the GGA however, the technical staff of Bijenkorf and Albert Heijn were in contact with each other and found out that they were both being courted. And as the idea of setting up a closed-circuit payment system was still too fresh and new to them, they choose not to participate. So the GGA did not have the  from then on the GGA chose to focus on alternative uses of the new technology. And in 1976 it became the first to provide all its customers with the possibility to withdraw money from an Automated Teller Machine, using a 'betaalkaart'.

Now, for those interested in film and photo's of the early days; there is a five-part film around on Youtube that provides nostalgic footage of the Floriade 1972.

And for those that are more into the old-school black and white pictures, I would suggest to look at these foto's of the Amsterdamse Beeldbank:



Rabobank takes over Friesland bank... inevitable consequence of scale and business model

Today, all the financial news in the Netherlands is dominated by the takeover, by Rabobank, of Friesland Bank. Both are banks that originated in the agraric sector, as cooperative organisations that support local farmers and communities. As such Friesland Bank was the only remaining independent cooperative bank still standing. But now, the Competition Authority has immediately granted an 'express decision' to allow the merger between Rabobank and Friesland Bank. This means that the financial situation was serious and we may assume that the Dutch central bank (as a supervisor) chose to stimulate this merger between Rabobank and Friesland Bank (as is - in historical terms - their preferred way of keeping the bank sector healthy).

Now if we look at the earlier annual reports of the Friesland Bank we can see what was going on. Over the last five years, the majority of increase in income was due to the private equity function of the bank. So Friesland Bank was a bank and a private equity house at the same time. With the private equity part blossoming in the recent years, while at the same time being a risk factor. Meanwhile, Friesland Bank in some areas (for example processing of securities transactions) needed to cooperate with other banks to ensure a good provision of services. And then, when the market outlooks became more grim, the bank as a whole seriously suffered from the fact that 1) new banking rules led to a higher capital requirement for private-equite activities 2) the revenues of investment went down alongside the general gloomy outlook in markets and investments.

What is interesting is the tempo in which this take-over occurred. Because in essence, the risk profile of Friesland Bank (low revenue generating bank with risky private equity holdings) is of course no surprise to Supervisory Board nor to its supervisor: De Nederlandsche Bank. So one might wonder: what took them so long? What happened?

I think it's the combination of cultural and personal factors that may have slowed down this take-over. For that to understand, we must recognize that the Frysian Province of the Netherlands is a region with a healthy proud, and sometimes stubborn, attitude as to their uniqueness. They succeeded in getting their language to be maintained as an official administrative language in Friesland. They have the unique 11-cities skating race and many more customs. And it may have been this regional pride that may have stood in the way of their Supervisory or Executive Board of accepting the inevitable.

So while there is a lot more to say about this episode, it is fair to state that the Dutch central bank may now -after a number of well-criticized failures- pride itself in having safely managed and seen this transition though.