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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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.
SUOMEN PANKKI | FINLANDS BANK | 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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
* * * * *
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
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SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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?
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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