DNB: ‘Dutch payment costs among lowest in EU’

20 December 2012

De Nederlandsche Bank reports in DNBulletin that the social costs of cash and debit card payments in the Netherlands are among the lowest in Europe.

Text sign with the message 'Here you can find pay with debit cards', indicating that customers can pay at this location with PIN or debit card.

This is shown by a recently published ECB study into the social costs of payments in 13 EU countries in 2009. Measured as a percentage of gross domestic product (GDP), the combined social costs of cash and debit card payments in the Netherlands amounted to €2.4 billion, or 0.42% of GDP. This was much lower than the EU average of 0.59%, demonstrating the efficiency with which Dutch market participants have organised payments. If the Netherlands had matched the European average, costs would have been €1 billion higher each year. The main reason the Netherlands emerged as one of the most efficient countries is that consumers use debit cards relatively often.

Cost savings from more debit card payments and technology

In recent years, banks and retailers have promoted debit card payments after earlier DNB research for 2002 showed that they were more cost-efficient than cash. They agreed to increase the number of places where consumers could pay by debit card and to encourage greater use through public campaigns such as “Small amount? Debit cards welcome!” These measures proved highly effective.

Since the initiatives began, consumers have increasingly paid for purchases by debit card and cash use has declined rapidly. As a result, market participants incurred much lower cash costs and only slightly higher debit card costs in 2009 than in 2002. Technological developments such as faster and cheaper internet also generated savings. For cash and debit card payments combined, the saving in 2009 was 9%, or €237 million, compared with 2002. A debit card payment cost society an average of €0.32 in 2009, compared with €0.39 for a cash payment.

Low fees support high debit card acceptance

Retailers’ payment costs consist of their own expenses, representing their share of social costs, and fees paid to third parties such as cash-in-transit companies or banks. In both the Netherlands and the rest of the EU, third-party fees account for a relatively smaller proportion of retailers’ total cash costs than of debit card costs. However, debit card fees represent a much smaller proportion of total costs for Dutch retailers than the EU average.

These low debit card fees are one of the main explanations for the high use of debit cards in the Netherlands compared with other EU countries. Low fees make it attractive for Dutch retailers to accept debit cards, as they also save money when customers pay by card instead of cash. Lower bank fees for retailers elsewhere in the EU could therefore improve the efficiency of European payments. More retailers would accept debit cards, encouraging European consumers to pay by card more often than in cash. The substantial economies of scale in debit card payments could then reduce the costs of European payments as a whole.