Dutch payments system is efficient yet costly, study shows

Wednesday 26 October 2022 15:40 CET | News

The Dutch Payments Association has published its Study into costs and revenues of Dutch payment services in 2021 conducted by McKinsey & Co.


The purpose of the study commissioned by the Dutch Payments Association’s Executive Board was to create a fact-base for follow-up discussions on the future of Dutch payment services. The McKinsey study is a reprise of a study with the same objective conducted for the Dutch Banking Association (NVB) and De Nederlandsche Bank (DNB) in 2005. 

Since the 2005 study, new payment products have emerged, different types of players are active in the payments market, and Dutch payment transactions have become more electronic and more international (and in particular more European), according to the report summary elaborating on the results.

The research methods were based on the same approach as the one taken in the 2005 study (considering changing market context) and involved a wide range of stakeholders in order to ensure comparability and support for the fact-base. The information in this report is of a relatively high aggregation level due to competition law and commercial considerations. 

Banking payments dropping, while the payment system is thriving

Similarly to results registered in the 2005 iteration of the study, payment services for banks were losing in market share in 2021, particularly in the retail segment. Nevertheless, McKinsey data conducted the researchers to explain that this loss is caused by a sharp decline in net interest income. Another cause might be the increased risk and compliance costs. 

Despite this loss, the Dutch payment system is reportedly extremely efficient, with transaction volumes having more than doubled (250%) compared to 2005, whereas costs have only risen by 5.2%. Furthermore, payment services costs are lower than the European average for both the business segment and the retail segment. 

In 2021, banks in the Netherlands collectively made an aggregate loss on payment services of EUR 570 million before tax. In 2005, this was a collective loss of EUR 23 million, which implies a EUR 547 million increase in loss over 2005-2021. Whereas income fell by EUR 336 million between 2005 (EUR 3,996 million) and 2021 (EUR 3,660 million), due in particular to a fall in net interest revenues, overall costs in 2021 (EUR 4,230 million) were up EUR 211 million versus 2005 (EUR 4,019 million). This results in a cost-income ratio of 115.6% in 2021 versus 100.6% in 2005. For comparison: ~70% is the overall result for the Dutch banks (i.e. including the entire portfolio of products).


The Dutch Payments Association has published its Study into costs and revenues of Dutch payment services in 2021 conducted by McKinsey & Co.


Card payments are up, cash is down

While payment account management and credit cards are generating a positive result, mainly due to interest income. A positive result is also realised on (outgoing) credit card payments (EUR 132 million or EUR 0.67 per transaction). 

In contrast, the study concluded that the result for all other products is negative: The result is negative for cash transactions, cashless transactions (- EUR 351 million or - EUR 0.07 per transaction), (outgoing) debit card transactions (- EUR 517 million or - EUR 0.11 per transaction – this excludes the costs incurred on the retailer side, which are subsumed under merchant services). Similar drops were registered when it came to the banking side of merchant services and non-SEPA transactions.

Dutch payments system less profitable but more efficient

When comparing Dutch payment services results to European results, experts drew the conclusion that payment services in the Netherlands are significantly loss-making, with a negative margin of -13% versus a positive margin of 33% for the European average. Income from account balances (i.e. interest income) is positive in the Netherlands, but that income is insufficient to compensate for losses elsewhere. Consequently, the Dutch payments sector is not making profit. 

Lower profitability in payment services, however, is not caused by cost performance as the experts stress; in fact, the Netherlands is highly cost efficient. In the Netherlands, total domestic payment costs relative to GDP are lower for the retail and business clients compared to the European averages (~33% lower for business clients and ~30% lower for retail clients). 

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Keywords: cash, mobile banking, online payments, study, survey
Categories: Payments & Commerce
Companies: McKinsey & Company
Countries: Netherlands
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