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Notwithstanding a focus on EU integration and global cooperation, De Nederlandsche Bank (DNB) has used its new strategy document for payments to make safeguarding trust a priority.
The DNB has published its new Payments Strategy 2022-2025 outlining the main trends in the Dutch market and how these may affect payments infrastructure in the Benelux country.
The strategy mainly focuses on the changes that have come with increased digitisation, a trend only accelerated by the pandemic. With this, the DNB has set out its plans to ensure that citizens are not left behind, and remain safe when making payments.
Since being published, it has received the blessing of the Dutch Payment Association and the Dutch Banking Association.
"In short, we are looking forward to working on even better payment services together with our members and stakeholders, under the direction of DNB," said the Dutch Payments Association in a statement responding to the strategy.
The trade association continued: "We are also working on a future-proof funding model for the payment infrastructure to ensure that it remains innovative, reliable, available and accessible to everyone."
However, the relationship is not entirely cordial, with the association pointing out that their members are concerned about "the very high costs" that are incurred to comply with extensive legislation and regulations, including in the fight against money laundering and terrorist financing.
The Dutch Banking Association also touched upon the challenges of complying with anti-money laundering regulation in its response statement, pointing to the issue of de-risking, which is something the DNB had said that it wishes to rein in in the strategy.
"The Dutch Banking Association agrees with the DNB that customer groups should not be categorically excluded from banking services as a result. That doesn't happen either," the statement said.
However, the trade association continued, it can sometimes be very difficult for companies in sectors with a high risk of money laundering to open a bank account. "If banks see too high a risk of money laundering or if they do not receive enough data from customers to estimate the risks, the bank must refuse a customer or say goodbye to the customer, according to the so-called guidelines of the DNB."
The trade association said that it wants to tackle the problem. "The sector is in contact with its public partners and other interested parties about this and has invited them to participate. Because a real solution can only be achieved through a joint approach by public and private stakeholders."
Digital downsides
Among its commitments, the DNB has said that it is concerned about the consequences of a digital failure.
For example, although the reliability of the debit card payment traffic is extremely high, at 99.89 percent availability in 2020, it will never be trouble-free and the risk of a successful major cyber-attack will always exist, the supervisor cautioned.
“In this digital age, a failure of digital systems would have serious consequences. That is why much effort is required to ensure that every day millions of payment transactions can take place at all times,” the regulator said.
Due to increased dependence on electronic payments in the country, it is essential that an alternative to debit card payments, the dominant electronic payment method in shops, is available, with the DNB using its strategy to call on market participants to speed up their efforts in this regard. “We won't fail to play a driving role in this regard,” the central bank warned.
“Any digital fallback options for debit card transactions must be both adequate and sufficiently available. One example could be the use of QR codes supported by instant payments,” the DNB suggested.
According to the central bank, it is strategically important that there is a certain degree of diversity in the payment solutions offered to Dutch consumers.
“The instant payments infrastructure has the potential to become a full-fledged alternative,” the DNB said, pointing out that the use of QR codes has already been a success story in industries such as hospitality and within the third sector.
Payments resilience
The DNB has stated in the strategy that it is committed to improving cyber-resilience.
Although the country's payment systems are relatively resilient, cyber-attackers could still find ways around this.
“The probability that attackers will eventually succeed in breaking into a financial institution is real. It is therefore not enough just to focus on cyber-attack prevention,” said the central bank.
The supervisor has committed to issuing white papers on current threats to resilience, as well as working at the EU level on the matter in the coming years.
Previously, the DNB has established protocols to deal with crisis situations and is committed to working with its regulatory counterparts in other markets and financial institutions to reduce operational disruptions.
However, the DNB said that this “must be furnished” and that more cooperation must take place at the EU level. “Parallel to the new DORA [Digital Operational Resilience Act] legislation, work is already underway on the setting up a pan-European coordination structure for cyber incidents.”
This structure should allow authorities to be better able to produce a coordinated response in dealing with possible major cyber incidents.
EU harmonisation
Aside from crisis situations, a key theme in the strategy document is closer EU ties in regard to payments.
“We are committed to strengthening the European payments market. Currently it is not yet possible for all consumers in the euro area to pay in stores using their debit card, or in webshops, in the same manner,” the DNB acknowledged, stressing that uniform payment methods would benefit the internal market, enabling payments to be made in a similar and cost-efficient manner across Europe.
The DNB continued: “A pan-European set of payment instruments would in addition reduce dependency on large US or Asian payment card companies, ensuring that consumers are protected by European law.”
Together with other central banks, the DNB said it is participating in the European Central Bank’s digital euro investigation, for example.
Yet, pan-EU payment instruments have so far struggled to take off. Just this month, it was revealed that the much hyped European Payments Initiative had decided against launching a pan-European card network, following the departure of two-thirds of its shareholders.
The strategy also touches upon how strong customer authentication (SCA) has and will disrupt payments fraud, given that fraudsters are likely to re-focus their efforts elsewhere.
In particular, social engineering fraud is on the rise, the DNB warned. “Criminals abuse the trust, the ignorance, fear, curiosity or greed of people to extract confidential information.”
Bank helpdesk scams, for example, are increasing. In 2021, the damage done by bank helpdesk fraud reached approximately €40m, an increase of almost 50 percent compared with 2020.
This has in part led to banks in the Netherlands putting in place a protocol that is similar to the UK’s voluntary reimbursement scheme that sees customers be retroactively refunded money.
Protecting the vulnerable
Accessibility is also a key priority for the central bank, with the DNB committing resources to ensure it pays “extra attention” to vulnerable groups.
According to the DNB, vulnerable groups have experienced a decline in the accessibility of payment services. “The goal here is to reverse this development so that, as much as possible, people can continue to pay independently,” the strategy document states.
“Through research, we will be able to better determine the nature of the problems experienced by various groups,” the DNB commented.
“Together with banks and interest groups united in the National Forum on the Payment System, we are implementing an action plan aimed, for instance, improving personal service for customers, and communication by banks. In addition, cash must remain sufficiently available.”
The DNB wants agreements to be put in place with commercial banks, as well as other relevant stakeholders, for a Cash Covenant. Similar to Access To Cash frameworks that have been developed in other European countries such as the UK, Sweden and Latvia, this would ensure that cash remains accessible and affordable for citizens.
