2012-09-26
Survey: advanced methods of settlement and competition would encourage preconditions for reducing fees for payment services
To reduce the costs of the provision of payment services and provide preconditions for the decline in fees, changes in the pricing of banking services, development of the infrastructure of payment services, availability and knowledge of advanced methods of payment, and market activity of new players are to be encouraged. Such conclusions are presented in A Review of the Survey of the Costs of Payment Services carried out by the Bank of Lithuania. The Survey involved 9 banks in operation in the country, with a banking market share of 76–98 per cent, depending on a service.
The Survey of the Costs of Payment Services carried out for the first time by the Bank of Lithuania revealed that the income earned by domestic commercial banks in 2011was more than enough to cover these services-related direct expenses. According to the Survey data, the income of commercial banks in Lithuania for cash handling operations, domestic bank transfers in litas as well as domestic and international transfers in euro, debit and credit card payments, and direct debit amounted to LTL 482 million last year, or LTL 53 million above the figure for their direct expenses. Most income – LTL 135 million was generated for banks by domestic credit transfers in litas.
In the course of the Survey, banks also indicated what portion of their income indirectly related with payments or cash handling (such as audit, accounting services, administrative expenses, etc.) they would attribute namely to payment services. Given the indicated indirect expenses, direct and indirect costs already amounted to LTL 580 million and were by LTL 98.1 million above the income from payment services.
Such a result was driven mainly by cash handling operations-related costs. They are more than twice or by nearly LTL 80 million higher than income collected from cash operations. Cash handling expenses account for nearly a third of all surveyed payments-related costs.
“Cash handling is the most expensive, so banks cover losses on it from more profitable operations, for instance, electronic transfers, which are the most popular method of payment in the country. Particularly profitable for banks are transfers in euro – from them, banks earned 1.5 times more than incurred expenses. This suggests that there is room for fees to decline”, Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, commented on the Survey results.
According to him, there would be more preconditions for reducing the costs of payment transactions, and fees at the same time, if customers would more frequently use up-to-date payment instruments and the need for cash payment would abate. Moreover that a proper infrastructure has been created, it’s just that its capacities are not used sufficiently. Banks could contribute to the promotion of technologically advanced methods by not only implementing and advertising these instruments, but, for instance, reducing the fees for payments being effected with the use of them.
“If banks do not resolve to that, the general level of fees is likely to subside on account of recently strengthening competition. Even with the largest market share, banks are no more monopolists for payment services. Alternative market players, for instance, payment institutions appear fast in the market. New methods of payment occur – say, electronic money, mobile payments. As the choice increases – the ultimate winner is the consumer”, V. Vasiliauskas said.
The Bank of Lithuania, in its turn, will keep promoting competition by enhancing market transparency. Surveys of the costs of bank payment services are scheduled to be carried out on a regular basis. It is also intended to take the initiative to conduct a comparative survey together with the neighbouring EU countries. In October last year, the Bank of Lithuania provided a possibility for users to compare the 37 most popular standard fees applied by banks, payment institutions, and credit unions.
Aiming at popularising frequently cheaper and technologically more up-to-date methods of payment, however, one faces the habits and inertia of residents. Bank of Lithuania data reveals that a major part of the population has mainly been using payment cards for cash withdrawal at ATMs to date. That for the majority a bank card is not a payment instrument but just a tool for cash withdrawal is also testified by the fact that 20 out of 100 litas only are spent at POS-terminals. In Lithuania, the service of direct debit, particularly popular in Western European countries, does not enjoy the population’s attention either.