Profitability of Payments in the Netherlands

The Dutch Payments Association has issued a report, ‘Study into the Costs and Revenues of Payment Services for Financial Institutions 2021’. This is a follow up on a 2005 study. It found that the payment system is efficient and user fees are lower than the European average. Transaction volumes have more than doubled and processing fees increased by 5%.

In contrast, banks lost €570 million on payments in 2021. In 2005 the loss was €23 million. The loss is driven primarily by a reduction in net interest revenues and an increase in risk management and compliance costs.

The Dutch National Bank and the Dutch Payments Association estimate that there are 1.16 billion cash transactions which take place outside of the payment system, ie. excluding withdrawals and deposits. In 2021 there were 421,000 point-of-sale terminals, 4,920 ATMs and 730 bank branches. There were 4.705 billion card payments (47%) and 5,087 billion transfer payments (51%), 140 million cash withdrawals and despots (1%) and 6 million non-SEPA payments.

Most transaction-related products are loss making. Banks make an aggregate loss of €1,270 million on cash and cashless transactions, debit card transactions (issuance), merchant services and non-SEPA payment transactions.

Cash transactions, handling cash withdrawals and cash deposits, created a loss for the banks of €273 million, the equivalent of a loss of €1.95 per transaction. Cardless transactions, including transfer, direct debits etc. resulted in a loss of €351 million, €0.07 per transaction. Debit card (issuing) led to a loss of €517 million on 4,509 billion transactions, €0.11 per transaction. This does not include the costs incurred on the retailer’s side. The is driven by low interchange fees, which are set in the Netherlands by law at €0.02 per transaction.

The banks earned €567 million in account servicing, mainly from the interest revenues from outstanding account balances. Each account generates a profit equal to €23.27. Account fees on their own do does not cover the cost of running account services. Credit card transactions (issuing) generate a positive contribution of €132 million. €45 million comes from interest on outstanding balances. Interchange fees are also higher.

The European payments profit margin is 33%. The share of income, expressed as a percentage, is less than the cost for only two areas, cash and account servicing. In the Netherlands, the payments sector generates a loss of – 13% and income was less than costs for all but account servicing.

The drop in the value of in-store cash usage was 4.8% in 2021, which was a smaller reduction than in 2020. In 2021 the value of in-store transaction in cash was €20 billion and cash withdrawals were €119 million. The annual growth of debit card transactions between 2016 and 2021 was 4.7%. The number of online payments increased by 30% per annum. In 2021 20% of point-of-sale transactions were in cash. The DNB could see this dropping eventually to 5%, similar to cash usage in Norway and Sweden.