An interview with Mark Buitenhek
Hans Croon and Lissy Kemena
Connective Payments, June 2023
In conversation with Mark Buitenhek
With more than twenty-five years of experience in various leading positions in the Dutch and international payments industry, Mark Buitenhek can rightly be called one of the movers and shakers in Payments. Originally a marketer, he has held several management positions at Postbank and ING in the areas of product management, operations and sales. Mark initially focused on retail payments at ING and Postbank, and from 2010 on the (large) corporate side of the market at ING. His positions included Global Head Payments & Cash Management and Global Head Transaction Services. In addition, he was active as a board member or supervisor at many organizations in the field, such as equensWorldline, EPC, Mastercard Europe, Payconiq and Swift. In all these roles, Mark has managed or advised on a large number of change projects in the field of Payments. Innovations such as Instant Payments, iDEAL, SEPA, EMV, mobile payments and PSD2: they were all co-created by the enthusiastic and passionate Mark Buitenhek. Now that he is leaving ING on July 1, we are curious about his vision on the current and future Payments ecosystem. And of course we look back at some highlights and lessons learned.
Paying for cappuccino with QR
On one of the first sunny days this month, we speak to Mark in a cafe on the NDSM site in Amsterdam North. A part of Amsterdam that is developing rapidly, with a wonderfully free-spirited and creative vibe. Mark has been enjoying his ‘garden’ leave, as he calls it, and takes all the time for our interview.
Once at a table in the corner of the restaurant, we immediately see that ordering the coffee is possible by scanning a QR code, which is pasted on the table with a sticker. Paying for the order follows straight after it, in a seamless flow. Less than 2 minutes later our coffee is served.
“Very smooth, this ordering and payment method,” Mark remarks. “Paying with a QR code is commonplace, especially in China. We have introduced Payconiq (1) in the Netherlands, but paying with a QR code has not yet proven to be a resounding success. But you see how easy it actually is,” he says.
If you go for a coffee with Mark Buitenhek, you will soon be talking about Payments, his great fascination.
Mark, serious research has been done more than once into the costs of payment transactions in the Netherlands. These studies consistently show that payments are structurally loss-making for the banks. In the last 10 to 15 years, the ecosystem has also become increasingly complex: increasing regulatory pressure, PSD2, new players specializing in parts of the value chain. How can we explain that nevertheless more and more players are joining the ranks, who all think they can earn a living from Payments?
It is true that payment transactions have been loss-making in recent years. On the one hand, this is the result of the sharp decrease in net interest income, and on the other hand of increased risk and compliance costs. These account for a fifth of the total costs (2). In practice, banks can absorb these losses by cross-subsidising: by making a profit on other products, such as mortgages. But from a purely economic point of view, this is an undesirable situation. You would like to recoup the costs where they are incurred. That is one of the reasons why, when interest rates went negative, the ECB actually told banks that they should raise rates.
However, increasing commission income from payments is difficult in the Dutch market, given the historically low rates and social sentiment in this regard. That is why the banks are strongly committed to reducing costs. Roughly speaking, by turning three knobs: further digitization and more efficient processes, volume increase and standardization, and reduction of costly components, such as cash. And very important: in all these developments, where possible and permitted, there has been cooperation.
We have all started banking very differently.
That’s right. The distribution mix in payment transactions has changed fundamentally in recent years. Because people no longer go to a bank branch for payment transactions, fewer physical offices are needed. It was a bit of a swallow for some banks, but they are now not only working together in the field of money counting centers, but also in the field of ATMs. Anyone who needs cash, and that is by the way less and less, gets it from one of those beautiful yellow Geldmaat ATMs. But the continuing trend is that more and more payments are being made electronically. Banks are really going very fast in terms of digitizing payment traffic and facilitating e-commerce. Digitization also costs a lot of money, but in the long term it should lead to a further reduction in costs.
Despite all these efficiency measures, traditional retail banks continue to make losses on retail payments.
What do you see neo-banks like Revolut doing? By working together with specialized parties to the maximum, they do not have to keep expensive legacy systems up and running. PSD2 has made it possible to request payment data from banks via APIs relatively easily and cheaply. This allows them to offer new services. The market has only gotten bigger and data is the new gold. The dream of new entrants is therefore to become an ‘all finance bank’. You see what happens when new entrants enter the market: they first offer the payment account, which they use to collect a wealth of data. Based on that data, more profitable products such as a savings account, mortgage and asset products soon follow.
The importance of cooperation
Earlier we spoke with Piet Mallekoote about the importance of cooperation. Have you also experienced this importance in the course of your career?
Certainly. Consider, for example, the emergence of Paypal. The Dutch banks reacted strongly to this at the time, with the introduction of iDeal. Thanks to the intensive cooperation between the banks, iDeal was able to become such a great success. What we learned from Paypal’s strong European advance was that the worse banks cooperated in a country, the larger Paypal’s market share became. In the Netherlands, Paypal’s market share is approximately 5%, in Germany it is already 40%. This example makes it clear that things go wrong in Payments when banks do not want to cooperate, which often means that they have to let go of their individual approach.
A second common thread in all these years has been the political pressure from Europe to break through the hegemony of Mastercard and Visa in online and point-of-sale payments in the form of a pan-European payment system. Several initiatives are currently underway for European cooperation between banks, such as EPI (with the recently announced purchase of iDEAL 2.0) and SPAA. How do you see this development, is it really happening, or are Mastercard and Visa too big and too rich to let themselves be pushed off the European stage?
The Dutch banks were smart with iDEAL. But Mastercard and Visa have developed relevant online innovations in a short time, that work everywhere. Tokenization is really a very well thought-out innovation, which both protects against cybercrime and makes the payment itself easier. And the European banks currently do not have a competitive product in response to Mastercard and Visa.
With the development of iDEAL 2.0, an enormous step has been made. Both for the consumer and for the retailer, and both in technical terms and in terms of ease of use, what it is all about after all. An even easier way to pay with better customer journeys. But to be relevant from a European point of view, this should actually be rolled out throughout Europe. Furthermore, preferably at the same time.
Geopolitics as driver of change
Why have financial institutions so far failed to develop a pan-European retail payment system?
Before the arrival of the euro, the European payments market was not highly regulated. Point-of-sale payments, which account for the largest volume, were highly fragmented due to all those domestic payment systems, such as the Dutch PIN. The cross-border card volume went through the international card schemes. All those different payment methods, with their own rules and infrastructures, make the payment landscape inefficient and therefore more expensive than necessary. Especially for international players such as ING. All attempts to arrive at a pan-European retail payment system, such as Monnet, eventually failed. This was mainly due to mutual cultural differences and backgrounds. SEPA may have worked as a crowbar for the cashless part, but not for the point-of-sale world.
I think that the presidency of Donald Trump, who took a completely different course from his predecessors when it comes to cooperation, has helped the European financial sector to change course in Europe once and for all. After all, is this complete dependence on powerful American players such as Mastercard, Visa, Paypal and Apple, geopolitically speaking, still wise in the long term? And recently we see the same line of thinking emerging when it comes to dependency and cooperation with Chinese players.
European Payment Initiative
Do you think EPI will be successful?
EPI must become a universal European solution. One that replaces the still existing patchwork of domestic payment systems. As you know, ING is one of the founding members of EPI. Rabobank and ABN AMRO are now also on board, thanks to the sale of iDEAL 2.0 and Payconiq to EPI.
The success of EPI stands or falls with the collaboration. That means making hard choices, but also give and take. Look at the SEPA implementation. In 2008-2009, 27 countries (now 36) switched from a 12-digit account number to a 16-digit IBAN number. Subsequently, they introduced the various SEPA payment methods.
These new SEPA products were created in the typical European way: making compromises. The differences between the countries were so great and the fear of switching to the most extensive range of products prevented the group from making this choice.
At that time, the Netherlands was already miles ahead in digitization. Nevertheless, if you want to move forward, compromise is the only way. And so we ended up in the middle and the Netherlands actually had to take a step back. For example, we wanted the consumer to sign an authorization for a direct debit electronically, but many countries insisted that this be done on paper.
Instant Payments
That worked out better with Instant Payments. Instant Payments is an acceleration of the original payment method. The money is in the recipient’s account within a few seconds. Paying and receiving 24/7 has now become the new normal in the Netherlands. As Dutch banks, we eventually saw that very sharply, in the digital age it is simply a hygiene service. The EU is currently working on new regulations that more or less enshrine this principle.
With Payconiq, the intention was to allow more and more countries and banks to join. With the aim of achieving one and the same proposition on one platform, scheme, from account to account. This soon turned out to be very complex. We had to continuously adapt to the circumstances. And this was just the Benelux. The lesson we learned was: you can’t do everything well at the same time, so focus on one part and do it very well. And stay away from hardware. Skip the physical world for a while. That we ultimately succeeded in this is proven by the fact that Payconiq has become the technical supplier of iDEAL and is now being taken over by EPI.
Do you see the Instant Payments infrastructure as a logical technological basis for such a pan-European system or is it more obvious to start from blockchain technology, for instance with the digital euro as a Stablecoin?
There is something to be said for both: Instant Payments is a mature infrastructure that has not yet been rolled out in all European countries. Blockchain is a relatively newer technology, but also seems suitable in principle. Time will tell. Incidentally, it also applies to the digital euro that the choice of the technical basis is still open. Look at China: the CBDC was developed there with conventional technology, not on the basis of a blockchain.
The digital euro
Speaking of the digital euro. You were recently interviewed in the “Nieuwe Knikkers” podcast. As a marketer by origin, you mentioned that with innovations, you always first ask yourself which customer’s problem is solved. If the answer is questionable, then such an innovation is often doomed to fail. Doesn’t such a question currently arise with the digital euro? Many skeptics ask what problem it solves.
That is indeed always a good question. I often think back to the time when Chipper and Chipknip competed for customer favor. Cost: more than 1 billion euros. But that private customer was not really waiting for such a payment system. It was supposed to solve a cost problem for the retailers (relatively high telecom costs for low-value payments). But the cardholder could not see the expenditure reflected on his statement. We were so preoccupied with the competition between the two consortia that we lost sight of the real customer issues. A very expensive lesson.
If the digital euro is introduced, it will have to compete with existing, high-quality solutions that consumers and businesses are already used to. What problem does it solve? The ECB mentions, among other things, confidence in the European payment system. That would benefit from a public form of digital money. Citizens have now deposited their money with private parties. In times of financial turbulence, they will soon be able to transfer this digitally to public money, in the form of digital euros. But it is precisely this benefit for citizens that the ECB wants to limit. To reduce the risk of bank runs, there is talk of a cap of €3000 on the balance to be maintained. Suppose your bank is on the verge of collapsing, and you can only digitally secure € 3000. That does not seem to me to be the best selling point for the digital euro. Compare that with the US: when the Silicon Valley Bank recently threatened to collapse, the government immediately restored confidence by guaranteeing all assets.
What do you think is the most important driver for the ECB?
There are, of course, macroeconomic motives, but also geopolitical ones. Many countries around us are developing their own CBDC. If the eurozone does not at least investigate whether and how it should introduce a digital euro, there is a risk of a major backlog and perhaps capital flight. That is why we also have to look very closely at countries where digital central bank money is already being issued. How do consumers and companies react to this? What are the success factors? In autocratic countries like China it seems simpler. But there too, the use appears to be quite limited and so the large commercial players are now forced to take up distribution.
The question remains whether the consumer will benefit from it. I understand that it can be interesting for retailers. The European digital euro is seen as a competitor for the existing payment methods, which puts pressure on the rates. But the core of the question remains: what concrete customer problem does it solve? Fortunately, the digital euro project is in very capable hands with Evelien Witlox and her team at the ECB and I am confident that wise decisions will be made. And Evelien was also there when Chipknip and Chipper fought against each other, hahaha.
Open Banking: PSD2 and SPAA
PSD2 has not yet forced a breakthrough. European banks originally saw PSD2 as a threat (“man in the middle”). They had to offer the API infrastructure and access to all their payment data to certified parties free of charge. In the UK, forced by a much more active government and central bank, the banks are much more advanced in establishing technical Open Banking standards. SPAA (SEPA Account Access) could mean a turnaround in Europe. There is even talk of a new European payment scheme. How do you see that development, and how does SPAA relate to EPI?
First of all, PSD2 was the most complex project we have ever had to realize. Even more complex than SEPA and the transition to the euro. This was partly due to a lack of detailed technical standards for the API messages. But we also foresaw that PSD2 would be followed by PSD3 and Open Finance regulation. So we opted for full centralization across the entire bank. Something we had never done before.
Due to the lack of hard technical standards, however, each country in Europe more or less decided for itself what such a message should look like. Which data, on what positions, etc. At the same time, the data flow must be the same everywhere, including internationally, in order to understand each other. That made it an incredibly complex, expensive adventure for us, with our central approach.
PSD2 was also seen as a “must have” within most banks. Euphemistically speaking, the enthusiasm was not very great, because it is a free service. There was little or no room for extra investments in value added services, because the PSD2 regulations did not set any explicit requirements for this.
If the banks had been given more space, more attractive new propositions could have been developed with the help of PSD2 and Open Banking, with interesting business cases. In this context, ING devised and marketed Cobase and YOLT (3). By the way, this happened separately from the budgets for PSD2.
The European Commission and the EBA are currently evaluating PSD2. Perhaps this will lead to a PSD3. Banks must consider whether they are able and willing to play this game. There are few banks that have benefited commercially from PSD2 and have managed to market it financially. I hope that the legislator and the ECB will rectify this so that revenues can also be generated. And in any case, all players benefit from further standardization, even if this seems to limit innovation. Payments innovations cannot work without hard standardisation, especially in the initial phase.
SPAA seems to be playing a serious role in this.
SPAA is certainly a serious development that aims to professionalize Open Banking in the Eurozone, while commercializing it at the same time. By comparison, many more banks participate in SPAA than in EPI. The investments are high.
I am a huge fan of Open Banking. Take a look at the Open Banking proposition that Rabobank has developed for SMEs, with distribution via bol.com. Customers can easily take out financing through this distribution channel. Entrepreneurs who sell via bol.com can benefit from short-term financing. Sales data from the seller is used as the basis for the loan. Both the turnover at bol.com and that of other sales channels, such as your own webshop or debit card turnover from a physical store, are included.
In a broader perspective, this naturally leads to a discussion about your strategic future. Will you become a BAAS (banking-as-a-service) organization and let go of your ambitions towards the end customer? How does the customer experience that a banking proposition is offered through a non-bank? Does he feel a customer of Rabobank or bol.com? We already know this in the physical world, of course. The Geldmaat is an example. But it is also very common to take out a loan from a financier when purchasing a car from the dealer. So it is not completely new, but the virtual world is more fluid, and dominated by the distribution provider. What do you actually want with your own channels? And your products? In short, strategic choices have to be made, because we simply cannot do everything ourselves anymore.
Buy Now, Pay Later
What do you think about Buy Now, Pay Later? Did the banks let this happen or is it a niche product, actually just buying on credit, that could only be marketed by weakly regulated players such as Klarna and Riverty?
I think Buy Now, Pay Later is very similar to a simple credit card: a charge card with a fixed payment schedule of, for example, three months. The revenue model is smart though: the retailer pays for the service in exchange for an increase in turnover, the consumer pays nothing. But if he defaults, he pays a fine. It is a kind of consumer credit, but unregulated for the time being. Did banks ignore this? Yes, but we are a bit more careful, we also have a responsibility for our customers and we attach great importance to that. It is therefore right that we are now looking at whether and how BNPL products should be regulated. After all, consumers can get into trouble. Young people can build up large debts almost unnoticed.
Should we stop innovating then? Definitely not. Customer demands are constantly changing. Whether we are able to respond to these on time is what matters.
Mark, our time is nearly up. Are there topics that we have neglected that we definitely should have addressed?
Too many to mention of course! What do you for instance think of the end of the giro collection form and OVPay?
We already warned: talking to Mark Buitenhek is like leafing through an encyclopedia with in-depth knowledge of important events in the Dutch and international payment landscape. Non-experts sometimes think they see stagnant water, but there is a lot going on under the surface, which means that the payment experience today is completely different from that of 10, 20 years ago. Mark was directly involved in many of these developments. Maybe we should invite him for a follow-up interview in a while.
Okay, last question: what are you going to do now?
That is also a question for me. I’ve seen enough offers come by, but I want to think for a few months before I make a choice. It probably won’t be an executive role anymore. In any case, I am working on an alternative as a student at the Writers Academy. But if it’s going to be something, then probably something in consultancy, and then logically in the field of Payments or areas similar to Payments. People who know me have probably heard me say about Payments before: You can check out any time you like but you can never leave!
Notes
- Earlier this year, the European Payments Initiative (EPI) confirmed the planned acquisitions of payment solution iDEAL and payment solution provider Payconiq International (PQI). EPI, iDEAL and PQI are joining forces to realize a new and uniform payment platform for Europe.
- The Dutch payment system is characterized by high efficiency, but the total costs (€ 4,230 million) and revenues (€ 3,660 million) are not in balance. The high compliance and risk costs (21%) are striking, including the costs of checking the identity and integrity of customers. Payments are more dependent on net interest income (45%) than in other European countries, where revenues come more from tariffs and payments are cost-effective. This makes the Dutch payment system the most loss-making in Europe. Source: https://www. Payment Association.nl/wp-content/uploads/Eindrapport-kosten-bates-payments-traffic-2021.pdf
- In 2017, ING introduced the business-to-business platform Yolt to the UK market. Yolt acted as a digital traffic controller by establishing API connections between parties active in the open banking ecosystem.