Portugal’s banking industry’s unified vision has enabled great
success to be achieved in constructing a modern, highly integrated
electronic payments infrastructure. The industry’s big challenge is
to persuade the many cash-loving consumers and businesses to make
far more extensive use of that infrastructure.
Portugal’s adoption of electronic payments began in the
mid-1970s and has been characterised throughout by close
co-operation within the country’s banking industry, which since
1983 has been open to private sector investment, and active
encouragement by the central bank, Banco de Portugal (BdP). In
particular, industry body the Interbank Payments System Committee
chaired by BdP has played a pivotal role in ensuring the
standardisation and integration of Portugal’s payment systems.
Go deeper with GlobalData
The standardisation and integration achieved prompted BdP’s
governor, Vitor Constâncio, to comment in the forward to a
cost/benefit study of Portugal’s payments system published in 2007:
“The systems operating in Portugal have already supplied the
advantages domestically which are now being sought across the euro
area.” He added that technological advances and preparation made in
Portugal’s payments systems should allow Portuguese banks’
customers “to step into SEPA [Single Euro Payments Area] with
relatively little trouble”.
According to BdP, Portugal’s payment system encompasses 64
banks, four savings institutions and 110 mutual agricultural credit
institutions, with the five largest banks controlling more than 80
percent of the industry’s total assets. In addition, the Portuguese
postal system participates in the payment system as an agent of the
country’s second-largest bank, state-owned Caixa Geral de
Depósitos, and also offers a postal money order domestic and
cross-border payments service.
Central to Portugal’s payment system is the interbank services
company Sociedade Interbancária de Serviços (SIBS), established in
1983 and credited by BdP as being the key factor in the automation
of payments and creation of the network of interbank services in
Portugal. SIBS, which has 27 shareholders representing almost the
total retail banking sector in Portugal, is supervised by BdP.
SIBS provides key services in Portugal’s electronic payments
infrastructure, including real-time gross settlement via the
Sistema de Pagamento de Grandes Transacções (SPGT) through which
all domestic payments of €100,000 ($146,000) or more must be
cleared. Financial institutions not permitted to participate in the
SPGT are accommodated by the Sistema de Liquidação de Outros
Depositantes (SLOD), or settlement system for other large-value
depositors. In 2006 93 institutions were active users of the
SLOD.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataSmaller-value transactions are cleared via the real-time
interbank clearing system Sistema de Compensação Interbancária
(SICOI), also known as Telecompensação, which operates every
working day, 24 hours per day and had 61 participants in 2006.
SICOI is composed of five sub-systems:
• Multibanco;
• cheques;
• electronic funds transfer (transferências electrónicas
interbancárias);
• direct debits (sistema de débitos directos); and
• bills of exchange.
ATM network
Multibanco, the first project tackled by SIBS after its founding,
laid the foundation of Portugal’s extensive shared ATM network in
1985. By 1995 the number of ATMs operating on the Multibanco system
had, according to SIBS, reached 3,745, a number that continued to
grow steadily to reach 11,440 in 2006.
In addition to ATMs on the Multibanco network, limited-access
ATMs are installed inside banks’ premises. Including these bank
machines, Portugal had, according to BdP, a total of 14,688 at the
end of 2006, up from 13,841 in 2005. In 2006, based on Portugal’s
population of 10.56 million, the country’s ATM density was 1,390
per 1 million inhabitants. This ranked Portugal’s ATM density among
the highest in the world, exceeding even that in the US (1,315 ATMs
per 1 million) and surpassed only by Canada (1,600 ATMs per 1
million) and Spain (1,434 ATMs per 1 million). The average in the
euro area is 810 ATMs per 1 million inhabitants.
Portugal’s ATM network provides a wide range of electronic
payments services, including payment of bills for services such as
water, electricity and landline and mobile telephones, payments to
the state and the public sector such as taxes, school fees and
duties, the purchase of transport tickets and execution of direct
debits. SIBS notes that ATM account payment services have enjoyed
“enormous acceptance” by the public. According to BdP, account
payments represented 7 percent of all transactions performed on
SIBS’s ATMs in 2006.
According to BdP, a total of 457 million transactions (cash
withdrawals, deposits and debit payments) worth €30.7 billion were
processed by the country’s ATMs in 2006, up from 435 million worth
€28.3 billion in 2005. BdP estimates that credit transfers via ATMs
in 2005 resulted in savings of 491,000 hours in processing time and
€5.1 million in transaction costs.
SIBS also offers a mobile banking solution, TeleMultibanco, that
permits users to perform some of the operations available at ATMs.
Mobile services include balance enquiries and banking transfers
between up to five bank accounts per telephone number.
SIBS’s second major project, the creation of an electronic funds
transfer (EFT) POS network, was launched in 1987. It has also
enjoyed significant success and BdP reported that there were
173,709 EFT POS terminals in operation in Portugal at the end of
2006, up from 147,137 the previous year and 103,575 in 2001. In
total, Portugal’s EFT POS network processed 743 million
transactions worth €23.8 billion, up from 711 million transactions
worth €22.5 billion in 2005.
US POS systems vendor Hypercom has estimated that the number of
POS terminals in Portugal could reach about 300,000 by 2009.
According to BdP, Portugal’s EFT POS terminal density in 2005 of
15.2 per 1,000 inhabitants was already just below the euro area
average of 16 per 1,000 inhabitants.
SIBS also provides the Via Verde service, an automated
electronic system used to collect tolls on Portugal’s motorways
since 1991. Utilising a radio-frequency identification system, Via
Verde enables toll amounts to be debited directly from a customer’s
bank account.
The comprehensive transaction services provided by SIBS have
done much to promote non-cash payments in Portugal, and of
particular note is that the use of payment cards in Portugal is the
highest of all European Union countries. According to the European
Central Bank, 63.6 percent of all non-cash transactions by volume
in Portugal were undertaken using payment cards in 2006. This
compared with the next two highest EU countries, Denmark at 62.6
percent and Sweden at 60.7 percent
Payment cards
Payment cards in Portugal were originally the sole preserve of
Unicre, an interbank credit card organisation. Unicre was
established in 1974 by six Portuguese banks to issue and manage a
credit card linked to an international brand, then MasterCharge,
via its acquiring network, Redunicre. In 1984 Unicre’s monopoly was
extended to represent all foreign credit cards in Portugal.
Unicre’s exclusive position was legally ended in 1988 and in 1990
liberalisation led to American Express entering the market as an
independent acquirer.
According to BdP, the acquiring service functions in Portugal
are currently:
• Multibanco brand where acquiring is in the hands of the
merchant’s bank;
• Unicre is an acquirer (using Redunicre network) for Visa,
MasterCard, Visa Electron, Maestro, Diners, JCB and Tarjeta 6000
cards. It also issues Unibanco/Visa credit cards;
• Portuguese bank Banco Comercial Português acts as acquirer
for American Express and issues its cards; and
• Portuguese bank Banco Português de Negócios is an acquirer
for Visa, MasterCard, Visa Electron and MasterCard Maestro cards
using the transaction platform of Panamanian-registered NetPay
International.
According to BdP, at the end of 2006 there were 17.64 million
debit and credit cards in issue in Portugal, or 2.23 cards per
person, a level approaching the highest penetration in the EU – the
UK’s 2.35 cards per person, as reported by UK payments association
APACS. Virtually all payment cards in Portugal are now smart chip
and PIN cards, the transition from magnetic stripe signature cards
having commenced in 2002.
By EU standards, Portugal’s penetration rate of credit cards is
relatively high. According to BdP, at the end of 2006 there were
6.92 million credit cards in issue in Portugal, or 0.66 per person.
This was, for example, well above the 0.21 credit cards per person
in Germany, though well below the UK’s EU-record 1.23 per person.
The growth in Portugal’s credit card market has also been robust,
the number of cards rising by a CAGR of almost 18 percent between
2002 and 2006.
However, credit cards remain of minor importance in Portugal’s
overall non-cash payments market. BdP reported that there were 300
million credit card transactions in 2006 in Portugal worth a total
of €15.1 billion, or 1.2 percent of all non-cash payments totalling
€1.254 trillion. Notably, the value of transactions using credit
cards grew at a slower pace than growth in the number of cards in
issue between 2002 and 2006, recording a CAGR of 9.9 percent.
Nevertheless, this compared well with the CAGR of 2.75 percent
recorded by all non-cash payments over the same period.
Debit cards have gained wider consumer acceptance than credit
cards in Portugal, though credit cards are gaining ground, a trend
that is perhaps not surprising given the already high penetration
of debit cards. BdP reported that at the end of 2006 there were
17.6 million debit cards in issue, or 1.67 cards per person. The
penetration rate was higher than, for example, 0.94 debit cards per
person in Germany in 2006 based on data from the country’s central
bank, the Deutsche Bundesbank, and 1.12 debit cards per person in
the UK, based on APACS data.
Between 2002 and 2006 the number of debit cards in issue in
Portugal recorded a CAGR of 7.1 percent. Payments using debit cards
totalled €25.25 billion in 2006, or 2 percent of all non-cash
payments. Payments using debit cards recorded a CAGR of 9.6 percent
between 2002 and 2006, just below the CAGR recorded by credit
cards.
Internet banking
Consumer adoption of internet banking has been disappointing,
despite the launch by SIBS of an internet banking platform, MBNet,
in 2001 in association with Unicre. Low uptake of internet banking
services in Portugal was highlighted by a survey conducted the EU’s
statistical service, Eurostat, of European internet usage in the 27
EU countries by individuals aged 17 to 74 in 2007. In this age
group, only 29 percent of Portuguese made use of internet banking,
ranking the country as one of the lowest users in the EU together
with Poland (29 percent), Slovakia (27 percent), Hungary (23
percent), Greece (12 percent), Romania (7 percent) and Bulgaria (5
percent).
The average use of internet banking in the EU was 44 percent;
the highest use was in Finland (84 percent), Estonia (83 percent),
Netherlands (77 percent), Sweden (71 percent) and Denmark (70
percent).
Adoption of internet retail commerce in Portugal has been even
poorer than that of online banking. During 2007 only 9 percent of
Portuguese shopped on the internet, compared with an average of 44
percent of people in the EU. Countries with the highest use of
online shopping were Denmark (55 percent), Netherlands (55
percent), Sweden (53 percent), Germany (52 percent) and Finland (48
percent).
Prepaid cards
Within the payment card market, prepaid cards remain a largely
under-utilised product in Portugal. According to BdP,
single-purpose prepaid cards are limited to landline and mobile
phone and to universities and enterprises where they are generally
used to pay for canteen meals. In addition, a prepaid card called
viaCard is used for paying motorway toll fees.
A multipurpose prepaid bank card, Porta- moedas Multibanco, was
introduced by SIBS in March 1995 but was discontinued in 2005, at
which time almost 4 million cards were in issue.
Credit transfers and cheques
Though not in volume, credit transfers and cheques are the main
non-cash payment instruments in Portugal, accounting for 67.6
percent and 27.3 percent of transactions in 2006, according to BdP.
The two main forms of credit transfers – conventional standing
orders and variable standing orders – are the most common means of
payment used by corporate customers to pay their suppliers and
employees. In 2006 89.5 percent of credit transfers by volume (112
million) and 80.4 by value (€682 billion) were electronic.
However, it is noteworthy that paper-based credit transfers
actually increased their share of the sector in value terms from 11
percent in 2002 to almost 20 percent in 2006.
Cheques, though still the second most important non-cash payment
instrument in Portugal, are steadily losing ground. In 2002, for
example, the 259 million cheques used accounted for 35.1 percent of
all non-cash transactions by value. In 2006 the number of cheques
used had declined to 186 million and accounted for 27.3 percent of
all non-cash transactions by value.
Since October 2003, electronic exchange of cheque imaging has
all but replaced the previous physical exchange. Due to legal
requirements, cheques of over €100,000, about 2 percent of all
cheques by volume, must still be cleared in paper form.
Despite the impressive electronic payments system in Portugal,
there remains much room for progress, particularly in shifting
transactions from costly instruments such as cash and cheques to
more efficient means. The positive impact this would have on
Portugal’s economy was spelled out in the cost/benefit study
undertaken by the BdP based on 2005 data.
According to the BdP, for the banking system as a whole, total
costs for operations related to payment systems were estimated at
€1.139 billion in 2005, representing 0.77 percent of GDP for that
year and 16 percent of total cost in the banking sector. Revenues
generated by payment instruments were €722 million, giving a 63.4
percent cost coverage rate. “The situation is one of
cross-subsidisation against other banking products,” noted the
BdP.
The cost of cash
Not surprisingly, the lowest recovery of costs was found to be
associated with the use of cash. Based on cash withdrawals/deposits
at a bank branch counter, total costs were €1.85 and revenue €0.08
per transaction, a net cost of €1.77. Cash was followed by cheques
as the most costly instrument with a cost of €1.45 and revenue of
€0.57 per transaction, a net cost of €0.88.
Also not paying their way were debit cards and credit transfers,
though by far smaller margins. Debit cards reflected costs of €0.23
and revenue of €0.18 per transaction, while transfers reflected
costs of €0.28 and revenue of €0.26 per transaction.
From the banking industry’s perspective, the most attractive
instruments were credit cards though overall they are the most
costly, accounting for 50.5 percent of total costs of transactions
in Portugal. Costs were €2.44 and revenue €2.62 per
transaction.
Direct debits also generated positive returns with costs of
€0.09 and revenue of €0.15 per transaction. Direct debits, which
have been available since 2000, are still a minor part of
Portugal’s payment system and in 2006 recorded 140 million
transactions worth a total of €24 million.
A clear objective of BdP is to reduce the use of cash in the
retail environment, where in 2005 it accounted for 88.6 percent of
transactions at POS. Some 9.8 percent of transactions were with
debit card and 1.1 percent with credit card.
One significant challenge to overcome in this regard is a low
acceptance of electronic payment instruments by retailers.
According to BdP, all small retailers (under 100 staff) accept cash
as a means of payment, 66 percent accept cheques but only 27
percent accept debit cards and 11 percent credit cards. For sales
above €25, the acceptance rate for cheques increased to 85 percent
and for payment cards to 45 percent. However, noted the central
bank, transactions up to €50 account for 98 percent of total sales
and most involve cash.
Though for larger retailers cash played a smaller role, it still
accounted for 66 percent of transactions and 39 percent of total
sales. Debit cards accounted for 37 percent of sales and credit
cards 16.3 percent.
Reliance on cash
Weaning Portuguese consumers off cash will also require a higher
acceptance of payment cards. An extensive survey conducted by BdP
revealed that 19.1 percent of consumers have neither a debit nor a
credit card. The percentage of consumers without any payment card
also increases with age. For example, while only 6.0 percent of
consumers aged 18 to 34 do not have any payment card, this
proportion rises to 30.8 percent for consumers aged 55 to 64.
Summing up the situation, Constâncio observed that while using
cash for purchases under €8 “would seem to indicate good practice”,
using cash for purchases over €8 represents “a rather less rational
use of the available instruments”.
