Forming consumers’ payment habits: Norwegian experiences

By Jørgen Taxt, Senior Marketing Consultant in BBS

The Nordic countries are frequently referred to as pioneers in the field of payment services and related technologies. This statement is supported by the fact that Nordic – and in particular Norwegian – consumers are the most eager users of electronic payment services in the world.

A dive into international payment statistics shows that the Nordic region is characterized by high deployment and, more importantly, active usage of electronic payments. This tendency is especially noticeable in Norway, where each Norwegian used payment cards 207 times a year on average, during 2007. Norwegians are the most frequent users of debit cards in the world, with the national debit card scheme ”BankAxept” – a common solution offered by all Norwegian banks – as the dominant system. The density of payment terminals in Norway is the highest in the world and 75% of the population prefer card payments to cash. Of all the card transactions handled in 2006, 22.3% were for amounts below 12 Euro and new card transaction records are being set each year. Cheques are practically no longer used and have not been for over a decade. Today, cash amounts to less than 8% of the means of payment in Norway. An extensive use of electronic billing and net-based payment solutions are driving forces for these impressive statistics.

Collaborating for technological progress
The International Monetary Fund (IMF) carried out a review of the Norwegian financial system in 2005, and stated that the infrastructure for payments is highly developed and efficient. The banks’ collaboration on a common infrastructure is the basis for a wide range of payment services offered by individual banks to the market – and this was highlighted as a positive element, both for the deployment and usage of payment systems. The collaboration between the Norwegian banks in developing a common financial infrastructure and thereto connected payment services has been an essential reason for the efficiency and quality of the payment services. This has also led to interoperability of the technical solutions across the banks, further driving the ease of use.

The unified initiative for developing efficient common payment infrastructures in Norway was commenced with the establishment of BBS (Banking and Business Solutions) in 1972, a joint venture between the banks of Norway. The purpose of the establishment was, according to the statutes, “to develop a bank giro system, a debit and credit card system, other payments systems and any operations related thereto”. In a small country like Norway (4.7 million inhabitants), it would not be cost-efficient to develop several parallel infrastructures for payments. Neither would it be adequate for any bank to develop a portfolio of payment services that are not compatible with other banks’ solutions. By realizing these facts and acting thereupon, Norwegian banks have an internationally unique experience in developing common services.

Operating as an initiator and advisor for the banks in these matters, BBS has for 36 years played a strategic role in the development of payment services. BBS and the banks have over the years developed many solutions with the purpose of making payments faster, easier and more secure, both for the industry partners and the markets. Examples are solutions for card payments, e-commerce, electronic billing, Internet banking and e-ID solutions. The number of transactions carried out in respect of all these services has increased considerably each year. Example of a recent common solution is the BankID Scheme, the Norwegian banks’ joint electronic authentication and signing system. All Internet bank customers in Norway have been, or will soon be, offered their own BankID to secure online identification and electronic signing of sensitive documents. For this service, BBS, together with BankID Scheme, received the prestigious European “eema Award for Excellence in Secure Electronic Business”. BBS’ collaboration with BankID Scheme has also been continued in respect of the telecom sector, with the issue of BankID on mobile phones. This service proofs that mobile telephones can be used in secure electronic identification. The Norwegian banks’ net-payment system has already tested BankID successfully.

E-commerce is growing rapidly, and the majority of Norwegian Internet shoppers prefer card payments rather than payment by physical invoice. The demand for a debit-based online payment alternative to credit cards led to the development of the “BankAxess” service by BBS and a number of banks. As is the case with “BankAxept” in the physical world, the payment is made directly from a bank account, and the customer confirms the purchase by using BankID as the security solution. This shows that common developed solutions such as BankID may be employed to a number of different financial services once established.

Efficiency, price policy and security: Key factors for adoption
Payment services must be user-friendly, secure and low-cost in order to be efficient, and adopted by industry and the population. Norwegian banks use pricing as a policy instrument to make customers choose the most cost-effective services. The fees for utilizing electronic payment services has for many years been considerably lower than for the paper-based and manual services, which in turn has increased the use of electronic means. The combination of user-friendliness and low pricing has made Norwegian consumers adopt electronic means of payment faster than consumers in other countries.

Security and stability are fundamental qualities of a payment service, and no service will be adopted unless it is proven secure, and is trusted by its users. Having delivered national critical financial infrastructures and payment solutions in Norway since 1972 – and having operated them securely and stably – BBS has acquired the trust of banks, enterprises and the general public. BBS plays a significant role as operations centre for the banks’ common infrastructure for payments, c onveying an amount of approximately 7.9 billion Euro in 2007. Given BBS’ key financial position, the requirements made in respect of operating reliability and stability are naturally extremely high.

The environmental issue
BBS also develops solutions designed to simplify Norwegians’ interaction with the public administration through Internet, for instance by improving the efficiency of the processing of application documents. Several public agencies have implemented extensive modernisation measures in order to achieve improved response time and better self service opportunities. eSecurity solutions from BBS provide opportunities to identify oneself and to sign documents on the Internet, thus rendering physical presence and signing of paper documents unnecessary. Substantial parts of BBS’ business aim to establish such electronic solutions and procedures for our customers, measures to reduce the quantity of paper and polluting transport. Electronic solutions are good environmental and climate measures. An estimate suggests that the electronic transactions in Norway during 2007 reduced CO 2 emissions by 760 tons compared to if the same transactions had been performed on paper. This is the equivalent of emissions from 10 000 cars. In an increasingly environmentally conscious society, such qualities add value to the services, and are additional driving forces for adoption.

References: The Central Bank of Norway (Norges Bank), BBS’ market surveys.