12 Jul 2015

N-Euros versus Credit and Debit Cards

One of the reasons why I'm really pushing the N-Euro idea is that I think that it could easily become the prefered method of payment for both citizens and businesses.

Why? Because currently we are all paying very substantial amounts to the Commercial Banking system to be able to use Credit and Debit Cards. The N-Euro solution would eliminate those costs.

According to the ECB's press release in September 2014 :
The number of cards with a payment function in the EU increased in 2013 by 3.0% to 760 million. With a total EU population of approximately 508 million, this represented around 1.5 payment cards per EU inhabitant. The number of card payments rose by 9.6% to 43.6 billion, with a total value of €2.2 trillion. This corresponds to an average value of around €49 per card transaction.
And according to a report in the Financial Times in December 2014 :
Retailers across Europe pay banks about €13bn a year to handle transactions, and 70 per cent of this charge is accounted for by interchange fees between banks handling the process.
I suppose that €13 billion in fees on transactions worth €2 trillion implies that the "Financial Transaction Tax" is only about 0.7%.  However, any restaurant owner or shopkeeper knows that they have to pay VISA and Mastercard something like 3-4% of the value of each transaction. I bet that means that big players like Amazon pay way less than ordinary businesses. Yet another illustration of how the whole system is rigged in favour of the big players.

Add to that the fact that the Credit Card companies typically slap on an additional 2.5% or more as an "International Fee" for multiplying the value of the payment in one currency by the current exchange rate. It's obscene when you know that the banks themselves do over  $5 trillion in foreign exchange EVERY DAY, effectively for free.

Methinks it's high time this racket was stopped.

Now, suppose that my dream of government backed N-Euro currency system came true. Every citizen and every business in the Eurozone would have a free account in a huge database that could be run using the Cyclos 4 Pro system.  Cyclos proposes a PRO version with a price list. Here it is:

They are clearly geared up to handle millions of users if necessary. It might be interesting to hear what price they would charge for a system that included the entire Greek population. And as they say:
Non-profit organisations and companies with a social mission (e.g. philanthropy projects, environmental innovations) can apply for the social license. ou are a charitable organisation.
Personally, I think that the N-Euro project is pretty philanthropic in objectives.
So, in addition to the software costs, there would be cost of setting up the servers to run the system. Currently, hosting companies like OVH will offer very low latency servers capable of handling up to 3 Gbps (Billions of bits per second) for a few hundred pounds.  I can't believe that the costs of providing enough hardware to handle the payments of a population can be that much - assuming that we don't have to cater for High-Frequency Traders in the City.

Do you really think that the total cost of this would justify charging businesses 3-4% for providing this "service"? I don't think so. Most intelligent people would happily switch to paying via a free, government backed payment system, and cut out the banks completely.

Last night I emailed Yanis Varoufakis to see whether he might be able to get an N-Euro system set up in Greece. Given last night's refusal by the Finnish and German ministers to allow them to have support from the ECB, it may be just the right moment to change the whole system.

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