Increase in prices for form-based and decrease in prices for electronic payment services
The use of cards and electronic payment systems in Norway is increasing sharply, according to Norges Bank's annual report on the payment system.
Prices for form-based payment services rose sharply in 1998, while prices for a number of electronic payment services fell slightly. The number of notes delivered to Norges Bank by banks and the Post Office dropped for the first time in several years, and the inflow of notes confirms that the use of the 100-krone note has declined. The daily turnover in Norges Bank's settlement system (NBO) increased from NOK 60 billion in February 1999 to NOK 188 billion in April, as banks were offered the possibility of undertaking transactions electronically in real time, ie with instantaneous settlement. This reduces the risk associated with interbank settlements.
Continued strong growth in the use of electronic payment services
Norges Bank's annual report on payment system statistics shows a continued sharp increase in the use of payment cards. The number of transactions at payment terminals increased by 21 per cent from 1997 to 1998, while the total value increased by 24 per cent. The use of cards at payment terminals has increased more than tenfold since 1998, measured in terms of number of transactions. The value has more than doubled since 1994. Although payments with cards represent the largest share, measured in terms of number of transactions, they account for a relatively small share in terms of value. Electronic giros, form-based giros and cheques all account for a larger share of turnover than payment cards, reflecting the fact that these services are used to transfer large amounts.
Electronic giro services have increased markedly, while form-based giro services have shown a decline. In terms of number of transactions, form-based giros still account for a slightly larger share than electronic giros, but the turnover of electronic giro transactions is more than double that of form-based giros.
The report for 1998 contains data on PC/Internet services for the first time. The first systems for making these payments were introduced in 1996, and from the beginning of 1999 most banks in Norway offer payment services using the Internet. The number of PC/Internet transactions in 1998 was relatively small, with a market share of 0.9 per cent for giro transactions, ie 3.2m transactions and a turnover of a good NOK 7 billion.
The 100-krone note loses market share
The annual average value of notes and coin in circulation was over NOK 43.5 billion in 1998, an increase of about 6 per cent on 1997. The value of cash in circulation has increased roughly in pace with the value of private consumption since 1990. This may seem surprising, in view of the strong growth in electronic payment transfers and the use of cards. Thousand-krone notes, which feature low velocity of circulation, account for about 69 per cent of the value of notes in circulation, which may indicate that this note is to large extent used as a means of holding wealth. The low price inflation of recent years has reduced the real cost of holding cash, and low interest rates have reduced income from alternative placings. These are factors that may increase the incentive to hold wealth in the form of notes.
The distribution of notes among various denominations has changed. The value of 100-krone notes in circulation has dropped consistently since 1991, most markedly since the 200-krone note was introduced in 1994. In 1998 the 100-krone note was overtaken by both the 200-krone note and the 500-krone note in terms of the value of notes in circulation, which has reduced the number of notes in circulation. The number of notes delivered by banks and the Post Office to Norges Bank for sorting and verification was also lower in 1998 than in 1997, although the value increased. This breaks with a fairly stable trend of rising inflow of notes to Norges Bank in recent years.
Continued trend towards "correct" prices
The strong growth in electronic payment services is related to the fact that the prices of these services are substantially lower than those of form-based services. In 1998 there were relatively small price changes for electronic services, with a slight decline in prices for most services. In contrast, prices for high-cost services, such as over-the-counter giros and personal cheques, have increased sharply. This is because banks use pricing in an attempt to shift demand to services that are less costly for banks, such as electronic giros, mail giros and payment cards. Today's prices probably reflect banks' real payment transfer costs more accurately than they did in the past.
Increased turnover in Norges Bank - and improved security in interbank settlements
In order to increase the efficiency and security of domestic and cross-border payment transfers, Norges Bank, like other central banks, has introduced a new real-time gross settlement system for inter-bank payment transfers. Settlement systems of this type have gradually been established in most industrial countries. Risk is reduced because transactions are settled continuously as payment orders are submitted, instead of accumulating so that they are all inter-dependent (netting). Norges Bank's settlement system, NBO, was established in 1997 and developed further in 1998. Since 12 March 1999, banks have been able to send transactions to NBO electronically in real time, and this was a milestone in the work to reduce risk in the Norwegian payment system. The new system is reflected in the increase in turnover in Norges Bank's settlement system, from NOK 60 billion in February 1999 to NOK 188 billion in April.
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