BLOG | iDEAL in the Netherlands has again set new records. Last week, the Dutch 'Betaalvereniging' - now responsible for managing the most popular online payment brand in the Netherlands - published the iDEAL facts for 2014: more than 180 million iDEAL transactions processed, and +26% growth compared to 2013. More than 53% of all online payments in the Netherlands are paid for using iDEAL. What have been the drivers for iDEAL's success?
Monitise Online Purchases
The story of iDEAL started back in 2005, when iDEAL was developed by the major Dutch banks. They were looking for a consumer- and merchant-friendly, safe and secure, immediate online payment to enable e-commerce merchants to directly convert orders into transactions.
E-commerce in the Netherlands was rapidly taken off as all factors for success were there: high broadband internet penetration rates, spending power, well-developed logistic networks and savvy consumers. Merchants were looking for means of online payments to instantly monitise on their online 'deals'.
Creditcards were in pole position
Creditcards seemed to have 'pole position': MasterCard and Visa were already made available for online use and able to instantly confirm payment. However, at that time, in terms of fraud, chargebacks and dispute risks, not able to respond to the merchants' need for secure and guaranteed payments. Merchants accepting card payments could face costly fraud related chargebacks - legitimate cardholders reclaiming their money - and loosing their goods at the same time.
MasterCard SecureCode and Verified by Visa ('3D-secure') - both developed to make online credit card payments more secure - had still to be properly introduced. Card scheme rules - at that time - did not yet have a full liability shift programme ('protection plan') in place. Effectively slowing down the 3D-Secure uptake by both merchants and banks. Both were frightened of the negative impact on online sales and consumer experience.
In favour of iDEAL
Nowadays 3D secure has become more mature. Many countries have high adoption rates on both acquiring (merchant) and issuing (consumer) side. Luckily for 3D-secure enabled merchants, at least they are now protected for all fraud related chargebacks on consumer cards, regardless the country the card is issued in (note: interregional commercial cards are still ruled out of 3D-secure protection). However, the lack of payment guarantee, and the damage done to card acceptance in the early years of e-commerce, has been all in favour of iDEAL. It was enough to fire start the adoption of the bank-driven payment initiative.
The Perfect Soil
So, the fact that online businesses could be charged commission rates between 2-4% per transaction and could still end up loosing their money, has really given the stage to other, alternative real-time payment methods like iDEAL. Especially in a relatively small banking society - and a country with high internet and online banking penetration rates - it has been the perfect soil for an online bank transfer based payment method.
Simplicity of Integration
Another important factor for iDEAL's success is the relatively simple technical set-up or integration. iDEAL transactions can be accepted through the use of Payment Service Providers, however, also allows for direct integration with an iDEAL acquiring bank. Website developers and 'tecky' entrepreneurs are able to directly integrate iDEAL checkout into their sites and shops.
This largely contributes to the broad adoption of iDEAL and in becoming the Dutch most popular and widest accepted online payment method. Smaller merchants - often having difficulties of getting a merchant account for the processing of credit card payments - were able to tap into real-time online payments.
iDEAL's biggest driver
The biggest driver for iDEAL' success, however, is the fact that it provides trust and ease-of-mind to both consumers and merchants. Online shoppers are able to perform transactions from their known home banking screens, not having to share sensitive card details over the internet.
On the other hand iDEAL provides retailers and online businesses with instant, online payment confirmation and one-day settlement. Without any chargeback risk and fixed transaction fee charges (regardless the value of the transaction). iDEAL is the payment method merchants can count on.
2014 has been a tremendous year for iDEAL, which for the first time in two years time, picked up pace in terms of relative growth. The number of iDEAL payments grew with 26.4% compared to 2013. The growth percentages for the last two years were respectively 21,6% (2013 vs. 2012) and 24,8% (2012 vs 2011). An impressive performance for an online payment method that celebrates its 10th-year anniversary this year.
2015 will probably show similar growth figures. Important driver for future growth will probably derive from iDEAL Mobiel. Currently creditcards outperform iDEAL for web based payments on mobile devices. However, 2015 could definitely be the year that consumers embrace the iDEAL checkout that is specifically optimised for mobile purchases (no need for code generators or use of 'TAN-codes'). As mobile payments are assumed to pick up pace, the number of iDEAL transactions will definitely increase in parallel.
On the contrary, there are Pay-After-Delivery payment methods on the rise (Klarna, AfterPay, Billink, and other proprietary solutions) and new payment initiatives coming into the market, like MasterPass (MasterCard) and V.Me (Visa) that could take some of iDEAL's marketshare.
Creditcard fees are assumed to go down now MasterCard and Visa will lower their interchange rates. Lower commission rates (between 1-2%) would definitely close the gap with iDEAL in terms of merchant costs - notably for credit card transactions below 50 euro. All in all, it will probably balance all out, and iDEAL will set new records once again. For example, surpassing the 200 million iDEAL payments in one year. Time will tell.
Blog by Erik van den Heuvel, About-Payments, January 30th, 2015.