Money for Nothing (and Cheques for Free?)

by Steven van Groningen on 1 November, 2014

“Money for nothing” is the title of a song made famous by Dire Straits when I was young (we are talking 80’s here). The song refers to the easy way a rockstar makes his money compared to other “regular” people, and some of its lyrics - “money for nothing and chicks for free” – are often misheard as “money for nothing and checks for free”, which I find quite funny. The confusion came to mind when I was confronted for the umpteenth time with the opinion that cash withdrawals should be free of charge, but the association with chicks and checks really stops here.

There seems to be a lot of people of the opinion that cash withdrawals should be for free. “Why do I have to pay to take my own money out?”, I hear. Or “Romania is the only country in the EU that charges for cash withdrawals from ATMs”. It’s not the first time I read this. I haven’t done any research, but this is rather simplistic. I don’t know if the persons who claim this actually have accounts in other EU countries, but I do. My bank in the Netherlands indeed doesn’t charge me for cash withdrawals at ATMs but that doesn’t stop them from charging me 6.20 EUR per month for account maintenance. This charge obviously includes the cost for cash withdrawals at ATMs. Is this for free?

I don’t see why a bank, or anybody else for that matter, should be expected to offer its services for free. What I do see is that, if the cost for a service provided is lower, this will result in a lower charge for the service. The real problem is that the costs in Romania are high. A few comments:

Cash Costs

Cash itself costs money. Banks pay for (part of their) cash (BNR charges 0.3% for withdrawals) and from the moment it accepts or buys cash, the bank starts to pay interest over the amount to the depositor or BNR. But the cash, whether it is in a vault, in ATM or in transit doesn’t generate any interest itself. The cost of this is easily calculated by using a reference rate, let’s say a modest 2%. Banks have on a system level about RON 4.7 billion cash, so the cost of this is already more than RON 90 million. The real costs are much higher. Cash needs to be processed, stored and transported. So, the cash itself has a significant cost. It may be good to point out that because of the higher interest rates for RON, this cost is higher in Romania than it is in the EURO zone.

IT Costs

We also have the cost of the IT systems in the back, including card management. In Romania there are about 210 million card transactions per year or which the vast majority are cash withdrawals. In the Netherlands there are 2.5 billion card payments per year and the number of card POS payments is 5.8 times higher than that of cash withdrawals. I would bet the cost per transaction is much lower in the Netherlands, where I nevertheless pay 6.20 EUR per month in account maintenance fee.

The idea is to make the cost per transaction as low as possible. First, this means having as many transactions as possible per system. The second is to use the most cost-efficient alternative. In Romania, like in other countries, the cheapest way for an individual to pay is to use the card on a POS terminal. It doesn’t cost the client a thing. Banks charge a fee for cash withdrawals because it costs them money. Banks in other European countries have a totally different proportion between cash and cashless POS payments transaction than we have in Romania. Charging for more expensive, less efficient payments like cash and not charging for more efficient payment methods makes perfect sense.

Have you ever have had the pleasure of killing some time at Otopeni, Henri Coanda Airport, waiting for someone in the arrivals hall? Next time you do, count the number of ATM machines you can find and note how many different banks they belong to. When travelling abroad, check the number of ATM machines you can find in, say, Amsterdam Schiphol, Vienna Schwechat, London Heathrow, Paris CdG or any other airport. Compare the results.

Last time I checked there were 9 ATMs from 9 different banks in Otopeni which is already less than a year ago. In the other, much bigger, airports, most of the time you have to look for an ATM if you need one. There are only a few and most of them from the same bank or provider. It is not difficult to understand which “solution” has a lower cost.

The story is certainly more complicated than I present it here. Over time we will be able to lower costs by changing the mentality about cash in Romania, by increasing the number of transactions and reducing the number of banks. One day Romanian banks might no longer charge for cash withdrawals at ATMs. Still the real cost of it, high or low, will be paid for by the users, be it directly or indirectly through account maintenance fees, lower interests rates on deposits or other fees. So, instead of arguing about who should pay for it (always someone else), we should try to understand what can be done to lower the cost.

I much prefer to offer my shareholders a reasonable return based on lower costs with lower fees than on higher costs with higher fees.

By the way, I was last week in New York and withdrew money from an ATM three times. Each time the cost was USD 3, regardless of the amount.

*some figures in this post are approximations. The real figures will not be far off and will not change the argument.

(You can find the Romanian version here.)


Should I Stay or Should I Go?

by Steven van Groningen on 3 October, 2014

“Should I Stay or Should I Go?” is the title of a song made famous by the British rock band The Clash in the early eighties. I remembered the title of the song and looked up the lyrics the other day.

It is not a question I ask myself a lot (I intend to stay), but one that inevitably comes to mind when meeting young and talented Romanians. This is mostly in a setting where there is no opportunity for one-on-one dialogue on the topic and my telling of the following story is how I now respond to it.

Some time ago I had lunch with a successful Romanian. I have known him for a long time and appreciate him. Let’s call him Bill. (I just want to avoid using any Romanian name for obvious reasons). After discussing the state of affairs in Romania, the subject of our children came up, as it so often does. Bill’s children were approaching the age that required decisions about their university education and he was facing a dilemma. He admitted freely that he was not very proud about the way he had made his money and now he had the following choice. He could teach his children “how things are done in Romania”, something he didn’t really want to do, or he could send them to study abroad risking that they don’t return to Romania.

Bill realised that he was part of the problem and that he wanted a better world for his children. Not better in terms of material aspects, but better in terms of human values. I felt he wanted his children to be happy and successful, but not by having to make the same compromises he had made himself and he doubted they would be able to do this in Romania.

I thought this was a very sad story and it kept coming back to me. (Note for those who don’t have children: please skip the following part!) When you have children it is as if you get a second chance and one of the secret wishes of, I guess, all parents, is that their children will be better/more successful etc. (however we measure success) and not make the same mistakes they made in life.

Whoever asks me the “Should I Stay or Should I Go?” question I tell them about Bill’s dilemma. I tell them that I am convinced they can be successful in Romania while respecting their personal values and suggest they should at least try to make Romania a better place rather than some other country. But whatever they do, they should NEVER find themselves in Bill’s situation once they have children themselves. We should strive to make the world a better place for our children and the next generation. Success is not measured in money, but in terms of respect and the appreciation we hope to receive from our children.

The hope that this will be possible keeps us sane and prevents us from becoming cynical. The moment I become cynical about the future of (the young people of) Romania I am out of here. So, now I also answered my own should-I-stay-or-should-I-go question.

Writing this text I couldn’t help thinking about how (most) politicians measure success. Do they not care about the future, about the debts they are piling up without visible impact on the infrastructure of the country, to be repaid by the next generations? What is success to them? Don’t they care about what history will write about them? Does it matter to them that millions of Romanians have left in search for a better life, that youngsters are considering a better future abroad?

Too many questions….

(You can find the Romanian version here.)


Back on the Road

September 26, 2014

Comebacks are risky and, more often than not, they refer to ambition rather than achievement. After 18 months of absence, my ambition is to post at least twice a month on my blog again. I hope this will also translate into achievement. Why I stopped The easy answer is: not enough time. This is not […]

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Romanian Non Performing Loan Levels Are Inflated

February 18, 2013

  Non Performing Loans (NPLs) are loans that have payment delays of more than 90 days. NPL’s lead to provisions and to credit losses. That is why the level of NPLs, expressed as percentage of total loans, is an important indicator for the health of the financial system in a country. They are closely monitored […]

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December 29, 2012

I wanted to write about the cost of fraud in the banking system but because I have taken the rest of the year off, I decided to pick something that is totally unrelated to work, namely fasting. Before Christmas I did a six day water fast, that means that for six days I didn’t eat […]

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10 Things I Learned From Being A World Class Athlete

December 14, 2012

Many years ago I was a successful athlete. I participated in two World Championships and the 1984 Olympic Games. Today I am a successful CEO. You can find more about me here. Sometimes I am asked about parallels between sport and business so I decided to draw up this list of 10 things I learned […]

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Government Wish List

December 6, 2012

When I was a little boy in the Netherlands I used to make a wish list for Saint Nicholas. (In Dutch Sint Nicolaas or Sinterklaas, also Americanized to Santa Claus, but that is a different story). In early December each family member would place a shoe (one) in the evening in front of the fireplace […]

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No Guns, No Dogs, No Naked Men

April 3, 2012

When I was working as a consultant in the Netherlands many years ago, one of my clients was a small bank. You knew they did things differently the moment you stood in front of the elegant facade. On the main entrance door, at about 30 cm above ground, a discreet sign “No Dogs Allowed” was […]

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Big Amount Does Not Equal Big Profit

March 29, 2012

I like sports and often keep track of my performance. The other day I participated in an event that took me 4:20 hours to finish. Is this good ? Of course you wouldn’t be able to answer because you don’t know what the distance was and if I was biking or running (or rowing) and […]

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If My Dog Could Speak

March 16, 2012

In general dogs are pretty stupid but our dog is – of course – really smart. That is what most people say about their own dogs. The truth is that all dogs are rather stupid but most of them are very likable. Sir Winston Churchill said famously “I like pigs. Dogs look up to us. Cats look down on us. Pigs treat us as equals“.(more quotes).  […]

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