2.6 The last key actor in the payment and clearing infrastructure has been brought under national ownership

After its launch of its own-operated VIBER in 1999 and the 2004 acquisition of a majority stake in the KELER Group (KELER and KELER CCP) that operates the securities clearing and settlement system, the MNB has now purchased from the banking sector GIRO, the operator of Hungary’s Interbank Clearing System. Up until April 2014, GIRO had a total of 21 banks and the MNB among its owners, with the latter possessing an 8.09 per cent share and the top five shareholders controlling 78.12 per cent. In February 2014, the MNB submitted an offer to said shareholders for the purchase of GIRO, a monopolistic financial service provider primarily engaged in the processing of credit transfers and direct debits in the retail and corporate segments. Consequently, the MNB’s stake rose to 86.21 per cent in the first round. Thereafter, smaller shareholders of GIRO received a similar offer at the same price, which they all accepted. As a result, the MNB acquired a 100 per cent stake in the company together with BISZ Zrt., a subsidiary wholly owned by GIRO. The acquisition took place at an overall sale price of HUF 9.5 billion, which the MNB determined based on a business assessment by an internationally recognised, independent financial advisory firm.

The acquisition was driven largely by the Bank’s three aims: to facilitate the lowering of charges payable by clients, to enhance the efficiency of developments in the payment system, as well as to keep fundamental financial

infrastructures in national ownership. The MNB is working vigorously to provide bank clients with the possible cheapest access to payment services, the rates of which have until now been kept at higher levels due to the profit-oriented business model of the clearing house. Each of the company’s 21 bank owners had high profit expectations for GIRO, which is well illustrated by the fact that, despite the crisis that recently plagued the banking sector, GIRO has been able to deliver a steady return on equity in excess of 20 per cent, with shareholders enjoying a 95 per cent dividend payout ratio. This model primarily benefited major shareholders; meanwhile smaller owners with higher turnover rates, as well as the Hungarian State Treasury, were worse off than if charges had been lower in the first place. And while the situation did improve somewhat after the redistribution mechanism34 was launched in 2006 upon the MNB’s initiative, a permanent solution was lacking. So long as private property-induced expectations of profit exist, they must be met – and that leads to fees being fixed at a certain level. If, however, there would be no such profit expectations, charges could be lowered. The MNB’s plans include cutting back on profit expectations from GIRO and devising a minimal profit scheme that is sufficient to sustain stable operations, which will lead to fee reductions. Furthermore, the MNB will monitor whether banks will pass on the benefit of these fee cuts to their clients. Another important reason behind the MNB’s decision is to ensure more efficient implementation of developments in the payment system. Looking at the developments that took place over the past 10 to 15 years, one can conclude that only those that received significant backing by the MNB have actually been brought to completion. It was upon the MNB’s recommendation that the direct debit scheme became available; it was the MNB that set up VIBER and assisted in the establishment of GIRO and KELER, and, as the most recent achievement, intraday credit transfers via the ICS were also launched at the MNB’s initiative. Given the networked structure of the payment market, none of these developments went smoothly: banks offering payment services were prone to hesitate. With its acquisition of GIRO, the MNB now has a much stronger control over developments in the ICS that mostly involve retail and corporate payments and are easier to implement without resorting to the most powerful regulatory tool. Finally, the third objective behind the acquisition can be derived from a national strategy that is aimed at bringing, where possible, utility-like companies offering basic services into national ownership. As regards financial services, VIBER, GIRO and the KELER Group are considered providers of basic services and enjoy monopolistic powers. This situation is not peculiar to Hungary alone, as these companies represent the types of infrastructures that do not necessarily need to exist in duplicate. There are several countries in Europe where the central bank owns a certain share in such systems.

34 Under the redistribution mechanism, earnings above expected profits defined for the clearing activity are redistributed between participants in the system.