Taking out the cash

22 Mar 2007

Why is the Irish business community trailing behind the Government and consumers inmaking use of electronic payments to take cash and cheques out of the equation?

We don’t hear so much these days about Ireland’s once-stated ambition to be the e-commerce hub of Europe. Maybe that’s just as well.

The mantle sits uncomfortably on a country has been very slow to jettison cash and cheques in favour of electronic payments.

Use of electronic payments as a cash alternative is not a new idea. The Department of the Taoiseach’s Information Society Action Plan raised this issue as far back as 1999.

Three years later a report by Accenture found that the Government could save €200m per year by making payments electronically.

In light of this, critics ask why not enough progress has been made since then.

Although some discussions did take place in the earlier part of the decade, sources familiar with those talks say the atmosphere was hostile, dogged by a lack of clarity as to who owned the problem as well as distrust between some of the parties.

“Sometimes the absence of joined-up thinking isn’t exclusive to Government,” remarks one observer.

Does the fault lie with the banks? Patrick Moynagh, head of payments strategy at AIB, disagrees with the suggestion that in the absence of leadership from the Government a bank could have driven this issue.

“If AIB was to say to its client base: ‘The only way we’ll offer services is over the internet,’ we’d be hammered,” he says. “We’re very cautious about the societal role we’re being asked to perform.”

The Government has shown its best and worst side on this issue.

On the positive side, the Department of the Taoiseach has taken a leading role with the Irish Payment Services Organisation (IPSO) in co-ordinating the National Payments Implementation Programme (NPIP).

Also, since the 2002 report, most Government departments now use electronic payments, with the exception of certain cases relating to social welfare or agriculture.

For every forward step, however, there’s been a counterintuitive march backwards.

The continued stamp duty on payment cards puzzles many. This tax brings in around €110m per year to the Exchequer – a paltry amount compared to what could be saved by reducing reliance on cash and cheques.

“The reality of what we’re promoting is instead of replacing the revenue we’re displacing the cost,” argues Barry O’Mahony, head of policy and development at IPSO.

The second sticking point is more recent and potentially more damaging: last week the Government proposed an amendment to section 48 of the Consumer Protection (National Consumer Agency) Bill 2007.

Although its aim was to stop companies from surcharging customers who pay bills by cash or cheque, it could have the reverse effect.

If passed, this could deliver a serious setback to the drive for electronic payments as organisations would be prevented by law from making offers to encourage consumers to switch to cheaper, more efficient methods of banking or paying bills.

The amendment has been publicly criticised by groups such as IBEC. Privately, members of the NPIP advisory group are also understood to have been angry at this development.

The timing couldn’t have been worse, coming as consensus was finally being reached.

Talks are still at a relatively sensitive stage, to the point where no one is prepared to criticise other parties for holding up the process.

Colm Butler, director of information society policy at the Department of the Taoiseach, rejects the suggestion that little progress has been made. “In the process of bringing on complex issues you have to have dialogue,” he insists.

“What you would call a delay was actually a process of developing an arena where people could compare perspectives on the problem.”

The involvement of his department could aid the process as it’s perceived as a neutral player.

The development and preparation for the first National Payments Conference, which was held last December, had actually been ongoing for 18 months.

The conference involved the widest possible stakeholder community, representing Government, banks, businesses and consumers – groups with plenty to say and not necessarily all in agreement.

“To make a real quantum leap for payments in this country will take the kind of programme that we have now,” adds O’Mahony.

Moynagh claims that had developments happened sooner, many of the right conditions for adopting e-payments would not have existed.

“If it had been done two years earlier, adoption of internet banking was hovering around or below the 20pc mark,” he says.

Not for the first time outside forces are helping to concentrate the minds of those involved.

From 1 January next year, the EU is to introduce the Single European Payments Area (SEPA), which will allow consumers and businesses to make and receive payments in euro in the same way regardless of national borders or their location.

“SEPA is a godsend as far as I’m concerned,” Butler declares. “It affects whoever’s in business where business transactions are crossing borders. It’s something on which we can hang the entire payments process.

“That frequently happens. Something comes in off stage left and on the back of that you get momentum.”

As things stand, no one disputes that the current payment infrastructure is outdated and is harming national competitiveness.

“It’s all about costs. If we’re spending in excess of 1pc of GDP on handling cash, the fact that we could reduce this has to make us more competitive,” argues Butler. “Companies are moving to less costly economies. That’s where this is coming from.”

Torlach Denihan, a director of Retail Ireland, welcomes the NPIP but points out his organisation’s concerns, which highlight the absence of joined-up thinking.

“From a business perspective, it’s actually less expensive for a retailer to handle cash than a payment card because of the level of fees levied by the card providers,” he claims.

O’Mahony counters this by saying that overall the cost of paper money far exceeds the alternatives. “Because a cheque is a physical piece of paper that has to be moved around, processed and reconciled, it has a cost.

“The problem with cash is that as consumers we don’t see a tangible cost to it because it’s buried,” he says.

Even with SEPA looming, O’Mahony says he doesn’t expect major developments on e-payments for three to four years.

Even then, our cultural attachment to paper money ](see below) means that the probable outcome of this process won’t be a cashless society so much as a “less cash” one. The question is: Will the progress be fast enough?

Paper trial

Ireland is one of just three countries in the eurozone, along with France and Portugal, still relying on cheques to any great degree.

What’s more, average ATM withdrawals per card per country are less than €2,000 per year across the eurozone; in Ireland it’s a massive €5,400.

Processing all these paper transactions carries a massive cost to the economy. According to data from IPSO, the European average is around 1pc of GDP.

For Ireland it’s probably a higher figure, observers say.

Ironically, Irish businesses lag behind the State sector and the public when it comes to e-payments.

“The biggest user of cheques in our society is business,” says AIB’s Patrick Moynagh. The “cheque’s in the post” mentality still prevails and many businesses control their cash flow by managing the chequebook, he adds.

“Our ratio of electronic payment usage to paper is 80:20 in favour of electronic among consumers. When we look at the business community – and it would mostly be the SME [small to medium-sized enterprise] sector – it’s 70:30 in favour of paper,” he points out.

“What will change that behaviour is a growing trust in the internet medium.”

As well as the web, technology offers a range of alternatives that weren’t there before, say the promoters of the NPIP.

One of the likeliest contenders for mass adoption could be the mobile phone, given that it’s so widely used.

It’s already possible to pay for on-street parking via SMS message and the addition of chips in new-generation phones will also allow cashless payments on a wider scale.

By Gordon Smith