E-Day plan: Ireland needs to tear up old-fashioned cheque books


9 Jul 2009

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There are some straightforward steps Ireland needs to take to regain the agility it once had and will need again if it is going to prime itself for an upturn. First and foremost, the nation needs to make a dramatic move to electronic payments and paperless banking.

There are some straightforward steps Ireland needs to take to regain the agility it once had and will need again if it is going to prime itself for an upturn. First and foremost, the nation needs to make a dramatic move to electronic payments and paperless banking.

At present, 78pc of payments by volume in this country are still by cheque. The SME sector is being crippled by late payments, with the average firm waiting between 60 and 75 days to pay up. Late payments are having a catastrophic effect and can be blamed for firms laying off workers and going out of business.

The Government, the biggest purchaser of goods and services in the country, could take a leadership position and spearhead a dramatic change that will improve the lot of businesses by moving away from expensive cheque-based payments and ensure speedier payment.

This is the view of leading economist Ronnie O’Toole, chief economist at National Irish Bank, who argues that Ireland is behind the curve compared with the rest of Europe, where 60pc of payments by volume in most progressive nations are electronic.

“In Denmark, where our parent Danske Bank is based, if you are under 40 there is a good chance you wouldn’t know how to write a cheque. Among SMEs in Scandinavia, only one in six has cheque books and writes less than six cheques a year. The advantage of electronic payment is simple – people get paid on time.”

O’Toole made a pre-Budget submission last year, urging a change of strategy whereby semi-states, local authorities would move away from accepting and making payments by cheque.

“Just change the regime to ‘no, we no longer accept cheques.’ Revenue has been revolutionary in terms of electronic payments, but we need to get substantial departments like the Department of Agriculture moving to electronic payment.

“For example, the Irish Farmers Journal website gets around 450,000 hits a day and most of those are via broadband – farmers are not behind the curve on using technology and would welcome speedier payments. If the Government decided to focus on an ‘E-day’ whereby all payments from salaries to suppliers go electronic, it would electrify the economy.”

But O’Toole argues it must go further than that. “While Government can take a leading position by example, businesses too must be willing to pay and receive pay electronically. We need to make payment by credit and debit cards a form of legal tender and to do this we need to make changes to the Consumer Credit Act.

“In Scandinavia, Finland and Sweden both experienced significant financial crises similar to Ireland in the Nineties. One of the measures that has strengthened their economies is fast e-invoicing and electronic payment. Firstly, it’s cheaper to transact and often you are dealing with one person, not three. Sweden and Finland experienced their own financial crises; they learned and grew from it. They recognised the unnecessary costs of cheques and decided to break with tradition and habit.”

Liam McKenna, senior manager in charge of Advisory Performance Improvement at PricewaterhouseCoopers, explains that with the onset of the Single European Payment Area (SEPA), electronic cross-border payments will be fundamentally easier and for an export-oriented country like Ireland it is time to rip up the cheque.

McKenna argues that not only must Government be encouraging citizens and businesses to be ready for the change, but banks too must play a greater role as, he says, their very survival will depend on it.

“Businesses in Ireland, including big corporations, aren’t very aware of SEPA and the impact it will have. Banks too appear to be unaware. They are treating it like a compliance issue when in fact it is very much a competitive issue. Very swiftly, banks like AIB and Bank of Ireland will move from being big banks in a small market to small banks in a very large market.

“The fact is that across Europe electronic payments and transfers will become just a commodity and there’s nothing to stop a bank in Italy or elsewhere winning business from under them.

“Here is the reality: in Ireland 78pc of money is transferred by cheque. This is costly and outmoded. In Europe 90pc of payments are by credit transfer and only 3pc by cheque.

“Organisations like IPSO [Irish Payment Services Organisation] are very much aware of the impact SEPA will bring, but the people who should be raising awareness – the Government and the banks – need to start playing a role.

“Payments are shifting across borders. Economic power will follow these shifts. From a competitiveness perspective, Ireland needs to decide to be leading the charge technologically or to be a laggard missing out on a fundamental opportunity to put its house in order,” McKenna warns.

By John Kennedy