Ireland stands to reap savings of more than €1bn annually if the Government seizes the opportunity to move to electronic payment systems. At present, 78pc of all transactions in the Irish economy are cheque-based, undermining our claims of being a smart economy.
The damage of being a heavy cash and cheque-based economy can be seen in a growing black market economy and the increasing spate of tiger kidnappings that threaten bank and retail workers.
But not only this, Irish businesses wait on average 60 to 70 days on payment from customers with the old line "the cheque is in the post" being as much a threat to the employment of SME workers as the lack of credit available from banks.
This is at the same time as some of the world’s most sophisticated internet companies, from Amazon.com to Google, PayPal and eBay are operating their e-commerce operations in Ireland which rely on instantaneous credit, or debit card payments via the internet.
According to a new report from National Irish Bank, chief economist Dr Ronnie O’Toole, Ireland’s payments system – the means by which we pay for goods and services and transfer wealth – remains dominated by cash and cheques which are expensive, slow and harmful to the environment.
According to the report, Ireland is the most intensive cash user in Europe. Irish people withdrew more than €25bn in cash from ATMs in 2009.
Cheque out, or out cheques
Ireland is the second most extensive user of cheques in the EU, after France, with 102 million cheques written here in 2009. Cheques in Ireland amounted to one-tenth of the value of all cheques written in Europe in 2008.
“The reliance on paper-based payments has a number of high costs for our society. Annual savings of around €1bn could be made by switching to electronic systems. This is equivalent to around €680 per household per year,” said O’Toole.
While the Government has taken steps to reduce cheques since 2008, other countries have been taking more radical action. Notably, the UK Government has now committed to the abolition of cheques. The National Irish Bank’s report makes the following recommendations for payment reform:
· Target a 95pc reduction in cheque usage and reduce cash usage to below the European average by 2013.
· Announce an `E-Day’ for October 2012 to achieve this change by, and establish a ‘Payments Transition Board’ to oversee it. It is more efficient to have a transformation away from cheques in a relatively short space of time and this would leave more than two years to explain to consumers the changes that are going to take place.
· Reducing cash: Taxation should be switched away from debit cards to encourage more people to use them; a single ATM network should be established, which will allow for a rationalisation of ATMs. Banks should also change ATM functionality so as to discourage cash usage; retailers should investigate ways of reducing cash usage, such as card-only lanes and loyalty card bonuses for customers who pay by card. All taxis should be required to accept card payment.
· Reducing cheques: State agencies should stop issuing or accepting cheques by E-Day. The Government should increase the stamp duty on cheques to reflect their full social cost. The Cheque Guarantee Scheme should be abolished. This was established when cheques were the only alternative to cash for point-of-sale transactions, though few retailers still accept cheques.
· Vulnerable people and groups, notably the elderly, should be exempted from these measures in so far as is possible.
Savings made on e-payments
The report also points out the many non-financial costs associated with high cash and cheque usage. “Ireland has a culture of late payments which is putting huge pressure on SMEs. There’s a strong correlation between the extent of cheque usage in a country and the time it takes for firms to receive payment for invoices,” said O’Toole.
The carbon footprint of each direct debit is just 0.76g of CO2 per payment, compared to 49.3g of CO2 for every cheque.
High cash usage also has significant implications for the gardaí. “People don’t often make the connection between their ATM usage and criminal attacks such as tiger kidnappings but the connection is very real. The way to reduce these attacks is to stop transporting so much cash.”
According to National Irish Bank, a holistic policy to reduce cash usage must be developed. This should aim to reduce peoples cash withdrawals from ATMs, while also ensuring that people can pay for everyday goods and services, such as a taxi fares, by debit card.