Ever heard of the National Payments Plan? Sounds like a soviet-age social welfare system. In fact it’s a plan by the Irish government to save up to €1bn annually for the economy by moving from cash and cheques to electronic transfers.
€1bn. Every year. Yes, that’s right.
How exactly would a move away from cash save this much money? It’s true that the cost of money is invisible to most of us. We pay for our groceries and think that’s the end of it. Not by a long shot; the cost of cash comes from its distribution to users and the return of the excess cash to banks, which requires a logistical system involving security, transport, insurance, cash depots, ATMs and so on. As for cheques, they need to be printed, go through several states of transportation and require a degree of manual processing.
For non-cash payments such as debit cards or credit transfers, there is also a cost and it comes from maintaining an information processing infrastructure involving intermediaries such as banks, clearing houses and settlement system operators. But it seems this cost is lower, to the tune of €1 billion.
Irlande, nuls points
Why hasn’t anyone thought of this before? Governments in Europe have – we’re trailing behind in this area. Ireland has the second highest usage of cheques among major European countries, the highest ATM withdrawal per capita and still pays out half of all social welfare payments in cash. Irish people withdraw almost twice the amount the average European does from ATMs every year (ECB, 2012), suggesting that the average European uses credit and debit cards and electronic transfers for more payments. In fact, the average Irish person withdraws more from an ATM in three days than a typical Dane does in three months. Presumably this is because, whatever about businesses, as individuals we transact mainly in cash.
Farmers and their cheque books
Three out of five of all consumer payments in Ireland are made in cash according to a survey by Marketing Partners for Central Bank of Ireland, 2011. Three in 10 Irish people own a cheque book, with a particularly high prevalence among the elderly and farming community (National Consumer Agency, 2012). Why are we so attached to the cheque book?
According to Peter Young, journalist with The Farmers Journal, the high usage of cheques in the farming community is due to the nature of how farmers’ carry out their business. “While there has been a move to electronic transfers by the Department of Agriculture and most milk buyers”, explains Young, “The majority of marts continue to send out cheques when farmers sell stock. Marts also take payment in cheques from farmers who purchase. Farmer use cheques to pay contractors, merchants and other farmers who often call out to the yard for payment. A cheque book also offers farmers a record of the transaction”, he adds. “They can fill in the details of who the cheque is being paid to and for what in the stub”.
No incentive from banks
As regular readers will know, banks have been stinging us for cash and cheque transactions but some of them charge the same fee per electronic transaction. How is this incentivising a move away from cash towards an electronic economy? If the National Payments Plan is to succeed, the banks need to really get behind it and make electronic banking much more attractive to us. Wouldn’t you be more inclined to pay for goods and services – and receive payment – electronically if the transaction fees were lower or absent?
Conversely, would you accept that you will have to pay a premium for the convenience of cash and cheques, due to the higher costs of processing them? Get used to that idea. It’s going to happen.
Is there anything else that is preventing us from ditching the cheque book and the ATM card? Habit is a major factor, as is the fact that many small businesses from the milkman to the beautician, from the reflexologist to the picture framer, are not set up to take electronic payments. In a cash and cheque-free world, how would we pay them? The only alternative is the internet banking platform. We should see these evolve to become more like business bank accounts, the major difference being that rather than waiting till the end of the month to bill or pay, transactions would be occurring every day of the month, anytime we buy a good or service. There is evidence that things are moving in the right direction: there are more than three million registrations for online banking in Ireland and the number of payments online has also doubled in less than five years and now tops 11 million per quarter.
I immediately think of my parents. They have a computer in the house but their computer skills are limited (not to mention that their broadband connection is abysmal). They rely on the visits of me and my siblings to do anything online for them. So while we might hear a stat such as 81 per cent of all Irish households in 2011 having access to a computer, with 78% of those with access to the internet (CSO, 2011), I am pretty sure there is a cohort like my parents who have the technology on paper, but lack the skills to make use of it.
The National Payments Plan gives us a glimpse of a future where cash and cheques are all but gone. Where it is impossible to avoid their use, both the supplier and the customer will pay dearly for the privilege. Suppliers who don’t offer a facility to pay electronically will be placed at a severe disadvantage.
My milkman has actually embraced the concept of electronic payment collection and is setting up an online payments system, making it much easier for both him and me. That’s fantastic, but we need the banking infrastructure to step up to the plate too. If the aim is to save €1bn, which for an economy pretty much in recession since 2008, is a seriously attractive goal, we need our banks to row in and get with the programme.