By Ronnie O’Toole, Project Manager of the National Payments Plan in the Central Bank of Ireland
It’s late, dark and wet, and you’re not quite sure where you are. It’s been a long night (too long) and you’re more than a little tired and emotional. Worse, you’re out of cash and you don’t know where the nearest ATM is. One year ago you would have been in trouble, but not tonight. An empty, warm cab slides up beside you, willing and able to take payment by debit card through the Hailo app. Twenty minutes later you are happily curled up in bed, the sound of the cold wind tapping at your window fading as you slip into the most satisfying sleep.
This is just a small example of how Ireland is starting to adopt modern payments in ways that have been in widespread use in the continent for years. However there are many areas where we are still missing out. Simply put, Ireland is still not taking full advantage of the potential of modern payments methods. Irish people make only half the number of e-Payments (which includes debit card payments, credit card payments, direct debits and electronic credit transfers), compared to the Northern European average.
A corollary of this is Ireland’s continued high usage of paper based payments, particularly cash and cheques. Ireland has the highest per-capita ATM withdrawal in Europe. In fact, Irish people withdraw more from an ATM in a month than a Dane does in a year.
Ireland is also one of the few remaining EU member states that still use cheques on a regular basis – only France uses more. Despite being slow and expensive (€3.55 per cheque according to the ECB) businesses in Ireland are still intensive users, issuing 44% of all cheques written here. Cheques may have been the great payment innovation of the 18th Century, but they’ve now had their day.
Ireland should be at the crest of this wave given our young demographic profile, our rapid take-up of technologies such as mobile phones and the presence in Ireland of fantastic indigenous and foreign-owned innovative payment companies such as Realex or Paypal. Instead, we have been left behind.
Customer convenience is not the only reason we should reform payments – there are hard headed business reasons why we should do so too.
- Reason 1: Making a payment costs money. It is estimated based on a recent ECB study that if Ireland were to match best practice in Europe, savings of up to €1 billion per annum could be made to the economy. This would result in better value for the customer, lower administration cost for business, a more efficient public service and lower operating costs for financial institutions.
- Reason 2: Cash usage and the shadow economy go hand in hand. Studies in Scandinavian study show that as much as half of all cash in circulation in these countries is ‘unaccounted for’, most of which is thought to relate to illegal activity and tax evasion. The importance of this at a time of budget deficits and austerity cannot be understated;
- Reason 3: The circulation and storage of cash presents a significant security risk. The number of Cash-in-Transit (CIT) attacks in Ireland for the period of 2007-2009 was five times the EU average;
- Reason 4: There is a strong correlation between cheque usage and late payments. Even if a cheque is written on time, businesses usually have to wait a number of days to have access to their funds. Unless we move from the ‘cheque in the post’ culture, the problem of late payments will remain.
- Reason 5: The pace of change in this industry globally is accelerating. The proliferation of the internet and mobile phones, the rapid growth of e-commerce, technological developments such as smartphones and near field communication (NFC), are resulting in the emergence of new ways to pay. There are also momentous changes in the payments market in Europe. The full realisation of the Single Euro Payments Area (SEPA) of 330 million people is changing payment services in Europe.
The efficiency of Ireland’s existing payment systems infrastructure could be improved by changing behaviour to make more use of secure and efficient electronic payment methods leading to a reduction in the reliance on cash and paper instruments. Further, we can improve the efficiency of cash distribution, which will remain an important payment method into the future.
The National Payments Plan, which is due to be launched in the coming months, presents a strategic roadmap for transforming payments in Ireland, and a vision of Ireland joining those countries that are at the forefront of payments in Europe. It is built around the premise that payment reform should be centred on promoting e-Payment options for consumers and businesses which are more convenient and represent better value to operate than the ones they currently use.
I believe the task of turning Ireland from a laggard to a leader in payments terms will be a very challenging one. However the prize in terms of improved cost competitiveness, greater security, convenience, consumer choice and reduced financial exclusion is, I believe, well worth the effort.