IN THE YEAR 2010, the average Irish person – including those who do not have bank accounts – went to an ATM machine 40 times, withdrawing a total of €4,982 across the year.
In the same year, the average Dane went to an ATM just three times, withdrawing €405 in total. To put it another way: the average Irish person withdraws more cash from the ATM every month than the average Dane does every year.
Ireland comes close to the top of the table in terms of the frequency with which we visit ATMs every year (only the UK and Portugal are more frequent users) – and we’re right at the top in terms of the absolute cash we withdraw, well above the €2,786 average for the eurozone.
While there are some mitigating factors in this – people on the continent have a more lingering tendency to walk into a bank branch to withdraw cash, instead of using a machine – the fundamental truth is obviously: as a nation, we Irish are still pretty attached to our cash.
It doesn’t just end there, though – we’re also one of the few European nations to still actively use cheques – and it all begs the question: in a world where more and more people use debit cards to pay for products, could Ireland ever become a society where cash simply isn’t used at all?
A group being overseen by the Central Bank is aiming to examine the impediments that stop Ireland from being more reliant on electronic transactions – including stakeholders from banks, utility companies and government departments.
The group’s ultimate goal is to produce a National Payment Plan (NPP) – which isn’t intended simply to result in cash being phased out entirely, but rather to try and break down the barriers so that someone might use a debit card to pay for a €100 product doesn’t feel the same inhibitions using it to pay for a €10 one.
‘Not as efficient as it should be’
Ronnie O’Toole, who is overseeing the formulation of the plan at the Central Bank, says the co-ordination of a new national payments strategy is motivated by “a recognition for a long time that Ireland’s payments system isn’t as efficient as it should be”.
This doesn’t necessarily mean the total abandonment of cash – something which many people would find detrimental if all payments became electronic, given how we often think of banknotes and coins when we think of how much money we have to spend in our wallets.
“For many families, cash budgeting is very important – even, literally, setting aside €10 a week,” O’Toole says. “There’s substantial demand for it. A lot of people like the anonymity and the immediacy of cash – and they feel safer if they’re not dependent on IT structures and the likes as well.”
This is why the National Payments Plan isn’t intended to focus on scrapping cash – but more about breaking down the barriers so that people who want to use other means of payment can actually do so. “We’re more along the lines of how we can increase choice,” O’Toole says. He adds:
Pretty much anywhere, you can go and pay for something in cash, but it’s not as easy with a debit card, for example. We’re behind most northern European countries in terms of point-of-sale terminals.
In taxis in the likes of Copenhagen or Brussels, you can pay for a taxi by debit card on the spot. In Dublin, overwhelmingly, you can’t.
Spending money – and saving it too
David Fitzsimons of Retail Excellence Ireland believes the overdependance on cash is not only inconvenient, but deeply expensive. Though people might avoid debit cards because of their transaction costs, the ultimate cost to a retailer of accepting cash – and having to sort, bag and deposit it – is much higher.
“It also has a cost to the State, because as an economy we’re more open to fraud and to a shadow market,” he says.
Russell Burke, the head of strategic development at the Irish Payment Services Organisation, points to research which identified potential savings of up to €500 million a year – particularly in larger payees like government departments – if Ireland could move away from its cash-and-cheque culture.
“Looking back Ireland was relatively late in the adoption of both debt and credit cards, in comparison to other countries,” he says, suggesting that the duopoly of cash and cheque caused a hangover that stopped Ireland from taking so keenly to newer options, even if they were more convenient.
There are two main difficulties with the transition to a purely electronic system. The first is that it’s often fundamentally inconvenient to fish out a debit card to pay for a relatively low-value transaction when the chances are you’ll have sufficient coinage anyway.
Burke poses this scenario. Imagine yourself in a cafe or a pub, buying yourself a coffee or a pint. You might be the sort of person who would use a debit card in a supermarket when you’re buying €50 of groceries – but would you use the same card to buy a €4 drink?
Probably not – because in the time it takes to dig out your card, stick it into the terminal (which someone might have to bring over to you), put in your PIN, and sit and wait for the transaction to be cleared, you could just as easily hand over a €5 note and move on.
A vision without contacts
A solution to this is on its way though – and it’ll be in the hands of most Irish people by the end of the year. Both AIB and Bank of Ireland are replacing their traditional Laser cards with contactless ones, which get rid of the PIN-and-dial-up system for any transaction under €15.
So – if you’re paying for a coffee or a beer, you’re much more likely to whip out your card (or even just your wallet, with your card tucked inside) if you can hover it over a wireless terminal for a couple of seconds and pay for your product that much more quickly.
The second problem is that money is, in the words of economists, a ‘networked good’ – it’s only useful as part of a two-way process. If nobody will accept your money, your money is worthless.
Just ask anyone with a stash of Zimbabwean dollars – a currency which became some distrusted that even though it’s legal tender, people simply don’t take it any more. Money is useless if nobody will exchange it for a good or a service.
Thinking about the problem that way, it actually becomes more apparent that the difficulty isn’t so much to do with encourage people to want to pay by electronic means – but rather to receive in the same way, a method which is seen as being beyond most ordinary people.
A vision from overseas
This is where we can look across the water to more recent innovations – to a system being pioneered in Britain by Barclays – for a more hands-on solution. The bank’s Pingit system obscures the nitty-gritty of making payments in elegant and perhaps ingenious way.
As O’Toole mentioned above, one of the main reasons people like cash is its anonymity – a stranger can walk into a shop, buy a coffee from another stranger, and leave without ever compromising their identity or anything salient about themselves.
With an electronic transaction, there’s not quite so much freedom – because fundamentally, one party will need to share their account details, whether that’s through a cheque (including the buyer’s bank details) or an electronic transfer (with the recipient’s).
But Barclays’ solution covers both of these – by simply inviting customers to link their mobile number to their account. If a Pingit customer wants to send money to someone else, they open their app, enter the recipient’s phone number (or choose it from their contacts), enters the amount, and sends it. The recipient gets a text message confirming the arrival of the cash, and instructions on how to claim it. If the recipient is also a Pingit user, with their phone number tied to their account details, they get the cash immediately.
The elegant solution could work across multiple banks and mobile networks, particularly if managed by a neutral intermediary like IPSO – which already exists with the fundamental goal of facilitating transactions between institutions in the first place.
This could even get around some of the other scenarios where you might not imagine an electronic transfer to be feasible. If you call your local chipper and get a delivery on a Saturday night, you might not think an electronic payment is workable – but if it’s all done with mobile numbers, the delivery man could leave as soon as he gets a text message confirming your payment, and no cash need every change hands.
There are, however, other less technological challenges at present – including the price of having an electronic terminal installed. As Burke explains, renting the machinery to accept electronic payments isn’t cheap – and some fledgling businesses might not bother, given how the costs could undercut their profit.
Though there are some elegant solutions to this – like those offered by Square, the side venture of Twitter founder Jack Dorsey, which makes small card-reading gadgets that plug into smartphones – there aren’t many on this side of the planet, and so the NPP discussions include the banks – who mostly have indirect stakes in merchant services companies – to see how their costs could be lowered.
The second difficulty is that the reintroduction of banking fees at AIB and Bank of Ireland (and, reportedly, at Ulster Bank) are actually a disincentive to use electronic means. Under both systems, electronic transactions are cheaper than cash ones – but one cash transaction can cater to many payments.
So if you’re going on a night out, and you might go to the bar five times, you can either use your debit card – and incur five different 20c charges – or take out a load of cash, and take a single 30c hit. On aggregate, it makes more sense to use cash.
A nudge in the right direction
Burke acknowledges that this presents difficulties – but points out that there are other case studies which can be used for inspiration on how to coax people into electronic means:
The Oyster Card in London is a good example of incentivising electronic options. When they rolled it out they offered lower fares, they made it so that the majority of barriers used the card only, and they arranged contactless cards so you could swipe your way through.
Similar artificial nudges could be employed in Ireland, he believes, to overcome – though Ireland’s banks are also part of the NPP discussions so an alternative model for transaction fees might be arrived at instead.
In fact, it’s possible that both of the two solutions could be solved by the mobile phone – because more and more phones are being designed with a built-in wireless transmitter which could actually double as a contactless debit card. So, instead of fishing out a debit card to pay for your coffee or taxi, you could just whip out your phone and hold it over the transmitter. Paying for a pint? There might, literally, be an app for that.
How long will it be?
But just how close is this utopian idea of a totally cash-free society? O’Toole isn’t quite convinced that the entirely electronic era is just around the corner.
“You can go on the net and find predictions for the ‘end of cash’ going as far back as the 1950s. We’ve been on the cusp for a long time, and I imagine we’ll be on it for a very long time!
“We certainly could be using our money better – and that’s the whole view of the NPP – but we’re not on the cusp of a cashless society.”
Fitzsimons, though, is much more enthusiastic – and says the Pingit model could lay the foundation for the future of payments.
“If you look at what’s happening in the UK with Barclays’ Pingit, you will in a very short space of time be going into a grocery store, or coffee shop, and sending the properitor the cash through your phone.
“A significant proportion of the population have mobiles, so I don’t see it as being a barrier,” he says, predicting that a “significant cohort of consumers” will make the jump shortly.
Burke reckons certain ploys – like the sponsorship concerns that mean London’s Olympic Stadium will take only contactless cards – will also send people over the edge, particularly if the new breed of smartphones can substitute for a card.
One of the great things about the use of mobile phones, [is that] quite often those people suffer the most because they don’t have access to computers, broadband, and so on.
But virtually everybody does have a mobile phone, so therefore if the solution is mobile-based, they’re not going to be excluding those elements of society and to make sure they are included. A mobile would ensure maximum inclusivity.