Helpline: National Payments Plan Consultation
RGDATA, the representative organisation for the independent retail grocery sector in Ireland is pleased to respond to the Central Bank consultation process on the development of a National Payments Strategy (NPS). Every day RGDATA members deal with consumer transactions from all sectors of the community, and are therefore well placed to comment on the challenges which retailers and consumers are faced with in efforts to move to more efficient electronic payment mechanisms.
RGDATA has consulted widely among its members to gain their views on the issues which are pertinent to the questions posed in this consultation process, those are:
- 1. The difficulties in moving from paper based payment methods such as cash and cheques to electronic form of payment through direct debt and credit card.
- 2. The instances where electronic modes of payment are not practicable.
- 3. The ways in which cash usage causes inconvenience for consumers.
- 4. The issues relating to cheque usage
- 5. The expenses associated with electronic payments.
Moving to a cashless society
As the representative association of over 4,000 independent retail stores through the country, RGDATA is keen to set out the many factors which will determine a successful move away from more traditional payment methods such as cash and cheque to electronic payments. RGDATA members operate convenience stores, petrol forecourt outlets, post offices and full service supermarkets. RGDATA members are at the forefront of everyday transactions with the community, whether through sales in their shops, bill payments services through post offices and business to business transactions. Their expertise and knowledge of their consumer base is essential to informing this consultation process.
The Department of Finance Financial Inclusion Report details a number of figures which are generally reflected in the views of RGDATA members with regards to the types of customers who may have more difficulty in moving away from cash and cheque payment methods, and indeed the reasons why that is the case from certain sectors of the community. Findings from the EU-SILC survey in 2008 set out in the Department of Finance Financial Inclusion report show that 31% of people over 65 have no current account. Indeed in Ireland, figures from the Financial Regulator found that 10% of the adult population have no bank account, as stated in the Department of Finance Financial Inclusion Report.
Older People
A number of older customers would be particularly challenged by a move to debit and credit card payments. They are used to buying their daily shopping needs with cash, and in some cases cheque. While they are familiar with more traditional payment methods, there are further reasons as to why a move towards electronic payments and dealing with financial institutions is resisted.
In recent years there has been a rise in mistrust in banking institutions, which has resulted in more sceptical attitudes towards electronic payment modes such as direct debit and credit card. People, in many instances feel it is easier to monitor the amount they spend when using cash for payment.
The move away from cash and cheque payments, not only means using your debit or credit card in a shop to purchase goods, but also being able to access online information about your account. The trend towards more and more online transactions and less face to face interaction provides another challenge for older people, who firstly may not have access to a computer, to internet, or may not be sufficiently equipped to use those types of technology. It is often the case that in small communities, interaction with a shop owner or a daily visit to the shop is the only contact an older person may have throughout the day. It is important to preserve this important aspect of community life where possible.
Young People
On the other spectrum of the demographic are young people and children who often come to the local shop to buy small purchases with their pocket money such as sweets, magazines etc. Young people and children do not usually have access to large amounts of money; or bank cards for that matter. Their small average spend would in any case preclude them from using debit/credit card due to the minimum spend imposed by many retailers. It is important that access of customers is not blocked as a result of payment choice.
State Payments
Many customers who are in receipt of social welfare (e.g. Jobseeker’s allowance) have no choice in terms of how they are paid, and receive cash payments through their local post office. Casual workers allowance is paid by cheque. There are only some social welfare benefits paid by electronic fund transfer such as illness benefit. These are also customers of RGDATA members, who spend their cash payments on their weekly/daily necessities. In these cases it would appear that Government Departments must make stronger strides towards integrated payments systems and electronic payments.
In rural areas there are many customers who still use cheques, and would in many cases pay for their groceries with those cheques, although there is a consensus among RGDATA members that a move away from cheque payments would be beneficial. Farmers and business customers often use cheque payments in their dealings with retailers.
Where cash is best
Due to the nature of consumer purchases in the local convenience/grocery shop, it is often more practical for consumers, and retailers to use cash in their transactions.
The average spend in the local shop for quick ‘grab and go’ purchases would not amount to more than €10. These purchases include everyday items such as newspapers, milk and bread. A move to electronic only purchases would have a negative impact on smaller stores, which deal predominantly with small cash purchases and low value transactions.
While some members did not cite any instances of where there are no practical alternatives to cash and cheque, there were a number of issues raised in terms of the bank charges and administration time which would mitigate the benefit of using a debit or credit card particularly in proportion to the low value of the transaction. This includes also the debit card charges for transactions imposed on retailers.
The cases of off-site transactions were also raised, with respect to transactions with distributors, wholesalers and other business clients, where electronic payment would not be practical.
For RGDATA members, cash usage was a common payment choice among their customers. The use of cash does not present any inconvenience to shop owners. Many retailers stated that large basket shoppers and bill payment are more suited to electronic payment mechanisms.
The presence of large amounts of cash on-site presents its own problems. The security requirements are increased in addition to the higher insurance costs for the business. In recent years, the presence of fraudulent and forged bank notes in circulation is also increasing.
Payment by cheque
The majority of RGDATA members surveyed would welcome a move away from cheque usage, which they state causes many problems for the retailer. Many retailers stated that they no longer accept cheques, and many others are reluctant to accept cheques. The practice of customers using shops to cash their cheques, while in decline, is of issue to retailers who cash high value cheques, but where there are small purchases.
As already stated above many social welfare recipients and business customers still use cheques on a regular basis. In terms of business clients, the use of on-line banking means that many RGDATA members are now increasingly processing and making their payments online. A number of problems were cited in relation to the frequency of bounced cheques, and the banking restrictions on third party cheques provide further problems for cheque usage.
Problems with sales through electronic payment
RGDATA members raised a number of important issues in the processing of electronic payments on a daily basis, and particularly the problems encountered. These include problems with technology and broadband in rural areas, terminal breakdown, and the charges for card payments.
Payment processing
The time needed to process a payment is a significant problem for independent retailers, particularly in rural areas where unreliable broadband is to blame. For rural retailers, the threat of terminal breakdown and lack of access to speedy technical assistance means that consumer and retailers alike cannot fully rely on electronic payments. Many retailers have difficulty in envisaging a move to 100% electronic payments, specifically as a result of technical issues related to broadband.
In many small towns and villages, retailers also take issue with the low cash back limits on debit card transactions to customers. This is a common problem for customers, particularly when ATMs run out of cash. With many financial institutions closing branches across the country, the reduction in ATM facilities will cause further problems.
The main concern for retailers, which will be set out in the coming paragraphs relates to the fees for debit/credit card transactions. Retailers are particularly concerned with the recent change from Laser to VISA Debit card by many financial institutions, which has attracted higher fees by many card payment providers.
Card charges
The excessive fees associated with debit and credit card payments for consumer transactions were set out by all retailers surveyed. A combination of per transaction and Ad Valorem costs are forcing retailers to impose minimum transactions and therefore refuse low value transactions by debit and credit card. Research carried out by RGDATA of the main merchant services providers shows that one prominent provider charges an Ad Valorem charge in addition to a per transaction on VISA Debit transactions. These charges coupled with the terminal rental charge prove costly for retailers.
RGDATA members believe that the changeover from Laser card to VISA Debit has been extremely mishandled by financial institutions. The VISA Debit processing charges are more costly than the previous Laser card. RGDATA would argue that these punitive fees are not coherent as an incentive to a move towards a cashless society, and will lead to retailers imposing a surcharge on customers if charges continue to increase.
The banks are continuing to raise their charges for card services while the margin of profit for retailers is reduced significantly, particularly in the case of transactions through credit cards. On an official level, the inability of regulatory authorities to monitor these charges closely and take action is disappointing.
Bank charges are requiring retailers to impose minimum charges for card transactions. This is preventing customers from ease of use of their debit or credit card, and means that where customers use their card they are forced to spend more money. In this context it is important to consider the average customer spend; one member for example stated that his average customer spend is €6.10. The widespread closure of bank branches around the country, with a reduction in ATM services, means in some cases that customers have to increasingly rely on Debit services.
People must have a choice of payment with which to purchase their goods. Equally, retailers must be able to provide these payment choices without detriment to their operating costs.
The SEPA Project
It is the understanding of RGDATA that the SEPA (Single Euro Payments Area) project was embarked upon in the context of the disharmony between the single currency in the Euro area and the continuing presence of national card brands. The SEPA Strategy is reflected in the move by many financial institutions to VISA Debit.
However, it is also stated that through the SEPA project, the phasing out of national card brands, and the move to a Euro zone Debit Card, will lead to greater competition and if it is fully implemented will lead to lower charges and improved services. This is contrary to the practices by some merchant service providers who are imposing excessive charges for the use of the newly introduced card by many financial institutions.
Concerns about costs and control over money are cited in the Department of Finance Strategy for Financial Inclusion report as key concerns for customers and a main factor in the distrust of financial institutions. These fears will only be heightened if there is no clear transparency and monitoring around the costs for card services.
Conclusion
The purpose of the National Payments Strategy is to access more efficient electronic payment instruments, with the aim of increasing cost competitiveness and consumer choice in Ireland. RGDATA members have significant knowledge of the challenges which will impede a reduced reliance on paper payment instruments. A move towards new payment technologies means that the structures must be in place to support such a strategy, this includes an efficient and high quality broadband system throughout the country, cost savings and benefits, and the State leading by example in terms of their payment methods. The increasing costs being applied to electronic payment transactions and in particular for retailers in terms of processing payments by electronic means, is of significant concern to our members. The knock on effect, is that these charges will impact on the payment choices of customers, particularly in small shops where a minimum charge is imposed on customers due to the excessive fees to which retailers must pay. In many cases, it is more convenient for customers to use cash based payment. In an effort to reduce financial exclusion, it is important that the State and the regulatory authorities ensure that the financial institutions and service providers adopt a transparent, fair and competitive system in terms of their charges on electronic payments.
Tara Buckley
Director General
RGDATA
