Ipso chief aims to close off Ireland's paper trail

Electronic payments are cheaper and more efficient, Stewart MacKinnon tells Laura Slattery.

The Irish like a lot of cash. Not only that, we have a love affair with the cheque, according to Stewart MacKinnon, chief executive of the Irish Payment Services Organisation (Ipso).

He's not saying we're flash "loadsamoneys". It's just that our dependence on paper-based financial transactions is far greater than it is in other European countries and it's hurting us competitively.

"The amount of bank notes transacted daily, if they sat on top of one another, would reach three-and-a-half times the height of the Dublin Spire. Cheques would be one-and-a-half times the height of it. All of this paper is floating around the country and it's crazy," he says.

One of MacKinnon's main roles is the implementation of the National Payments Strategy, the formal title given to the migration from inefficient and costly paper to a sleeker, cheaper electronic payments system.

Ireland is playing catch-up with the rest of Europe. Finland, the most competitive country in Europe, also has the highest rate of electronic payments - no coincidence, he believes. "The two go hand in hand."

MacKinnon, who is 55 and originally from Edinburgh, has been chief executive of Ipso since 2001. He joined Ipso from Bacs, the organisation that oversees the UK's clearing house system, and jumped at the chance to relocate here with his Irish wife.

"I suppose when I came into this job, I gave myself a year to get the National Payments Strategy in place. It looked so easy to get everybody off cash and off cheques. But I underestimated the sheer complexity of the thing. There's apathy, there's inertia. There's a view that this is a no-brainer. People say 'oh yeah' . . . And then they sign another cheque.

"To my mind, heavy cash use encourages three things: money laundering, fraud and tax evasion," says MacKinnon, who says the Government now needs to actively discourage reliance on cash.

"Most of the departments are migrating from cash-based payments so they are leading by example. But I would like the Government to become the champion of electronic payments. I would also like them to use public policy wisely and get rid of stamp duty."

Incentives and disincentives are required to force a cultural change, MacKinnon believes, but at the moment the disincentives are skewed the wrong way. The Government is undermining its own objectives by charging stamp duty on cards, he argues. India and Malta are the only two other countries that do this.

"Our European competitors do not have this major distortion, and it is a major distortion. It is costing the whole economy," says MacKinnon, who notes irony in the fact that Charlie McCreevy, as Minister for Finance, was responsible for ramping up the stamp duty on bank cards and is now, as EU Internal Markets and Services commissioner, leading the charge for a pan-European direct debit scheme and credit scheme under the Single Euro Payments Area (Sepa) programme.

Sepa is what may ultimately drive the abolition of the increasingly anachronistic cheque and reduce reliance on cash.

MacKinnon represents the Republic on the European Payments Council (EPC), the industry body that is introducing a pan-European direct debit scheme and a pan-European credit scheme, two things which will be welcomed in particular by the hordes of Irish people snapping up overseas property.

"At the moment, someone with a property in Spain has to set up a Spanish bank account in order to pay the electricity bill. In the future, they will be able to pay it from their Irish current account, and it'll be the same with their mortgage." European banks will have Sepa-compliant products on stream by 2008.

"I think we need to aim for the cheque to be gone by 2011," MacKinnon adds. The national debit card scheme also needs to be Sepa-compliant, meaning Laser may disappear by 2011 and be replaced by Mastercard's and Visa's debit schemes. But no decision has been taken on this yet.

"The customer will have the same experience in Dunnes Stores as they would have in Galerie Lafayette."

Sepa and the National Payments Strategy are now top of Ipso's agenda, the organisation having just overseen two major changes with the introduction of anti-fraud chip and pin technology on credit and debit cards and the euro changeover.

Ireland can't adopt Finnish payment habits en masse until the proportion of people with payment accounts - accounts that can make or receive electronic payments, which for now means current accounts - increases.

Around 25 per cent of people do not have a current account, although many will have an An Post or credit union savings account, MacKinnon says.

As a result, one of the Competition Authority's recommendations for Ipso in its study on banking was that it should clarify whether or not credit unions and An Post are eligible to become part of the electronic payment clearing system. Credit unions need to become more technologically sophisticated before this can happen, MacKinnon says.

The Competition Authority also recommended that Ipso investigate the establishment of an automated clearing house, which it is now doing. It is also examining cheque truncation, the process whereby cheques would become part of the electronic clearing system as soon as they are presented, rather than going through the slower paper clearing system. Both recommendations are being looked at in the context of the European developments.

Another recommendation was that Ipso's board of directors should be expanded to include stakeholders other than the banks, such as utility companies and consumer representatives. So far Ipso has appointed its first independent chairman, Don Thornhill, and three independent directors. A fourth is due to be appointed shortly.

"We have worked closely with the Competition Authority and I think we have developed a rapport with them," says MacKinnon.

But, thanks to Sepa, the next five years will see bigger changes than have occurred in the last 10, MacKinnon predicts. "From the banks' perspective, it has all been about putting their hands in their pockets," he says.

The changes may ultimately be driven by political will. Irish enthusiasm for cross-border financial services, spearheaded by McCreevy, is something of a change for MacKinnon, who spent two years examining the case for the UK entering the single currency while working for Apacs, the UK's payments trade association, only to be frustrated when politics got in the way of any definitive decision being made.

Having started his career at the Royal Bank of Scotland, MacKinnon has also served time at the Chaps clearing company for high-value payments.

"People see it as watching paint dry, but payment systems have been my life for 20 years."

Factfile

Name: Stewart MacKinnon.

Position: Chief executive of the Irish Payment Services Organisation (Ipso).

Family: Married to Paula, with one son and one daughter.

Background: Started his banking career as a graduate trainee with the Royal Bank of Scotland in Edinburgh.

He holds an economics degree and a masters in strategic planning, and is a fellow of the Chartered Institute of Bankers in Scotland.

Before joining Ipso, he was head of planning and business development at Bacs, which oversees electronic payments clearing in the UK.

Interests: Sport, cinema, military history.

Why he is in the news: Ipso has recently approved the national plan for compliance with the Single Euro Payments Area project.