Irish consumers find plastic less than fantastic, but, it is argued, our ‘excessive’ reliance on cash harms the economy, writes CAROLINE MADDEN

GIVEN THE understandable distrust of the banking sector that now exists among the Irish public, it’s hardly surprising that we retain a strong preference for cold, hard cash over plastic or electronic payment methods. However, according to the 2008 annual review of the Irish Payments Services Organisation (Ipso), which is owned by the Irish retail banks, our “excessive” reliance on cash and “other antiquated payment methods” puts us at a competitive disadvantage to our European peers.

Ipso figures show that, on average, Irish individuals withdrew almost €6,500 each from ATMs last year, more than twice the EU average. Call us oldfashioned, but what’s so wrong about having a wallet well-stocked with euro rather than stuffed with an armoury of flexible friends? At least if a restaurant doesn’t accept plastic, you won’t be left in an embarrassing predicament. Plus, if you rely on cash, you’ll be less tempted to rack up lifestyle debts.

Apparently we should consider the greater good of the nation when choosing our preferred form of payment method, a message that’s a little hard to stomach given that it comes from an organisation representing a sector that has had to be bailed out by the taxpayer. However, can we afford to ignore Ipso’s strong argument that a significant reduction in the volume of cash in the State would “ultimately save on costs and benefit the overall economy”?

“Apart from the traditional costs associated with cash, such as security, handling, storing and transportation, there are other ways in which high cash levels can harm the economy such as tax evasion and crime,” Ipso warns.

“While citizens in most EU countries are using fast and efficient payments systems, in Ireland we choose to sustain outdated, legacy systems instead of reaping the benefits from our modern payments infrastructure,” says Dr Don Thornhill, chairman of Ipso. “These benefits range from improved safety and security, increased efficiency and speed of payment, to potentially an overall increase in our level of national competitiveness.”

Embracing more modern payment systems also bring benefits at an individual level. One of the main limitations of cash is that it can only be used for face-to-face transactions, Ipso’s chief executive Pat McLoughlin points out. Moreover it’s unsuitable for high-value transactions (because of the risk of theft or loss) and paying bills (because of the inconvenience). Electronic and card payment methods offer alternatives that get around these issues.

In addition to our enduring attachment to cash, Ireland is one of only a handful of EU member states that still uses cheques for day-to-day payments. In fact, almost 80 per cent of non-cash payments in Ireland are made using cheques and other paper debit instruments, compared with the EU average of just 3 per cent.

This is despite the fact that cheques are a much more expensive payment method than electronic alternatives such as credit transfers and direct debits, partly because the Government has increased the stamp duty on cheques to 50 cent. “Cheques are also costly to process for banks and they attract a high level of fraud. These costs are frequently reflected in higher bank charges for cheques,” Ipso says.

Electronic payments have another clear advantage over paper-based payments in that they offer a much faster service – the money is transferred within a day, instead of three to five days as can be the case with cheques, Ipso says.

Perhaps surprisingly, given the levels of consumer debt built up in recent years, Ireland is in the bottom third of EU countries when it comes to the per capita take-up rate of debit and credit cards. One would imagine this is a good thing. Surely Ipso isn’t advocating that consumers take out more credit cards? “It’s up to each individual as to whether they want to take out credit cards or not,” McLoughlin says. “[But] certainly debit cards are a very, very effective and efficient means of making payments.”

Ipso’s 2008 review did reveal some trends that suggest that Irish consumers and businesses might be beginning to recognise the benefits of payment cards and electronic banking. For example, the number of debit cards in use shot from 2.5 million to three million last year. “The good news is that debit is now outstripping credit cards,” McLoughlin says. “It means that people are now using it as a basic means of payment.”

In addition, the number of cheques issued fell by 6 per cent last year, in line with Ipso’s goal ultimately to eliminate cheques. Credit transfers and direct debits rose by 17 per cent and 6 per cent respectively. Online banking also became considerably more popular in 2008, with the number of customers rising by almost 28 per cent to 2.2 million.

“While the review demonstrates that, as a country, we have progressed somewhat in recent years, the reality is we still have a long way to go,” McLoughlin adds. “We believe that there is a cultural shift required to get Ireland moving in the right direction.”

However, traditionalists who still have a soft spot for notes and coins will be relieved to hear that Ipso doesn’t envisage a cashless society, at least not in the immediate future. “I don’t think it’s realistic in the next two decades,” he predicts, “It’s moving towards certainly a ‘less cash’ society . . . If you want to move away from cash you’re going to need to know you can use a card anytime, anywhere, any place and you still can’t do that.”