(17:00Hrs) Tuesday 27th February - Good afternoon Chairman and Committee members. I am joined today by Gavin Purtill, Director of Regulation & Supervision, and Gill Byrne, Head of Payments at BPFI. I’d like to thank the Committee for the invitation to meet with you today to discuss the Access to Cash Bill.
The payments landscape in Ireland and indeed globally has changed significantly over the past ten years with a huge shift to digital payments and online banking as many consumers and businesses embrace new and innovative payments methods and services available to them. The recent pandemic has driven an even greater step-change in this transformation. The most recent Central Bank of Ireland figures show the value of ATM withdrawals has fallen by almost a third since the pandemic, with the volume declining by almost 45%. Conversely, industry data[1] shows that the number of contactless card payments more than doubled between 2019 and 2022. In December 2023, the value of payments via mobile wallets such as Apple Pay and Google Pay was higher than the value of cash withdrawals according to the Central Bank.
Despite this societal shift, BPFI and its member banks recognise the vital importance of cash for many consumers and small businesses who continue to rely on cash in their daily lives. It is particularly important for the most vulnerable members of society, and, as we work our way through the current cost of living challenges, for many people who use cash for budgeting and managing their household finances.
Within this context the banking industry is fully committed to maintaining reasonable access to cash both now and in the future, in accordance with consumer demand. We are supportive of the introduction of a flexible framework to manage this access. However, we do have a number of significant concerns in relation to the proposed framework as currently set out in the General Scheme which we would like to address with the Committee today.
Competition implications
One of the core purposes of the Act, as outlined in the Scheme is to ‘manage future change in the access to cash infrastructure in a fair, equitable and transparent manner.’ In its current format, we believe that certain provisions within the Scheme are neither fair nor equitable and more critically pose a very real risk to the present and future competitiveness of the Irish retail banking sector.
Under the proposed provisions, it is the three retail banks that will have sole and legal responsibility for maintaining the prescribed levels of access to both ATM and cash access points or counter services. This is despite the fact they only control around one third of the general infrastructure. All other providers who make up the remaining cash access infrastructure, including An Post, Independent ATM deployers and Credit Unions, are excluded. In a scenario where any one of these providers withdraws an ATM or ‘bricks and mortar’ counter service, leading to a breach of the cash access criteria, under the current proposals it will be the responsibility of the retail banks to remedy and replace this service, even in circumstances where this is not commercially viable.
Enacting the legislation in this manner unquestionably places the retail banks at a competitive disadvantage by creating an unlevel playing field among existing and perhaps future market participants. Additionally, it will almost certainly lead to an increase in new and unquantifiable fixed costs for retail banks which could ultimately increase the cost of everyday banking services. In the current environment, where our banks are once again profitable this may be sustainable, but given the cyclical nature of the sector, such costs could pose challenges into the future.
Furthermore, the current provisions raise the very real risk of creating a significant barrier to entry for new retail banks into the Irish market considering the potential costs involved. Following a year in which we’ve seen the exit of two retail banks, one of whom closed its doors after 175 years, this prospect poses even further challenges for the retail banking sector in Ireland. It is within this context we are calling for a number of important changes to certain provisions within the Scheme.
Shared industry responsibility
First and foremost, it is imperative the scope of the “designated entities” criteria be broadened beyond just the retail banks. The Irish cash landscape is made up of a host of market players including An Post, Credit Unions and digital banks. In order to create a level playing field among all market players, the provision and cost of reasonable access to cash must be a shared industry responsibility across all current and future providers of cash and current accounts.
Risk of unquantifiable costs
To date, much of the debate on access to cash has focused on the availability or otherwise of ATMs. However, under the current provisions, as well as being responsible for maintaining specified levels of ATMs, retail banks, based on December 2022 levels, will be responsible for ensuring at least 99% of the population are no more than 10km from a cash service point where cash can be deposited as well as withdrawn and where in-person assistance is available.
In restating our commitment to maintaining reasonable access to cash within the retail banking sector’s own network, under this provision banks are facing the prospect of replacing bricks and mortar counter services in the event of a withdrawal of such a service from other providers. This has the potential to impose unquantifiable costs on our banks which, as already outlined, has significant implications from a competition and cost to consumer perspective. This provision as it relates to cash service points should therefore be revised with the geographical radius increased to 15km in line with An Post’s geographical commitments.
Creating an independent revision process
Under the current provisions the responsibility to vary the access to cash criteria resides with the Minister for Finance of the day. As the designated Competent Authority in charge of supervising the financial services sector in Ireland, and for regulating other aspects of the cash landscape, we believe this function should instead reside with the Central Bank of Ireland and in so doing, be fully independent. It is also important to note that an EU Regulation on Cash as Legal Tender is currently under discussion and that any measures introduced domestically should align with the Regulation.
Ensuring a dynamic and agile review system
Alongside the access to cash criteria, the Scheme also sets out the triggers which will prompt their review. This is proposed to take place at the request of the Minster, within 12 months post-Census or in the event cash demand drops by 15% year on year. Given the continuing and rapidly evolving nature of the payments landscape and the need to introduce a flexible framework to manage the decline of cash, we believe the proposed review triggers need to be amended significantly. This includes the reduction of the review period to a mid-Census timeframe or every 30 months, and to move to a point where a maximum of a 10% reduction from the set December 2022 baseline should trigger a review. This should be monitored separately across the eight geographical regions set out in the Scheme and not across the State as a whole. Additional triggers, such as an exceptional event should also be considered in addition to providing for the banking industry itself to invoke a review, subject of course to the review process by the Central Bank of Ireland.
Cashback
We believe that it is important that the definition of the Access to Cash points is broadened and should include retail branch locations, branch ATM’s, An Post locations, Independent ATMs (IAD’s), Credit Unions, and also cashback services. BPFI is aware of the upcoming proposed changes to the EU’s Payment Services Directive 3 (PSD3) which will enable retailers offer cashback without a purchase. This will allow consumers easier access to cash across multiple locations where retailers support this facility.
The imperative of providing clarity on local deficiencies
An as yet undetermined but significant part of the current Scheme relates to the provision of local deficiencies. These are cases, where although an area meets all of the access to cash criteria, certain localised difficulties arise. In areas where such ‘deficiencies’ are deemed to exist, it will be the responsibility of the retail banks to address this. While the Scheme sets out that guidelines will be published by the Central Bank on this, no timelines are provided. With limited detail on how these deficiencies will be assessed, this poses a significant challenge for our members in terms of the potential costs involved. It is critical that more information is provided on this process both in terms of the assessment and the implementation timeframe. To this end we believe a consultation process, facilitating engagement and input from the industry, should be established by the Central Bank to ensure transparent procedures are put in place which can be subject to regular review.
Conclusion
As demonstrated by the Department of Finance’s own assessment of the landscape here in Ireland as of December 2022, there is ample provision of cash access across the state. The banking industry is committed to playing its part in maintaining this access as well as responsibly managing its decline.
However, this responsibility must be shared across all relevant market players working within realistic, responsive and objectively measured parameters. The proposals, as currently presented, are of concern as they exclude key organisations from their remit, raise concerns in terms of their impact on competition, and have a cost impact that is not possible to quantify, with the knock-on potential that banking in Ireland may be more expensive in the future.
We welcome the opportunity to continue to work with the Committee on this Bill and are happy to answer any questions you may now have.
