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Irish bank report urges government to reduce ATM withdrawals

September 12, 2010

National Irish Bank, one of the Republic of Ireland’s four largest banks, has recommended that the government encourage consumers to reduce cash withdrawals from ATMs as a step toward modernizing Ireland’s payments system.

National Irish Bank said in its report, “Target 2013: Modernizing Payments In Ireland,” that ATMs are the principal way many consumers access cash, and the government should try to influence people to reduce cash withdrawals from ATMs in favor of a greater use of debit cards and other electronic payments. The study said by moving to electronic payments and away from cash and checks, the country would save 1 billion euros (U.S. $1.3 billion) annually or about 680 euros (U.S.$869) per household.

More countries in the European Union are studying the payments market from an efficiency perspective to move the needle further into a cashless society, said Patricia Hewitt, director of debit advisory services at Mercator Advisory Group in Maynard, Mass.

“While the NIB [National Irish Bank] report is not a mandate, as far as I can see, it does serve to put the discussion on the table,” Hewitt said. “Electronic payment forms of all kinds that offer security, convenience and accessibility are potentially in play.”

National Irish Bank, which is based in Dublin, said banks and retailers should do the following to reduce ATM withdrawals:

1. Banks should introduce extra ATMs screens, informing customers making large cash withdrawals of alternatives to cash;
2. Retailers should introduce loyalty card bonuses for customers who pay by card;
3. Retailers should introduce “cards’ only” lines in shops;
4. Banks should explore innovations that can replace cash as a form of payment.

“Cash retains a central role in point-of-sale payments. There are a number of reasons which explain its continued popularity—it is universal, trusted and anonymous,” the report said. “Further, recent studies show that cash remains the most-effective mechanism for low-value payments under 10 euros (U.S. $12.79) in value, though debit cards are more efficient for higher-value payments.” The bank added, however, the concept of a cashless society is “highly unrealistic.”

The government must offer consumers alternatives to encourage them to change their behavior, said Nicole Sturgill, research director for TowerGroup, a Needham, Mass.-based consultancy.

“If the bank wants to change consumer behavior, it will have to give consumers incentives to switch from cash to debit cards, and they also will have to make it easier for merchants to accept debit than cash,” Sturgill said.

Debit card use, however, continues to grow worldwide.

Retail Banking Research Ltd., a London-based strategic research and consulting firm, said the share of debit cards is continuing to increase and currently accounts for 62 percent of cards worldwide.

Flora Hamilton, executive director of the ATM Industry Association in Europe, called the bank’s proposal in its own self interest.

“This appears to be a self-serving idea put forward to increase bank fees from card transactions,” Hamilton said. “What the public also needs to know is that a decline in cash use in favor of increased use of cards would lead over time to a loss of seigniorage tax accruing to the government through production of bank notes and coins for public use. No government in the world can afford to lose out on any seigniorage tax at a time when budgets are under severe pressure.” 

Seigniorage is a tax added to the price of manufacturing coins and banknotes.

Hamilton added that in ATMIA’s view it is time to gain a better understanding of the workings and socio-economic benefits of ATMs and cash. “Cash proved during the global recession to be a strong household budgeting tool as citizens attempted to reduce debt,” she said.

National Irish Bank’s recommendations, which were released last week, come only a few days after the Payments Council, which sets the strategy for the United Kingdom‘s payments, reported that cardholders withdrew fewer funds from ATMs in the U.K. during the second quarter compared with same period last year because of the growing acceptance of debit cards coupled with fewer ATMs.

The bank said Ireland’s residents are the most intensive cash users in Europe.

“Cash withdrawal per person is almost twice the European average, which is driven mostly by the number of withdrawals. Irish people withdrew over 25 billion euros (U.S. $31.9 billion) in cash from ATMs in 2009,” the report said.

There are 766 terminals per million people in Ireland, compared with 855 in the European Union and 978 in the Eurozone. The Eurozone includes 16 European Union countries that have adopted the euro as currency. The European Union is comprised of 27 member states, focusing on economic and political issues.

On average, cash withdrawals per capita in Ireland in 2008 were 6,468 euros (U.S. $8,268) compared with the European Union average of 3,264 euros (U.S. $4,172). Hamilton of ATMIA said the majority of ATMs in Ireland dispense only 50 euro notes (U.S. $64.34).

Cash withdrawals per terminal in Ireland in 2008 were 8.4 million euros (U.S. $10.7 million) compared to the European Union average of 3.8 million euros (U.S. $4.3 million).

Each ATM terminal had 59,500 withdrawals, which is above the European Union average of 34,700, the bank’s report said.

“The average withdrawal amount in Ireland was also higher, 162 euros (U.S. $207), compared with 110 euros (U.S. $140.63) in the EU [European Union],” the report said.

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ATM Industry Association (ATMIA)

The ATM Industry Association, founded in 1997, is a global non-profit trade association with over 10,500 members in 65 countries. The membership base covers the full range of this worldwide industry comprising over 2.2 million installed ATMs.

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