A Strategy for Financial Inclusion

A report on this topic has been released by the Department of Finance.

There is now a consultation period: details here.

Responses to the consultation are welcome up to 29 July 2011 and should be sent to the following:
financial.inclusion@finance.gov.ie

18 thoughts on “A Strategy for Financial Inclusion”

  1. Isn’t it though Desmond? Why on earth will it take longer than 3-5 years to implement? Why can BPAs not just be set up on a rolling basis over the course of six months? Make is so number 1…

    “In the initial phase, once the design and infrastructure work around the
    accounts has been completed, the account will be launched by way of a
    number of pilot schemes addressing different cohorts of the financially
    excluded, and in different regions. This will allow the examination in practice of how the demand-side determinants of BPA take up and usage can be promoted by banks and other stakeholders. During this pilot phase lessons will be learned about the design of the product, the best approach to promotion and education, and the training needs of frontline staff. These lessons should help ensure that the universal rollout is a success.”
    If we were the first in the world to do this, there might be some justification for a slow pace, but we’re not…

  2. Sometimes I get very suspicious of the motives for these kind of schemes. For instance the payment of ESB, Gas and other utility bills would be greatly ‘improved’ by these systems. So too the payment of water rate and property tax etc.
    Knocking on the doors of Southhill lookin for arrears of water rates would be far more career challenging than the kind of challenges that Sir Anthony O’Reilly set for executives of Waterford Wedgewood.

    The BPA (Basic Payment Account) is a good idea but there should be one critical safeguard:

    There should be a basic BPA, one that only accepts payments and has an ATM facility.
    An enhanced BPA one that accepts direct debits etc should be at the discretion of the individual and be clearly signposted.
    This distinction might help to avoid private and institutional (incl State) abuse of vulnerable and not so vulnerable people.

  3. @Joseph

    Me thinks knocking on doors in leafy Dublin 4 will yield even less in terms of returns for unpaid property taxes with prices c60%+ below peak. Two hopes in collecting that particuar tax with most average buyers from 2002 onwards now likely in negative equity.

    I agree with your BPA set up structure.

  4. As far as I can tell, this scheme appears to be a system for institutionalising direct debit payments. No longer will citizens be able to escape the capricious whims of those with intentions on their current accounts. I’d also suspect that the state would like to curtail any threat of a cash economy as people lose faith in the banks, as well as simply get its hand on more deposits.

    I can confirm from personal experience that Irish banks are very loose with customers money when direct debits are involved, refusing to cancel such instructions even upon written request by account holders. This is the case for both BoI and AIB to my knowledge.

    This is a bad idea. It’s designed to force people to keep money in bank accounts–nothing more. All this talk of the “financially excluded” is a euphemism for “people whose money is less easy to take”. In addition the idea that the Government is attempting to persuade or even force its citizens–particularly more vulnerable ones–to keep their money in banks which are still on life support from the ECB strikes me as, frankly, obscene.

    This move puts more cards in the ECBs deck, and none in the average citizen’s. This is a scheme drawn up by hungry banks, and I would recommend that people keep their money elsewhere, and make other arrangements for payments if they can help it.

  5. with mobile phones, I don’t see why direct debit without explicit consent of holder is really needed anymore. An Post had an underused online bill payment service and this seems like a better platform to deal with these issues rather than direct debit alone.

    A situation where creditors and banks rather than the debtor determine the order in which debts are paid is not good for fostering Personal responsibility.

    I would be fearful that this would serve as a means to lock in our current top heavy banking players and lock out competitors.

  6. .
    It could be argued that financial ‘Exclusion’ has been brought by the recklessness of our bankers.
    So is now the time to push for a version of the Glass Stegall Act to protect and ring-fence our retail banks from these same bankers reckless behavior in the future?
    http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

    The UK is well on the way to implementing such a policy …
    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8576361/George-Osborne-to-back-ring-fencing-of-retail-banks.html

    .

  7. Yes – certainly an important issue …… in a class riven and increasingly unbalanced and inequitous society …………

    yet, how IRONIC that many CITIZEN-SERFS who are presently ‘financially excluded’ are, probably without their knowledge’, saddled with up to €100,000 in private vichy_banking system debt …

    How about a consultation on whether such Citizen-Serfs agree with paying for the private banking system debts of dodgy casino_capitalists?

  8. Hang on a second here. Given the much-touted virtues of the private sector and the glorious benefits of competition, if the provision of these BPAs were a profitable business opportunity surely the banks would be clambering over each other to provide it. Either the banks are too dumb and blind (very possible, given their recent glorious performance), or they can’t conceive of a profitable business model, or they just don’t want the hassle of dealing with masses of the poor and lower-paid, or they’ve concluded the game isn’t worth the candle.

    By getting involved in this way the state is implicitly conceding that this is a genuine utility service, similar to electricity, that should be available to all who require it. The government should define a licensed, regulated, time-bound, monopoly franchise (since economies of scope and scale are crucial here) to provide these basic banking services to all who demand them, irrespective of personal circumstances, and invite banks and financial institutions to bid to provide these services. The entire exercise and subsequent operation would be subject to heavy-duty regulation and there would be full and effective statutory advocacy and representation of consumers’ interests in all regulatory proceedings.

  9. From the second link: “approximately 17% of Irish people currently live in households that do not have access to a transaction banking account (the standard metric for financial exclusion) – compared to 2.1% or less in 11 of the EU15 countries.”

    In the light of recent experience, clearly our goal should be 100% financial exclusion, i.e. the abolition of banks.

  10. @Paul Hunt

    I agree with many of your points. My understanding is that it isn’t profitable for banks, and is something that will have to be forced upon them by law. I’m not sure why we should pay them for it, however.

    @ObsessiveMathsFreak et al

    The savings from paying utilities by direct debit are very real. Not the least among them is that you don’t have to put a deposit down when paying for utilities. Also, I personally have not had difficulty in cancelling any direct debits I made.

  11. Britain’s biggest banks will be forced to put a firewall around their retail operations, the chancellor will announce on Wednesday at the Mansion House…

    This is bold and welcome thinking.
    From a regulatory perspective, banks have good profits and bad profits. Bad profits are the ones coming from risky structured products and leveraged trading desks; good profits are the ones which come from the lending investment capital to individuals, small businesses, and large companies.
    State-insured deposits should be use to fund good businesses, not risky and speculative businesses — as should any access to central bank liquidity windows.

    http://seekingalpha.com/article/274927-how-the-u-k-wants-to-deal-with-its-biggest-banks?source=kizur

  12. This reads as an endeavour to poverty-wash the National Payments Strategy, rather than as a genuine attempt to tackle poverty. The obvious determination to compel the poor to toe the line and to choke their access to cash would be bad enough if it was clear that they would benefit a lot, but at least some of the key evidence is distorted.

    I’ll just focus in on the quantitative evidence presented, which at first sight looks like about the most compelling evidence presented.

    “1.9 While the timeframe and resources available for the preparation of this report did not facilitate the undertaking of independent national research on the direct costs of financial exclusion, there is no reason to believe that the research conducted by the UK Treasury in 2007 – which estimated the total cost borne by low-income families as a result of financial exclusion could amount to more than £1,000 in the course of a year – would not also be applicable in Ireland.”

    Here’s what a recent review of the evidence by the UK Treasury (Financial Inclusion Evidence Review: the costs of banking exclusion and the benefits of access to bank accounts,Claire Whyley 2010) has to say:

    “To date, only two studies have attempted to aggregate the total costs of being without a bank account. Strelitz and Kober (2007) developed a ‘poverty premium’ – although this calculation focuses on the costs of being poor per se, rather than being unbanked, specifically. This study estimates these costs to be £1,000 a year – 9% of the disposable income of an average sized family.

    While many of the costs included in the calculation are relevant to the banking excluded, it is not directly transferable. This figure includes costs associated with obtaining home contents and motor insurance, based on a comparison of the higher premiums charged to people living in deprived areas. While people without bank accounts may have to pay these higher premiums, the bigger problem they would face would be finding an insurer willing to accept cash payments and, ideally, payment by cash instalments. We do not know what, if any, extra costs are associated with obtaining insurance on these terms, if it is possible.

    In addition, the calculation does not include the additional costs associated with paying other bills, which cannot be paid using a pre-payment meter, in cash. The accumulation of the handling fees and travel costs noted in section 3.6.2 over the course of the year would add considerably to this poverty premium.”

    Finally, although the calculation is an excellent indicator of the likely scale of the ‘poverty premium’ it is an estimate of assumed costs rather than an account of the real costs that people without accounts actually face. There is currently no other data that would enable us to assess the likely accuracy of this figure.

    A recent study, Policis (2010) commissioned by the Financial Inclusion Taskforce to assess the impact of recent initiatives to increase banking inclusion, sheds clearer light on the total costs of being without a bank account. This calculation is based on real savings made by people who have moved into banking, compared with their matched counterparts who remain unbanked.

    Taking savings on utility bills and credit together, the study estimates total savings to be around £18 per head, per year. Most of this gain, however, accrues to the more affluent of the newly banked, for whom there is an aggregate gain of around £53 p.a. per head. Those in the lowest income quintile, however, actually suffered a small net loss of £12 per head per annum, or £7 million overall. While people with bank accounts do make savings on the cost of utility bills and credit, their value is eroded by the extent of penalty charging experienced by people on low incomes who use automated payment mechanisms. These issues are discussed in more detail at 5.1.1, below.”

    So the £1,000 does not refer to “estimated the total cost borne by low-income families as a result of financial exclusion ” after all, and there is more recent UK evidence that is not referenced.

    Furthermore, there is no indication that any assessment was made as to whether similar costs would apply in Ireland to those in the UK. For example, it would be straightforward to check whether energy utility prepayment meters are as common in Ireland as in the UK, and whether poor users of prepayment meters in Ireland are soaked in the same way as their UK counterparts.

  13. @BCT,

    Hat-tip for highlighting this very relevant research – and its absence in Ireland. You’ve provided the proper context. In line with my earlier comment, there should be universal provision of a basic banking service with citizens having the right to opt out if they choose.

    Those on social welfare and on low-pay are being hosed in every possible way imaginable. This notion of competing service providers of these basic, effectively, utlility services is total b#ll*x. Without universal, effectively regulated, provision – and without statutory advocacy and collective action on behalf of consumers – they will be hosed and soaked even more.

  14. Some interesting new research from the Institute for Fiscal Studies in the UK:
    http://www.ifs.org.uk/comms/comm119.pdf
    which shows that inflation in the prices of basic necesary goods and services impacts more severely on the lower income deciles than on the higher. Not surprising really, but it would be interesting to see comparable Irish data, particularly since the price level of these goods and services is considerably higher in Ireland than in the UK.

  15. @BeeCeeTee

    Interesting stuff. Without having any figures to hand, I’d guess that bank charges are higher here than in the UK, so that may make the idea less viable than I previously thought.

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