No accounting for folks

[Dave Birch] There are a few different groups currently advancing plans for the Post Office in the UK to have some sort of “people’s bank” added to it. One reason for this is that people who are trapped in the cash economy pay higher transaction costs than people who have bank accounts — they pay to acquire cash and they are not afforded the discounts available for direct debit customers of utilities, and so on — and there are good financial inclusion reasons for choosing the Post Office (there are more than 20,000 post offices in the UK) as a channel to reach the unbanked. There is a problem though, which is that bank accounts cost too much money, which is why the previous attempt to create a universal basic bank account (through retail banks) failed. Many of the unbanked (and, for that matter, many of the banked) don’t actually want a bank account (with overdrafts, statements, access to branches etc etc) but a simple account that allows them to accept and make payments. A prepaid account with a card attached to it, basically.

This sounds a bit like an M-PESA account or a PayPal pre-paid card. One point to note is that these accounts are for transaction use: consumers’ shouldn’t keep money there because they don’t earn interest and the maximum balance tends to be limited. In practice, for schemes such as M-PESA or G-Cash, banks have entered the market to provide microsavings opportunities on top of the payment accounts. These microsavings accounts are actual bank accounts, but they can be provided cost-effectively because there are no branches or statements.

To some people, this kind of payment account sounds a lot like a bank account, which is why it is tempting for regulators to treat them that they. But they are not bank accounts, and they differ from them in two crucial ways:

1. No overdraft.

2. No protection.

These are good things. If these payment accounts, or whatever we want to call them (I’m trying to avoid calling them e-money accounts), are going to be delivered to the mass market at low cost, then clearly the regulators must not impose a regulatory burden. This means a more flexible, more multi-layered regime. One size doesn’t fit all.

Different layers of compliance should be the basis (the foundation) of thinking about banking regulations applied to the marginally banked. It stands to reason that it does not make sense to apply the same rigour to an account for low value simple transactions, compared to a high value, sophisticated bank account.

[From Mobile Banking: Mobile banking regulations should be tiered more]

I would like to see this become of the payment industry’s key messages for 2010. Social inclusion depends on financial inclusion, but financial inclusion does not mean banking. The payments industry could deliver financial inclusion, and therefore improve social inclusion, without the complexities, overheads and (frankly) baggage of banking.

This isn’t a discussion about a favoured sector or a bit of indiscriminate bank bashing, it’s about costs. In these straightened times, one way for the public sector to save huge amounts of money is to move things online.

It costs a penny to put money into an account linked to a card, compared with 60 cents to send out a cheque, says Shane Osborn, the state treasurer of Nebraska, whose card schemes include child benefit and income support. The state has been able to halve its call-centre staff because it now gets fewer inquiries about lost cheques and the like.

[From Payment cards and the poor: A plastic prop | The Economist]

If simple payment accounts can be linked with mobile phones — which are the poor person’s preferred (in fact, only) online channel — then it’s easy to see how much more efficient the public sector payments infrastructure can be. In the UK, the Department of Work & Pensions (DWP), says that it has no plans to phase out cheques and compel people to open “bank accounts”, but it should have. Perhaps one strategy might be to get the Post Office to obtain its own Payment Institution (PI) licence and relaunch the Post Office Card Account (POCA) as a pre-paid account linked to a mobile phone number instead of the current limited-option bank account provided by J. P. Morgan. This would only be going with the flow, as cheques are disappearing in the UK.

The total value of cheques cleared in the UK in the second quarter fell a massive 20% compared to the same period in 2008, as Brits continued to turn to debit cards.

[From Finextra: Brits ditch cheques as Fast Payments gathers momentum]

In fact, the Payments Council are deciding the fate of the cheque even as you are reading this blog post. Within a couple of days, I hope to pass on the good news that an end date for cheques in the UK has been fixed.

The Payments Council will meet on the 16 December to debate the issue and are widely expected to decide to phase out cheque payments by 2018, despite strong opposition from businesses and charities.

[From Payments Council to decide on future of cheques | printweek.com | Latest Print Industry News, Jobs, Features, Product Reviews, Used Printing and Packaging Machinery]

Bad news for people who make cheque-printing machines, envelope-stuffers and chequebook covers, but good news for society as a whole. Even my plumber is phasing out cheques, preferring card payments instead, and the UK Cheque & Credit Clearing Company’s home page warns consumers to never accept a cheque from someone unless they know and trust them. Given that it will be 2018 before cheques do go away, though, surely even the DWP will be able to move to e-alternatives in time.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]