“Or what?”, I responded, setting off on an (unlit) road to nowhere.
“What do you mean?”, she said.
Well, I explained, I can’t decide about the street lights without knowing the alternatives. I don’t know whether I want more street lights on that stretch of road more than, say, lower council tax or street lights on another stretch of road or traffic-calming measures or reduced parking charges or better road signs or a proper cycle path or… or… or…
So it is with payments. Should there be better consumer protection around debit cards? Or what? Should retailers be allowed to surcharge? Or What? Should we keep using cheques for another decade? Or what? You can’t answer any of these questions without some idea of what the payment system is for. What is the national strategy that we can evaluate these tactics against? And who is setting that strategy?
The Government is today publishing a consultation which invites views on three options for reforming the regulation and governance of payments networks (the payments process from payer to payee) in the UK.[From Setting the strategy for UK payments – HM Treasury]
I think it is fair to observe that the roots of this consultation lay in the so-called “cheque debacle” of 2011. You’ll recall the outline: the Payments Council (PC) voted to recommend to its members to end cheque clearing a decade from now. This, you would have thought, was hardly controversial. After all, cheques are a waste of money and no-one in a developed country has used one for years. But the response to the recommendation bordered on apoplexy in the shires. Outraged Daily Mail readers, unable to imagine any alternative mechanism for sending £5 birthday money to a favourite grandchild, put pen to paper and their MPs, in turn, went moaning to the Treasury Select Committee (TSC), who promptly set about bullying the PC into reversing their decision. Once they had forced this capitulation, the writing was on the wall for the PC as currently constituted.
The result of all of this is that the government decided to make the PC more operational and get back control over the strategic direction. I can see why they would want to do this: they want a wider stakeholder group to decide where payments should be going (and I agree with them about this in principle, since it is a valid criticism of the PC that it has been too focused on the needs of large banks) and then let the PC work out how to get there. The consultation paper refers frequently to the “payments industry”, by which is appears to mean banks, with the “consumers” as the other stakeholder. But there are other stakeholders with a right to be heard. There’s the police, retailers, UK plc, IT vendors and so on. Why shouldn’t Britain’s most terrifyingly effective lobby group — Mumsnet — have a say? And setting aside the issue of whether it’s worth paying any attention to anything the public have to say about anything at all, it should be clear that setting a worthwhile strategy involves a lot more than hassling banks into providing loss-making current accounts to an ungrateful constituency of customers.
It doesn’t look to me like a consultation at all. It’s pretty clear from the document what will happen. The government wants a Payment Strategy Board (PSB) to represent this wider stakeholder group and set strategy for a new PC that has the operational, but not strategic, functions. The paper refers repeatedly to a strategic vision for the payments industry that would, presumably, set the PSB off in the right direction. I’m pretty certain that no such strategic vision exists — whether in the Payments Council, the Treasury or anywhere else — so it’s a worthwhile reflection to consider what it might be should it come into being. If we could agree a shared narrative around the future of payments then we should be able to set a strategy to make it so. If the government had a strategy for payments, then the role of the PC would be to recommend tactics to its members in order to implement that strategy. Suppose, for example, that the government said it wanted to halve the use of cash in retail transactions in a decade (toward the goal of economic efficiency) or that it said that it wanted to halve the use of cash in interpersonal transactions (toward the goal of reducing tax evasion) or whatever, then the PC could work with its members to reach the target.
What might guide the PSB? The idea that the government has any kind of consistent vision in this area, a necessary precursor to strategy, seems fanciful to me. Take the simple and direct case of the most commonly-used payment mechanism, cash. Are we for it or against? Does the government want to increase its use or decrease it? Do we want higher transaction costs for cash or lower? Do we want more cash in circulation or less?
David Gauke, a Treasury minister, told The Daily Telegraph that home owners who allow workmen to evade VAT or income tax were forcing others to pay more. His comments reflect growing concern in Whitehall about the cash-in-hand economy, which costs Britain billions of pounds a year in lost tax revenues.[From Middle classes who pay cash in hand ‘morally wrong’ and aiding law-breaking, says minister – Telegraph]
So we want to discourage cash transactions? Is that part of the strategy that the new PSB is supposed to develop? It will last five minutes, before it gets deluged with letters from MPs who have local tradesmen crippled by cash flow problems, corner stores forced to close because of card fees and the ever-present little old lady who has no other means to pay her podiatrist and thus remains housebound by corns, a helpless victim of the evil barons of the payments industry. At which point, the PSB will be fired and replaced with a Payments Oversight Group or whatever. You cannot set a strategy that minimises everyone’s private costs so you will have to make trade offs and I would like to know what the principles using to inform the trade off decisions will be. Those principles are what should then guide the strategy.
Take another example. Is it government policy that everyone should have a bank account? On the one hand, the Department of Work and Pensions (DWP) are about to introduce the new Universal Credit benefits system, whereby
claimants will receive just one monthly payment, paid into a bank account in the same way as a monthly salary[From Universal Credit – DWP]
Given that a great many benefit recipients don’t have a bank account and the banks lose money on most of the ones that do, what is the right trade off? As I understand it, the government has been trying to get the British Bankers’ Association (BBA) to agree to push the basic bank account but this is a dead end in my opinion. But why force banks to give money-losing bank accounts to everyone? Why not introduce competition to provide basic payment accounts? Why not stimulate the development of bundled “near bank” services (my favoured approach)? Again, what are the principles for assessing the trade offs? This leads me on to another point, which is to wonder what carrot might the dangled in front of the banks, in particular, to get them to commit to a revamped PC on a long term, properly-funded basis? I’d like to suggest a candidate carrot (no relation to the Camberwell carrot): a commitment to significantly reducing their costs by getting rid of “universal service”, cheques and, in the longer term, cash.
Universal service. Banking isn’t a utility, although payments might be. If banks were spared the nonsense of basic banks accounts, that would save them a ton of money and allow them to redirect resources.
Cheques. It is ridiculous that we now have no plan for getting rid of the most socially expensive payment instrument of all.
Cash. The government should set firm targets to reduce the total social cost of payments and, since cash accounts for half of those costs, the reduction in both cash use and cash in circulation.
In conclusion, let me just reiterate my main point. When the government can tell the payments industry what it wants, then the payments industry should listen. Of course. But the government doesn’t know what it wants and it doesn’t say anywhere in the consultation document how the potentially-conflicting demands of different stakeholders are to be weighted and judged. Should the views of the banks or the retailers being given priority? Will the Treasury have the final say? What if the political input is stupid? Suppose the banks, the police and the poverty lobby want less cash but retailers, scrap metal dealers and the national builder’s union don’t? Who is going to set the balance and what principles will they be following?
If the government wants a PSB that will include a variety of stakeholders and develop a genuine long-term strategy for payments then I’m in favour of it and in favour of giving the PC responsibility for developing industry-wide tactics to implement this strategy. But if they just want to punish the PC and have a PSB simply there to respond to political pressure, then I’m against it. Since I’ll be at HM Treasury tomorrow, speaking at the Government Banking Service seminar, I’ll mention it to them.
These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers