It is an honour to be here. I am grateful to the committee for putting time aside to discuss what National Irish Bank believes to be an important issue. I am chief economist with National Irish Bank and have held that position for approximately two years. I am accompanied by Mr. Seamus Mulconry of Edelman.
National Irish Bank has been part of the Danske Bank Group since it was acquired from National Australia Group in March 2005. Danske is the largest bank in Denmark and one of the leading financial institutions in northern Europe. The group employs 24,000 people worldwide, including 3,000 in Ireland, North and South. The link with Danske Bank has transformed us as a bank, particularly in terms of our technology, which is one of the reasons we are here today.
I want to talk about the issue of paperless banking and how we are frustrated by current Irish legislation, which prevents this from becoming a reality. By paperless banking, I mean a movement away from a high volume of paper documentation and switching some of this to an electronic format. It is not about less consumer communication, it is just about allowing banks and consumers to communicate in a different format if they so wish. For example, it is much cheaper, faster, more environmentally friendly and more secure to send bank statements by e-mail rather than by post. I presume all members of the joint committee have bank accounts. The fact that they get bank statements by post is not because the bank necessarily wants to use the postal system, but because the current legislation requires it.
In a typical year a customer could get a huge amount of documentation. Opening a joint account pack would involve around 83 pages, including an introduction letter and various copies of the customer agreement, as well as information on how we use personal data, fees, charges and distance marketing information. We send 12 credit card statements per year, amounting to about 36 pages depending on the size of the credit card bill. Four quarterly account statements are also issued, amounting to 16 pages. Even a relatively small personal loan — for example, for a holiday — will typically come to in excess of 60 pages, including the facility letter and follow-up documentation. All of this must be sent on paper, based on current Irish legislation. This comes to approximately 200 pages, not accounting for any mortgage the customer may have or any other servicing we might have. It is an example of the volume of paperwork we might send to a consumer in a typical year.
National Irish Bank is no better or worse than any other bank in this regard. All of us are forced to do the same according to the legislation. It is not something that we necessarily want to do.
There are two problems in the legislation. The first stems from section 45 of the Consumer Credit Act, which requires written communications relating to credit agreements to be sent in paper format only. At the time the legislation was drafted, it was not a conscious decision to do this; it was simply the way the legislation was written. When this was being discussed, the problem was that banks were sending letters to consumers with the bank logo on the envelope. That caused concern that somebody could see it was a letter from a bank and therefore somebody would take it. Those drafting the legislation insisted that all written communication must be in an unmarked, sealed envelope. Unfortunately, however, because of the way the legislation was drafted, that means that any such communication must now be sent in an unmarked, sealed envelope. Clearly, electronic mail is not sent in an unmarked, sealed envelope and neither are faxes. In an effort to make communications between a bank and its customers safer and more secure, we have ended up with a perverse situation whereby we have probably done the opposite, by an accident of legislative drafting.
Breach of this provision is a criminal offence. The effect of section 45 is to require paper-based correspondence, even where the borrower has expressly indicated that they would prefer to receive secure electronic correspondence. This is not only a problem with e-mail. On a strict interpretation, a financial institution may breach section 45 if it complies with a customer's request to send a statement by fax.
The second problem stems from the interaction of the Electronic Commerce Act 2000 and the Consumer Credit Act 1995, which circumscribe the use of electronic signatures in the provision of consumer credit agreements. When we talk about electronic signatures, it is usually a more secure version of a user-name and a password — not a signature per se. Anybody who uses electronic banking will know that there is some additional security, over and above user-name and password. Essentially, however, that is what an electronic signature means.
In other countries, consumer legislation has been updated to reflect the benefits of electronic commerce. From being a leader in this area with the signing of an e-commerce treaty by former US President, Bill Clinton, and the former Taoiseach, Deputy Bertie Ahern, in 1998, Ireland is now a laggard. In the UK, electronic signatures are permissible under existing law for credit agreements.
Danske Bank, which trades in Ireland as National Irish Bank, is investing heavily within the Danske Bank Group to develop its electronic offering and aims to become a world leader in this respect. We have already invested €150 million on both sides of the Border to transform the technology of National Irish Bank and Northern Bank to Scandinavian banking levels.
In Danske Bank a project has been initiated that will lead to the automation of a large number of processes, implying that most of the documents currently available in hard copy will be replaced by electronic documents to be signed by the customers via a digital signature. Most of the group's bank customers will be electronic in the space of a year or two. Unfortunately, within the 11 countries where Danske Bank operates, Ireland is the only country that does not allow electronic signatures for credit contracts.
Electronic banking entails significant streamlining of the entire bank. The savings obtained will benefit customers both in terms of cheaper products and faster processing, using technology which has now become an integral part of customers' daily lives. The customer has exactly the same protection with electronic signatures as with traditional ones, such as the disclosure of information and a cooling-off period. That does not change.
The environmental benefits of e-banking are immense. Transferring all customer agreements from paper to electronic form will allow Danske Bank to offer more efficient services and reduce its use of natural resources. Danske Bank reduced paper use last year by more than 500 tonnes through the use of electronic banking.
Another problem more specific to Ireland is our pay-on-time culture. Those countries with an intensive use of electronic transfers, generally speaking, have a much better pay-on-time culture, which is a big issue for small and medium-sized enterprises. It might be a spin-off benefit of a greater use of electronic banking.
In terms of a solution, the Department of Finance is currently engaged in a process of consultation concerning the EU directive on credit agreements for consumers, which must be transposed before next summer. National Irish Bank believes this represents an important opportunity to modernise Irish legislation to take account of the rapid technology improvements seen in banking over the past two decades. If we miss this opportunity, it could take another three or four years before this issue is revisited.
There is likely be a continuing difficulty with the discharge of on-line banking in Ireland, in the absence of specific confirmation by law that: (i) where a consumer so desires, credit agreements may be concluded electronically; and (ii) where certain material must be provided to a customer, it is permissible to provide such information in an electronic format. Both of these provisions, as they currently stand, are retarding innovation in Irish banking, adding unnecessarily to the environmental impact of banking, and adding costs and delay for bank customers. The directive separates mortgages and contracts under €75,000. What we are specifically seeking relates only to loans under €75,000.
There is a compelling case that modernisation of the legislation is required. While the current focus of policy-makers and this committee is, rightly, on the stabilisation of the economic crisis, it is important that we take every opportunity to reform outdated legislation to promote efficiency in all areas of enterprise. Through the use of technology being developed by Danske Bank, we can bring this cutting-edge technology and innovation to the Irish market, but we are frustrated in doing so by the current legislation.