I welcome the opportunity to address the Seanad on recent concerns about a mailshot that issued from the Department of Social Protection and quality customer service. My ministerial role is to identify the needs of the customer and tailor our services in meeting them. It would not be appropriate to be drawn into a debate on whether cash or EFT, electronic funds transfer, payments are better. That is a matter for customers to decide. The question for the Department of Social Protection is what works best for welfare clients and how we can deliver, while also serving the taxpayer and the national economy as a whole.
I will provide the backdrop to the recent trial mailshot.
A few weeks ago a small number of recipients of State contributory and non-contributory pensions received letters from the Department. They had been selected at random from our database and consisted of men and women who were single and married, living in rural and urban areas and were older and younger pensioners across the country. It was a very small trial which was aimed at determining the best means of communicating with people about payment options. These customers were asked to consider whether they would like to receive their payment directly into an account. The account could be in a bank, a building society, a certain credit union account or An Post savings account. It was entirely up to the customer to switch if it suited him or her. Customer engagement was entirely voluntary. There would be no negative consequences for customers who chose not to respond or engage. Customers could ignore the letter and continue to be paid in the current manner if they so wished. However, if they decided to take up this option, the Department would facilitate their request.
Let me put the matter in context: the majority of clients who are claiming State pension for the first time choose to be paid directly into an account. The majority of existing pensioners are already receiving their welfare payment by direct lodgement. For those who receive the payment in cash, they are free to continue so doing.
During the years many welfare clients have been receiving their payments in cash as a habit, despite the fact that they already have accounts in financial institutions through which they could receive other electronic lodgements or transact their financial business. These customers may now want to consider direct lodgement as an option for the benefits - there are benefits - it can offer. It might be useful to remind ourselves of them. Direct lodgement can provide 24 hour access to online and telephone banking, access to point of sale in a multiplicity of retail outlets in rural and urban areas, for the option of cash-back as part of a purchase and the capacity to draw cash through a network of more than 3,000 ATM machines throughout the country.
Cash payments limit the options for our clients to make onward transactions. That is the reality. When one has cash, one can only make payments in cash. If one has an account, one can avail of options in respect of direct debits, standing orders, purchasing online, drawing cash from an ATM and getting cash back at a point of sale. Not having an account limits the scope for welfare clients to avail of cheaper prices online and limits their financial inclusion. Moreover, electronic payments can mean cheaper utility bills for our clients, including their routine gas and electricity bills. This point was most recently displayed in a survey undertaken and published in the Irish Independent . Not holding cash can also provide improved personal security by not holding large amounts of cash on their person or in their house. Notwithstanding these benefits, our clients are free to continue to avail of their existing payment arrangements such that it suits their personal circumstances and needs. In this context, we must ensure we continually provide a high quality service for our clients and inform them of the various payment options available to them.
I am not here as an advocate for the banks, credit unions or any financial body, including An Post. My focus is primarily on serving our customers. We need to be aware that 60% of payments to clients in receipt of the State pension are currently paid directly into an account in a financial institution. Every year we have clients contacting us to revise their payments arrangements. The aim of the current intervention is to tap into these potential changes among our clients to ask them to consider whether they want to be paid electronically.
I turn to the very important role of the post office in our society and around the country. We all know about its importance, not only in respect of social welfare payments but also in the extent to which it is now a one stop shop where people can pay bills, use the passport application facility, pay local property tax or Garda fines and carry out a range of banking and other financial services. Successive Governments - this one most notably - have consistently stated their commitment to maintaining the post office network as set out in their programmes for Government. It is important to remember that not only do financial transactions take place but there is also social interaction and social awareness in providing the service. It is a wide ranging service that is not always connected with a financial transaction but of the postmaster knowing whether Mary or John has been in to collect his or her money. There is a large social element.
It is Government policy that An Post remain a strong and viable company which will be in a position to provide a high quality postal service and maintain a nationwide customer focused network of post offices in the community. An Post has the largest unified retail presence in the country and Ireland has one of the most extensive post office networks per head of population in the EU 27. The latest figures show that there are 1,139 active company and contractor-operated post offices and a further 131 postal agents. The commitment of the Government to the post office network becomes very apparent when we look at the trends in post office closures. In the past four years only 24 An Post operated and contractor operated post offices closed. By comparison, in the previous four years the figure was 198. The Government’s commitment to the post office network is manifestly obvious.
The Department’s support for An Post is equally apparent. It is the only Department with a contract for services with a total value of over €62 million this year between the contract for welfare payments and costs for postage services. More than €50 million of this figure relates to the contract for cash payment services for welfare customers this year. In this regard, the strong working relationship between An Post and the Department is undeniable.
For all of this, we each have respective business agendas to follow. In issuing some 83 million payments annually the Department of Social Protection is a key player in the payment services sector in Ireland. The manner in which payments are made to customers impacts on the State, taxpayers and customers. As with all of its activities, the Department is compelled to look at any scope for efficiencies in how it delivers its services to customers. This includes examining the costs associated with delivering payments to customers to ensure the service reflects customer needs and wants and provides value for all of its stakeholders, as well as for the economy at large.
Last year more than €8.5 billion was paid out in cash to welfare clients at post offices. This accounted for 40.5 million transactions and cost the Department just under €62 million, including internal processing costs. I need to make the comparison with direct lodgements. Some 38 million payments were issued directly into accounts in financial institutions by electronic funds transfer, EFT, at a fraction of the cost. These 38 million EFT payments cost the Department just under €10 million. In short, cash payments are an inherently more expensive means of paying clients. It costs approximately six times more to issue a payment in cash than it does to lodge it directly into a customer account.
Regardless of the level of support from the Government to An Post, the trend towards electronic payments in society is undeniable. It creates a challenge for the current business model of An Post. The economic downturn of recent years provided some buoyancy for post offices, with high levels of unemployed customers receiving weekly welfare payments at their local post office. When we came into government, the unemployment level was 15.1%, whereas yesterday it was 10%. Naturally, this has an impact on the level of business at An Post as people collect their entitlements at a local post office. However, the reduction in unemployment has created challenges.
I understand the network is also well positioned to become a front office provider of choice for the Government and the financial services sector.
These services will involve electronic transactions in addition to more traditional over-the-counter transactions. In this context, I am pleased that An Post is planning for the future and has tendered for the provision of a new transaction account for customers. This will be significant, not only for An Post but also very much for the customer base. The account will allow our customers to gain access to much cheaper utility services. The new service will afford alternative banking opportunities to Departments, customers and many others.
I understand Ulster Bank announced a new partnership with An Post. This will allow personal and business customers to carry out certain transactions through An Post's network. Members may be aware that my colleague, the Minister for Communications, Energy and Natural Resources, Deputy Alex White, formally launched the post office network business development group in February under the independent chairmanship of Mr. Bobby Kerr, to whom I have spoken only recently. I anxiously await the group's report which could be very significant. I understand the group will engage with a variety of stakeholders, including those in the public sector, commercial bodies, post office customers and other interested parties. The group's work will be of strategic importance to the future of the post office network and I look forward to seeing the report which I am informed will be available later this year.
To allay the concerns of Senators, the Department has no plans to issue further letters at this stage. However, it is not proposed to limit the freedom of the clients concerned to amend their payment arrangements if they so wish, be it on foot of the trial letters issued or in other circumstances. The Department will continue to offer its clients in receipt of State pensions the choice of receiving their payments at the post office or directly into their accounts. I am happy to reassure Members that assisted payment options will continue to remain in place in order to reflect the different circumstances and needs of our clients, as has always been the case, and in the interests of serving our customers in the best way.
I very much look forward to listening to the contributions of Senators. An Post certainly is facing a very challenging period. We all need to co-operate and work together to try to ensure post offices will continue to operate around the country. I refer not only to the commercial element of the business, as conducted by postmasters, but also to the social element. The post office has a very important social function, not only in urban areas.
I thank Senators for their attention. I look forward to the debate and the opportunity to respond later.
