Ardo Hansson: Availability of banking services in Estonia
Answer by Mr Ardo Hansson, Governor of the Bank of Estonia (Eesti Pank), before the
Riigikogu (the unicameral Parliament of Estonia), Tallinn, 22 September 2014.
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Interpellations raised by members of the Riigikogu concerning the accessibility of
banking services
1. Why has Eesti Pank not set minimum requirements for the provision of cash and
payment services in a decree alongside the technical requirements, in the context of
the Emergency Act?
2. What solutions has Eesti Pank discussed for ensuring the equal accessibility of cash
and payment services across Estonia?
The principal position of Eesti Pank
Banking services are important and they need to be accessible to people and
companies across Estonia. It is reasonable for services to be provided efficiently and
flexibly.
I understand that people are worried about the accessibility of banking services
across Estonia. Eesti Pank does not prefer any one means of payment over any other.
Cash is an official means of payment and so Eesti Pank believes that it should be
available through flexible solutions everywhere in Estonia.
Eesti Pank works every day to supply Estonian companies and people with cash. We
provide a flexible cash service to the commercial banks, giving cash out and taking it in every
working day, and in exceptional circumstances we can be even more flexible. Our aim in this
is to make sure that cash can circulate smoothly and without interruption and we also
manage the state's cash reserves and test the quality of the cash in Estonia every day.
Tomorrow Eesti Pank will release ten-euro notes of the second series into circulation, and
these are more secure and longer-lasting than the notes of the first series, with better
security features. As Governor of Eesti Pank I can confirm that cash is not going
anywhere. I personally like to use cash and I am proud of the quality of the euro cash
used in Estonia.
Access to cash is important, and it is a complicated issue that doesn't have a quick and easy
solution. This is why it needs to be discussed, and Eesti Pank is very pleased that we could
be part of the working group set up by Minister of Economic Affairs and Infrastructure Urve
Palo to look for solutions.
Eesti Pank believes that the issue of access to banking services across Estonia should not
be handled under the Emergency Act, but this does not mean that it should be ignored. I will
now answer questions about the Emergency Act first, and then questions about access to
banking services.
Coming to the first question of the interpellation, as Governor of Eesti Pank I have set
minimum requirements for the provision of cash and payment services in case of emergency.
The Decree requires that the four largest banks in Estonia restore their normal
services to 70% of their normal operational level within 12 hours in the event of an
emergency. How the banks restore their services is up to them, but they must describe their
recovery plan to Eesti Pank, who then passes the information on to the Ministry of the
Interior.
As I understand it, the purpose of the Emergency Act is to see that vital services are
restored in the event of an emergency. It is not intended to cover cases where some
people do not have day to day access to some important services. Neither is it intended
for the purpose of guiding trends in urbanisation and marginalisation. That is an issue for
regional policy, not one that requires solving under emergency powers.
Regional policy lies within the domain of the Riigikogu, the government and local
authorities. That said, cash circulation is an issue of importance for Eesti Pank, and
we wish to be fully engaged in setting policy for cash circulation. This brings me on to
the second question in the interpellation, and the position of Eesti Pank on the accessibility of
cash and payment services across Estonia.
Eesti Pank's goals for cash are to supply the commercial banks with sufficient cash
resources and to ensure the quality of the cash. The commercial banks distribute the
cash among the people and companies of Estonia, in the same way that it is done
around the world. Eesti Pank is not aware of any country anywhere where the central bank
is responsible for operating the cash network serving people and companies directly. It would
require massive investment and fixed costs for Eesti Pank and the outcome would most likely
be unwieldy and unclear for the public in their use of money. The commercial banks are
much better able to do this and do it more efficiently. However, Eesti Pank is responsible for
managing cash circulation, and we consider it important to engage in looking for ways of
making sure services can be accessed across Estonia.
Access to banking services is a problem globally, this is not an issue that is unique to
Estonia. A parliamentary commission in Australia looked into the matter ten years ago, and
similar questions have been discussed in Canada and Sweden and other countries.
The trend is for the number of bank branch offices and cash machines to be cut, and
this is happening everywhere in the world in response to advances in technology,
trends in demography and changes in consumer preferences. To some degree this is a
natural evolution against which it would be pointless to stand. Equally it creates problems
of access to banking services, and such problems need to be resolved. Problems may
arise particularly for the elderly or for people with impaired mobility, but they may also arise
for small businesses or for those who live in the countryside or who do not use the internet.
Services should not be provided exclusively to people who use the internet regularly, or only
those who live in Tallinn or Tartu.
The advances in technology have led electronic payments and internet banking to become
very popular, and this has reduced the need for cash and the need for people to actually go
into a bank branch. This has been driven by both supply and demand. Surveys in Estonia
show that bank cards are ever more popular as a means of payment, while internet
banking is increasingly used for banking transactions, and this trend shows no sign of
abating. This means that preferences of consumers themselves are changing, and bank
customers need less and less to visit their local bank or to use cash. This is an inevitable
consequence of technological progress, and it must be borne in mind throughout this debate.
Demographic changes specifically means urbanisation, and urbanisation is happening here
in Estonia too, amplifying the effect of developments in technology. It is inevitable that the
decline in customer numbers will be reflected in falling demand, and that falling demand will
lead to reduced supply. This applies equally to all forms of service provision, not just banking
services. Swedbank has released detailed data to explain why they are closing branches,
and they show that the branches being closed were used by only 13% of the clients
registered there prior to closure, and that the number of cash transactions in those branches
has halved in five years.
The larger commercial banks in Estonia now provide services more efficiently, and one
consequence has been the closure of branches and cash machines in rural areas. A
comparison with Sweden can be useful here, as that is where the parent banks of our largest
banks are based. At the end of 2013 there were 1655 bank branches in Sweden, and a
little over half of them were cash-free, which is more than twice the proportion in
Estonia, where only 23% are cash-free.
At the start of June I wrote to the leaders of the local government in Läänemaa that Eesti
Pank finds that having a single network of cash machines for all the banks would not
improve access to banking services in rural areas. This is because it would not be
possible for any commercial bank to differentiate its services from those of other banks by
offering higher quality if there were a single network. Furthermore, a single network dilutes
the responsibility of each individual bank, making it harder for clients or the public to affect
the decisions taken by the banks. Cost efficiency will probably become even more important,
meaning there are no grounds to expect that access to cash services in rural areas will
improve.
I do not conclude that the commercial banks ought to maintain an unnecessarily large
network of branch offices and cash machines. There is no real difference here whether such
a network is supported by the clients of the banks or by the Estonian taxpayer, in any case it
is an unreasonably expensive solution.
That said, the commercial banks do need to explain their vision for access to banking
services more clearly than they have done so far, and they should themselves arrive at a
solution that is acceptable to society.
In short, the position of Eesti Pank is that the guiding principle for the provision of
cash and banking services across Estonia is that it should make economic sense. At
the same time, every person in Estonia must have access to banking services, and so
we must find alternative flexible solutions in Estonia.
The next question is how those flexible solutions should be supplied. Although this topic is
under discussion in the Minister's working group, I can suggest some options drawn from
the experience of other countries, which the banks and the government may want to
consider during their discussions on the accessibility of banking services:
• A cashback system in shops - when paying for their food in shops by card,
people can add some extra to the total amount paid and then get that in cash from
the shop. For this to work, the commercial banks need to allow shopkeepers to offer
this service without charging them any percentage of the cash that is withdrawn.
The banks would gain by having a more efficient cash network, shopkeepers would
gain additional clients in their shops, and those clients would benefit by being able to
withdraw cash more conveniently and securely.
• State service points - offices providing a wide range of services from the state, the
banks and other enterprises, all in one place. This would allow people in rural areas
to make payments at regular intervals, and get cash, medicines, letters and
newspapers and other services. Cash and medicines would probably need to be
ordered in advance, but this would bring the services closer to people. This would
make more sense for the state and for companies than maintaining separate offices,
each dedicated to only one service.
• A state tender for services - the state can use a joint tender run by the central
government, a state company or local government for provision of banking services
in rural areas. The Swedish post and telecoms operator PTS used this approach by
running a state tender in 2008 at the request of the government to supply 15 local
authorities and 73 districts around the country with cash.
• Requirements, or best practice guidelines that are generally adhered to, for
the closure of bank branches, especially in rural areas - Canada has
requirements for closing local bank branches and the banking association in
Australia has set out the best practice for closing branches there.
• Joint work by local governments and banks to train people - this is where
banks offer regular training in the use of internet banks in the style of the Vaata
Maailma project that ran earlier. Local authorities help in deciding who needs
training and bring together everyone interested, and the banks provide the people,
computers and knowledge for the courses.
Joint work by local governments and banks to provide cash - the commercial
•
banks help local authorities provide cash and payment services to people who have
impaired mobility or difficulty using a computer. This could be particularly useful in
helping elderly people or people with impaired mobility or vision. Local authorities
can establish who in their area has such difficulties and then they can provide help
by delivering cash to homes or help with paying electricity bills and so on.
The experiences of other countries can't simply be copied straight across here, but it is worth
discussing them to see whether we could use them in some way to provide cash and
payment services to people all across Estonia. I am certain that the commercial banks in
particular, though also the state, should be able to provide better solutions than has
been the case so far, and I would invite the banks, state institutions and local authorities to
take an active role in the discussions about access to banking services. Eesti Pank is of
course ready to join the discussion and I do not believe that any solution should be ruled out.
Thank you for your attention and I am quite happy to answer any questions you may have.