Why Scotland needs a Scottish Payment Initiation Service

In the first of a two-part series, financial IT systems expert Peter Ryan writes for Common Weal on his latest policy paper, Paying Our Way‘. which advocates for the creation of a publicly owned payments system to support the Scottish economy.

Every time you withdraw money from a cash point, every time you pay in a shop by debit card or credit card, every time you pay something into someone’s crowd funding page, someone takes a fee for processing the payment. When you withdraw money from a “free” ATM your bank gets charged by the ATM company. If the ATM makes a profit it stays open, if not it gets closed, big business not the local community decides.

This is also impacting our high street. When you pay by credit or debit card the card company charges a percentage of the payment as an interchange fee. Of course, for bigger retailers with larger volumes this percentage is around 0.25% whereas for small independent retailers this can be 2, 3 or even 5%, so distorting the retail market in favour of large supermarket chains and multi-national online retailers.

Even payments for taxes or fines to the Scottish government or local council attract a fee. So, when opportunities to our children are being cut it is good to know that the financial services industry is still making a profit from our taxes.

In 2017 the UK government introduced the Payment Services Regulation to introduce competition in the financial services market, because competition always helps right? This regulation forces banks to open up their systems to allow outside third parties to initiate payments in the same way that Visa or Mastercard do through your debit card, without paying the fees. Many in the financial services industry feel this regulation will enable technology giants like Google, Apple, Facebook and Amazon to move into banking to increase their profits further.

However, there is an alternative. 

In the paper “Paying Our Way” published by Common Weal we describe how the Scottish Government could use the Payment Services Regulation to set-up their own Scottish Payment Initiation Service as an alternative to paying by Visa, Mastercard or PayPal. This can then be extended to local councils to ensure that the full value of tax payments stay in Scotland rather than increasing the salaries of financial services millionaires. 

Once this has been established for government and local council payments the Scottish government can look to offer this service to retailers throughout Scotland. If this was done on the basis of a flat percentage fee it would fix the distorted market where the largest supermarkets and multi-national online retailers pay a significantly lower fee to process payments than do small independent retailers thereby helping our small independent retailers to compete on a level playing field. 

Similarly, we can use this payment service to offer a cash withdrawal service through shops, cafes and pubs where the local business owner gets paid to process the cash withdrawal rather than the ATM company. By offering a not for profit cash withdrawal service the Scottish government can ensure cash continues to be available in all our communities. Something to think about next time you have trudged 3 miles to find the nearest cashpoint.

Come back tomorrow for the second part in which Peter shows how the Scottish Government could takes steps now, well ahead of independence, to make launching a new currency easier and faster as well as explaining how the SPIS could aid in this process.

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