I don’t understand IFLA’s Interlibrary Voucher Scheme

The title might make you presume that I don’t understand what it does. So to avoid any confusion – I do understand the principle. What I don’t understand is how it’s operated. You can read about the scheme here. In short it sells libraries a (laminated) voucher that they can then trade with other libraries for loans or services, which I think it’s fairly obvious could facilitate international transactions.

When you buy the vouchers you pay a 20 euro admin charge and 4% of the purchase price as a charge to IFLA. When somebody returns them they pay a 20 euro admin charge and 4% of the claim price. This amuses me because later you can read that one of the advantages is no bank fees. This is actually pretty expensive – these vouchers cost 40 euro + 8% of the face value, it’s just that that is hidden in two transactions. Technically, I suppose the argument about bank fees is true, but it’s just replaced to a different fee to IFLA instead. Depending on geographic circumstances that payment to IFLA might be considerably more or less than banks would charge though.

I’d be lieing if I said that was the source of my interest in the topic though. You see, I was looking at the IFLA accounts and was interested mainly in the money in IFLA’s bank accounts and reserves. I had heard of their Interlibrary Voucher Scheme and was expecting to find the funds separated out neatly and preferably isolated from the rest. Being familiar with IFLA’s atrocious accounting practices, I’m not sure why I actually thought that now. But regardless, they weren’t reported in the accounts and identifiable.

To fill you in on why I expected this, let me explain my perspective and how this may differ from “vouchers” in general and why, here, I think “vouchers” is a misnomer. It’s not uncommon to buy a voucher from a shop or a website, and give it to somebody as a gift. They can then use that voucher to reclaim goods or services to that amount. We can then consider that voucher to be a promise of goods or services at a future date, to the value of a prior payment. But this voucher scheme is very different. If somebody buys one of these vouchers then that voucher can be traded for goods and services with another party, who can then trade it for goods and services with another party, until somebody has too many of these vouchers and then chooses to return it to IFLA for financial payment. That’s a different kind of promise – whoever has the voucher has the right to cash it in. What is that more regularly called? Money! It’s no coincidence that some bank notes have the words “Promise to pay the bearer…” on it. It also has something in common with cryptocurrency in that it can circumvent international boundaries (and with the “no bank fees” thing IFLA is boasting this). It can also circumvent taxes. Scroll to the bottom of IFLA’s page about vouchers and you’ll read this:

Note: According to Dutch tax authorities, there may be VAT implications for libraries using this scheme. You are therefore advised to seek authoritative advice within your own country.

Let me put it another way. An IFLA “International Interlibrary Voucher Scheme” is not a voucher for any product or service by IFLA, but a financial product offered by IFLA. That would normally come with a whole host of regulations, including the separation of client funds. I don’t understand, personally, why it’s not.

I also suspect that their cautionary note at the end of the page is somewhat understated. Note that you don’t have to be an IFLA member to buy or return these “vouchers” to IFLA. Although, admittedly, it might look somewhat suspicious if a non-library returned them. Then it’s possible to fall foul of more than just VAT regulations but also money laundering regulations and a whole host of others (when I can picture how useful it would be, for example, for drug deals – there’s got to be something wrong!).

But even regardless of any legal questions, I think those funds should be clearly separate, not least because IFLA’s financial practices have not been good and they’re holding client money.

One aspect of it being a financial product is one of the reasons I was looking – it’s linked to financial markets. That means that as an activity it can be problematic for IFLA. In good economies it will do well, in a bad one it will do poorly. Given IFLA operates on memberships, which has the same dynamic, that has the potential to cause problems. Let me explain by going through the process.

You buy some vouchers. For the mere act of buying them you hand over 20 euros to IFLA. It seems unlikely to me that putting a line in the accounts software and packing up a few vouchers costs that, but let’s say at this point it’s roughly even.

You additionally pay 4% of the vouchers for some unspecified reason. This is the first income for IFLA if we assume that the 20 euro admin fee is fair. Then for every 100 euro, IFLA is keeping 4 euros.

From that 100 euro, the remaining 96 euro is on account. Just IFLA never specify WHERE. Clearly they keep it in a bank account though. In good years this can return interest. Recently, in bad years, that fell into negative interest which caused some very strange lines in IFLA’s accounts. It’s a good business model in good times, but can cause cashflow problems in bad times.

That money will (mostly) eventually be reclaimed. When it is, IFLA will charge the 20 euro admin fee again. Which I don’t understand but let’s assume it’s fair again. And another 4%. Then, for a nominal value of 100 euros, people have paid 8 euros in additional charges (it’s almost like it was a financial product and they were charging management fees!).

A number of these vouchers will disappear, for example, due to loss. For these IFLA will always receive the profits or losses of interest but never the final 4%. It’s also impossible for IFLA, or anyone, to know precisely how many of these there are. Because they’re more like money, then much like governments, IFLA is infinitely tied into the profits or losses of holding those deposits. Note here another key thing that makes this “money” and not “vouchers”, normally a voucher has an expiry and money does not.

The incentive to cash in vouchers is ridiculously small as there is that instant 4% hit in value. So we can presume that vouchers remain in circulation for a long period of time with IFLA committed to the whims of the economy for all that time. That’s alright if things look good, but terrible if they look bad.

It is arguable, I suppose that that huge 4% upfront cut and potential 4% later cut could offset losses in bad economies. But at a later date. That’s not much use if IFLA needed cashflow in tough times.

I also worry that these 4%’s are just arbitrary. This is a financial product that’s not managed properly financially. Let me explain this by way of an extreme example. In 2021 IFLA’s interest and other financial expenses jumped up. This is likely because they were paying negative interest on their bank holdings – something around 0.5%. Let’s assume that IFLA didn’t charge either of those 4% fees and I’m a library who also has that problem that I was paying 0.5% on my bank account. An obvious answer would then be to buy lots and lots of IFLA vouchers as I’d pay 0% on those (leaving IFLA to pay the 0.5%). I’m 0.5% better off on that money. When the bank gives me interest again (or it goes to 0%), I could cash them back in. It’s a silly example and obviously there are fees. But I put it this way to show it also the other way round. IFLA don’t pay fees. They need the opposite – to minimise losses they should ensure they’re holding as little money as possible. In other words, encourage vouchers to be cashed in. They should’ve dropped that 4% cashing in charge to encourage money to come out of that holding – there’s no long term benefit in sight for them. Ironically, that’s pretty likely a win-win situation for both sides with IFLA reducing it’s exposure and risk and users of the scheme getting a better deal on something that seems over the top expensive.

There’s a legacy aspect here too, I think. As I said earlier, it seems like an old version of a cryptocurrency. We’ve had it for a long time, it has a purpose, so nobody has thought about it and made the comparison. I don’t think the library field is ready to accept a cryptocurrency, but maybe one day there will be IFLAcoin! But one thing we learnt about cryptocurrencies is they go wrong very very badly if they’re not properly managed and nobody has an idea where the money is. I’m not sure it’s any different just because it’s named “voucher”. Where’s the money and how’s it managed?