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In Praise of Cheques - A paper back-up for digital payments

Having seen the recent press headlines on delays in cheque imaging, I began to think about the role that cheques play in the UK payments market. Cheques have caused their fair share of controversy over the years. The failure in 2011 to manage the decline of cheques is often cited as one of the reasons for the removal of the UK Payments Council, and introduction of the UK Payment Services RegulatorWe spend much of our lives in the payments business thinking about the future of payments. A future where payments are increasingly invisible and instant. A future that is likely to be dominated by real-time transfers and single tap payments. Is there really still a place in our digital economy for the traditional cheque?

A question often asked at conferences is: When did you last write a cheque? Personally, I struggle to to remember where we actually keep the cheque books in our family home.  The last cheque I received is still in my wallet, some 4 month having received it from an ageing family member. Cheques are not a relevant part of my day to day life.

However testing frequency of use is only one way of looking at the utility of a payments product. What if we were to ask: If you had to pay a builder £200 and your banking app was not working, how would you do it? Many of us know from direct personal experience that banks' networks are not always available when needed. Until now this has typically been caused by internal mis-adventure, but what would happen if there were a co-ordinated terrorist event which derailed our digital payments infrastructure for a longer period? Would we look at the humble cheque in the same light when trying pay for dinner if it is the only way to pay?

I know as much as anyone who has worked in the payments industry for the past 15 years that the chances of the POS and ATM network collapsing at the same moment are vanishingly small. However no-one is infallible, and there is always a danger of hubris. As we rapidly move payment processing into the cloud and we become increasingly reliant on our digital wallets being available 24/7, there are always benefits in having a paper back-up.

Many European countries  (such as Germany or Sweden) have radically reduced their consumer cheque usage (see diagram). We still have ours, so what value do they still deliver? It is the consumer equivalent of the zip-zap machines which some merchants still have in their store cabinets. Pretty much everyone in the UK still has a cheque book somewhere. Most businesses still know how to accept them, and consider them as valid forms of tender (although this is declining all the time). They are useful for both high and low value transactions, and can be used by both old and young.

Although there have been significant declines in use, there are still plenty of cheques circulating in the UK. According to the European Central Bank each UK adult made 12 cheque payments in 2014. Many schools still rely on them, as do piano teachers everywhere, and membership organistions of all types find them significantly easier to track and process than credit transfers. The un-managed decline of cheque is worrisome as many of the benefits of ubiquity will gradually be eroded, irreparably damaging the utility of this important back-up tool. If cheque imaging helps keep this paper back-up around for a bit longer, so much the better.

I would not miss cheques if they disappeared tomorrow. However, they still provide a back-up in exceptional circumstances that we should not dismiss out of hand. We have not yet seen any attacks on our payments infrastructure, but this is just a matter of time. When that happens I will derive a bit of comfort that I still have a cheque book. It may just take me a little while to find it...

 

Comments: (4)

James Piggot
James Piggot - Finastra - London 27 April, 2016, 10:00Be the first to give this comment the thumbs up 0 likes

Cheques are annoying as receiving them (until/if cheque imaging ever arrives at my bank) means finding a nearby branch in the ever decreasing branch network while writing cheques means there is a mysterious entry in my statement such as 002767 with no clues as to the recipient. There are options for all those tradespeople and yoga teachers and builders out there who still insist in being paid by cheque but it involves them giving out some kind of information such as their bank account details or their email address or mobile phone number and they are often reluctant to do this. 

A Finextra member
A Finextra member 27 April, 2016, 16:56Be the first to give this comment the thumbs up 0 likes

The other thing with cheques is they can be used to do a high value payment with less friction in some circumstances.  If you're the sort of customer who goes to open an ISA in a branch and wants to then deposit the full £15k in - what's the easiest thing to do?

For sure, if you have it with you, it's to write a cheque for £15k  rather than try to add the ISA as a new payee on your online banking when you get home or maybe on the app if you bank allows it - or go to your own bank over the street and try to carry £15k of cash (which they won't give you) over the road..

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 April, 2016, 18:56Be the first to give this comment the thumbs up 0 likes

Surprisingly, on one occasion, cheque proved to be the payment method of last resort even for a (USA-to-India) cross-border transaction. PayPal didn't work - because PayPal rarely works. Wire transfer didn't work - the customer's community bank didn't know what SWIFT BIC code meant. Western Union and Xoom didn't work - they only support payments to individuals, not a business. Finally, my customer sent a cheque via FedEx, it reached me in 2 days, I deposited it into my bank account as I'd deposit any other domestic INR cheque. While it took me 30+ days to get credit, I had to do nothing during that period. The whole process was totally frictionless. Only cash could have been more frictionless if it was feasible, which it wasn't. And, let's not even get started on BitCoin - I had possibly the worst experience with that recently. 

Graham Seel
Graham Seel - BankTech Consulting - Concord 28 April, 2016, 23:08Be the first to give this comment the thumbs up 0 likes

The demise of checks in the few countries still heavily using them (US, Canada, UK, France, India and a couple of others) is going to be slow until there are easy, convenient and cost-effective mechanisms for merchant payments (B2C, C2B, B2B for small businesses). This is where most of the usage is today. The "real-time" payment initiatives (including ISO 20022 adoption to overcome limitations in details of payment) will drive eventual eliminiation in each of these countries, along with improving small business mobile banking capabilities. Until then, yes cheques provide a backup but with great inconvenience, especially where image adoption hasn't taken place yet (UK and Canada). I don't see cheques remaining as a backup to electronic payments though - as soon as their primary use is pretty much gone, they will be regulated out of existence (as in the Netherlands).