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Innovation, Magic, and Image-Based Cheque Clearing in the UK

Good things come to those who wait, and the good news for those who have been waiting for the UK to roll out its image-based cheque clearing system is that the end - or more appropriately the beginning - is finally in sight.

The details can be found in this helpful article that outlines the UK's intention to roll out the system this October. For those unaware of the back-and-forth of this topic, you've missed an interesting example of how societies move toward financial revolutions. The answer, it turns out, is "slower than you might expect".

The effort initially started with an announcement that the UK would abolish cheques altogether, leading to a public backlash reminiscient of the barricade scenes in Les Misérables. The political and financial establishments quickly pivoted and instead set their sights upon something more relevant to real people: positioning the existing process of cheque deposit and settlement for the next several years.

The result is a clearing system where banks can exchange images rather than the physical items themselves as they settle.  More importantly, this opens the door for the UK to leverage many of the learnings from the U.S., where mobile deposit is now used by over 5,500 banks and 80 million consumers.

I have been involved in the payment and interactive financial technology markets for a while - certainly since before the time when the term "fintech" was preceded by a hashtag. One insight I've developed over the years is the power of "innovation that matters" - a phrase that finds it's way into a number of corporate mission statements.

The mobile payments market is growing, and will continue to do so. But I have noticed that the movement from physical payments (cheques, cash) to a purely digital construct is something that can excite entreprenuers, trade press, and venture capitalists more than it excites the non-fintech public. 

But don't take my word for it. Look at the data from the U.S., which is much more centered around cheques than is the UK. This past December, the U.S. Federal Reserve issued a payment study in which they identified over 17 billion cheque payments in 2015.  Additionally, the previous rate of YOY decline had slowed considerably to less than 5%. Additionally, cheques continue to be the most widely used payment method for businesses.

I often hear U.S. consumers describe the experience of mobile cheque deposit as "magical", which is a word you don't often hear from banking customers. We have seen how the "magic" of mobile cheque deposit isn't simply the depth and quality of the underlying science around image recognition and perfection (although that is vital); it is also about having a powerful auto-capture capability on the device to help consumers take great pictures.

To better understand users' experiences we engaged in social media outreach to ask people why they loved depositing cheques with their mobile phones.  The responses were powerful; here are a few of them:

  • "I'm a 62-year-old woman who babysits.  My jobs usually have me getting off after dark and I worry about visiting an ATM.  Mobile deposits keep me safe."
  • "Three reasons - they are 9, 7, and 3 years old.  Avoiding car-seats and boosters is SO WORTH it!"
  • "I love using mobile deposit! It's so easy and good for the environment!"
  • "I work full time and am also fighting breast cancer (which is basically 2 full-time jobs!)...if I couldn't use mobile check deposit, I have no idea how I'd ever get money into my account!"
  • "I use mobile deposit because it's amazing! I absolutely love the convenience, and since the accident that left my daughter paralyzed, it's not easy to get to the bank as much as I'd like. So mobile deposit is a lifesaver! Thanks so much! I don't know what I'd do without it some days!"

This is what "innovation that matters" means to me. While I've watched some of my fintech colleagues painfully contort themselves at the POS to pay for a bagel with their Apple Watch, real people with busy schedules and mobile phones are receiving real cheques. It is powerful and rewarding for an empowering technology to meet these people where they live and make a real impact on their lives. 

I hope the UK banks will take a page from their friends in the U.S. and implement their solutions with "magic" in mind.

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Comments: (6)

David Godfrey
David Godfrey - ACI Worldwide - Watford 27 March, 2017, 04:30Be the first to give this comment the thumbs up 0 likes

Did the UK really ever announce that cheques were to be abolished as suggested? The payments council (Payments UK as it is now) voted amongst its members to set a date of 2018 as a target for when cheques might be no longer needed, but that is not a legislative body - I think cheques are enshrined in UK law as a method of payment in acts dating back to the 19th century.

Was any real analysis of the business case and costs for the UK introducing remote deposit capture undertaken? Certain self interested parties, such as charities that received donations from a mainly elderly set of patrons, certainly lobbied hard and tried to paint the banking industry in a bad light, but the use of cheques has been declining significantly for many years - virtually no-one in the UK is paid their salary via cheque any longer, and the use of cheques as a method of paying for retail transactions has long ceased to be an option.

Other than a relatively small number of people, mainly the very elderly, I can think of few areas where cheques remain the only viable option for making payments in the UK. Unlike the US, the UK has, and has had since 2008, a very effective real time payment system that is effectively free to use for retail customers. Even for very small businesses, card payments can be accepted at minimal cost - around £50 for a card reader and 2% fee per payment.

I think the success of RDC in the US says more about the nature of payments there than it does about the need for a similar capability in the UK. You suggest that contactless 

James Piggot
James Piggot - Finastra - London 27 March, 2017, 09:13Be the first to give this comment the thumbs up 0 likes

There are some areas where cheques remain in use, surprisingly some financial institutions still pay divedends and even repay capital using cheques in the post. You cannot use digital banking with executors accounts in the UK. Combine this with the closure of branches plus ever increasing road traffic means plenty of hours wasted driving across town to deposit cheques.

Lots of single traders and small businesses use cheques, they will say things like internet banking is too complicated or they have security concerns. The more switched on ones include their bank details on invoices (sent via email) so that you can pay directly and they avoid having to pay fees.

 

David Godfrey
David Godfrey - ACI Worldwide - Watford 27 March, 2017, 09:25Be the first to give this comment the thumbs up 0 likes

The cost of processing cheques must be significant - amongst the most expensive payment instruments to use in the UK.

There are no legitimate reasons to not use Faster Payments to pay dividends etc...the scheme limits will be above £1 million later this year. Concerns about security etc are misplaced - there have been huge issues with postal fraud of cheques in recent years. Corporate access to Faster Payments is very simple and works via the existing Bacstel-IP channels.

Perhaps the answer is to legislate that *all* businesses *must* accept electronic payments. With the advent of Request for Payment through the payments scheme, a basic electronic invoicing capability is possible, and card payments are very affordable since the advent of smartphone connected card readers. Laziness and cant-be-bothered-ness are the only reason for any business, big or small, to insist on issuing cheques or wanting to be paid by them. Banks should also work to price cheques out of the market...if Mr Window Cleaner, etc. was charged £5 per cheque deposited, he'd soon decide cards were better.

Spending purported hundreds of millions of pounds across the industry to enable remote deposit capture is the banking equivalent of Henry Ford's faster horse...

James Piggot
James Piggot - Finastra - London 27 March, 2017, 10:22Be the first to give this comment the thumbs up 0 likes

If you have a small business account in the UK then you will be charged for transactions with cash being the most expensive followed by cheques and electronic payments being the cheapest, so there is a financial incentive.

I agree processing cheques must be expensive for banks, but they cannot make the decision to scrap them that is a political matter that seems to raise merry hell evey time it is mooted.

As to why some Financial Institutions continue to pay by cheque your guess is as good as mine, some of them are probably not hooked up to the internet or don't have computers yet.

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 March, 2017, 19:07Be the first to give this comment the thumbs up 0 likes

Well said: 

This is what "innovation that matters" means to me. While I've watched some of my fintech colleagues painfully contort themselves at the POS to pay for a bagel with their Apple Watch, real people with busy schedules and mobile phones are receiving real cheques. It is powerful and rewarding for an empowering technology to meet these people where they live and make a real impact on their lives.

This comes very close to what I was taught was technology's mission: "promote welfare of mankind". 

A Finextra member
A Finextra member 27 March, 2017, 21:021 like 1 like

Thanks for your constructive comments everyone. One of the main points of the article is that spirited arguments against cheque's continued existence can be had within the financial and technology communities, but they do exist, and real people use them for any number of reasons. So the question becomes, how do you help users bridge the gap from a purely physical cheque ecosystem to a hybrid approach, where the mobile device is leveraged and paper exchange costs are eliminated? The wisdom of image-based exchange is that it cuts cost and helps people make the transition. 

Additionally, infering (or explicitly stating) to cheque users that they are Luddites in need of stern intervention from their bank is unlikely to inspire them to embark upon their own digital journey.

Thanks again.