Today the Payments Council has announced the target deadline of October 2018 for the end of cheques as a form of payment in the UK. For banks, this is welcome news. Cheques are one of the most expensive forms of payment transaction costing banks around £1
per transaction to process. However, if the cheque is to disappear altogether, the Council recognises that alternative payment methods need to be available and they will undertake a full review in 2016 before any final decision is taken.
The good news is that there are already some payments services available which could potentially fill the gap left by the cheque. The bad news is that others are still in the very early stages of development. Let’s look at a few of the options.
The Faster Payments Service (FPS) is a good alternative for B2B as well as consumer to large business transactions. However, faster payments transactions are done in real time so there is less time to spot potential fraud once a transaction has been initiated.
It is important therefore to ensure the initiator and payment are genuine before the transaction is accepted. Two-factor authentication through a smart card reader is one way to tackle this and banks such as Barclays and Nationwide have already rolled out
this technology for online banking. Mobile phone based authentication is another option that has also been rolled out by banks in some regions.
However, a replacement for person to person (P2P) and consumer to SME payments requires more thought. Repaying a friend or paying a plumber or gardener for example will be problematic without cheques. The mobile phone, which is already an integral part
of most peoples’ lives could be part of the solution. P2P mobile phone based payments are available today, although the primary focus of today’s services is on mobile remittances, which do not fill the cheque gap. However, with a wave of innovation in the
space at the moment and eight years to go before the deadline, mobile P2P payments could well become a viable option for P2P and consumer to SME payments.
Whatever P2P mobile payment solutions replace the cheque, security will be a deciding factor in their success. Consumers will need to trust in P2P payment services to use them. What’s more, the technology must also be interoperable and, crucially, free since
customers are unlikely to be willing to pay for an alternative service as up until now at least, cheques cost them nothing. It is clear that despite recent progress the industry still has a way to go in terms of providing an alternative to all cheque uses.
However, with the deadline now set, this could catalyse a wave of innovation that results in viable payments alternatives becoming well established before 2018.