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An article relating to this blog post on Finextra:

UK bank u-turn sees cheques saved

Britain's banks have scrapped plans to get rid of cheques by 2018, backing down in the face of strong opposition from consumer groups, charities and politicians.


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A reprieve for cheques - but is it needed?

The news from the UK Payments Council that cheques will no longer be forcibly scrapped in 2018 has, perhaps inevitably, received mixed responses.

For the banks, issuing, handling, securing and processing cheques is expensive and time consuming – a cost that in the end has to be passed on to customers. However, consumer groups, especially those representing the elderly are celebrating at the news, because of the convenience of cheques for those less comfortable with the alternatives such as mobile or internet-based transactions.

As we have often seen in the past, consumer demand is a very big factor in payments - the response from the public to any new payment mechanism can, often, make it or break it. We also know that many consumers dislike change, as demonstrated by the response to the initial proposals to drop cheques.

However, as the Payments Council points out, cheque use is falling year on year – and the scrapping of the cheque guarantee card scheme in recent weeks will be another factor to drive down the number of places or people who will be prepared to accept cheques.

If I were a betting man, I would anticipate that cheques will have been replaced naturally by other mechanisms by 2018 anyway, but we in the industry can certainly help - to prevent the atrophy we would see if cheques just go on and on. The  replacement of cheques has happened successfully in many other countries, and we need to see what we can learn from them to get it right.

There are many alternatives already in the market that offer faster and more secure payment of bills (such as telephone or internet banking) – not to mention the plethora of electronic gift cards available in any supermarket today that can replace the ‘cheque in a birthday card’ or PayPal for person-to person payments. We will definitely see more and more schemes emerge, such as those using SMS messages over mobile phones.

We need to make sure that consumers see the benefits of these new systems, and that they feel there is at least one that is right for them, to stimulate the change we need. This is a combination of education, explanation and communication, but we did it with Chip and PIN and we can do it again. If we get it right, I am certain that these schemes will see phenomenal growth in the next five years to become even more mainstream.

Last time my son saw my wife writing a cheque he asked why on earth she was writing a letter to the bank. Good question son!

4627

Comments: (4)

Olivier Berthier
Olivier Berthier - Moneythor - Singapore 15 July, 2011, 03:22Be the first to give this comment the thumbs up 0 likes

And please let's remind ourselves that cheques are also physically dangerous for your health: http://bit.ly/pdC4P8

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 July, 2011, 19:55Be the first to give this comment the thumbs up 0 likes

The UK Payments Council may have been well-intentioned while announcing its proposal to drop cheques well ahead of the deadline. However, in hindsight, had it waited for a couple of years for better alternatives to cheques to emerge - none exist today according to a recent Daily Mail article, a view with which I completely agree* - the man on the street would've had the chance to experience them first hand. At that stage, the present hue and cry over "why not cheques?" would've automatically dissipated to "why cheques?".

* for reasons expressed in detail at  

http://www.finextra.com/News/fullstory.aspx?newsitemid=22761

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 20 July, 2011, 15:01Be the first to give this comment the thumbs up 0 likes Amazing. We introduced a 8 eurocentric fee per picked up cheque in 1983 in Finland - and the usage (POS mostly ) disappeared overnight (debit cards got a big boost). Howvisibjly is the cost charged for in the UK?
Brett King
Brett King - Moven - New York 27 July, 2011, 14:18Be the first to give this comment the thumbs up 0 likes

Paul,

I think you know where I stand on this. The issue will resolve itself in short order as cheques descend into oblivion. 

The issue is not whether or not there is a ever dwindling segment of customers who demand the right to still use cheques, but whether dominant behavior simply makes cheques too expensive to use for individuals or corporations. The trick is simple. In economies where cheques have already disappeared banks and governments incentivized individuals and corporations by making cheques too expensive, and making alternatives attractive by means of no fees. Given that this mirrors the actual costs of processing paper versus electronic transactions, this would appear to make good business sense also.

The key is for the UK government to stop issuing cheques from the government and for the FSA/Payments Counsel to mandate a minimum processing fee for cheques. Peeps will complain for a few months, but overall we'd all be better off in the end.

BK