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The Law Of Unintended Consequences

When, in 1984, the marketing team at Midland Bank first removed charges from some personal accounts, they couldn't have guessed at the long term  consequences for the UK retail market.  At a time when cross sales of new services like mortgages and structured savings products was beginning to drive retail revenues, their objective was to win more current account customers and thus create a pool of potential.

Over the ensuing 25 years, free banking has come to be regarded as a right but cross sales have never realised the potential of that early vision. Whilst banks have had some success with packaged products, any suggestion that free terms might be withdrawn is met with strong protests from the popular press.

This creates a dilemma for the modern product manager. If clients won't buy add ons, the only way to improve profitability is to drive down costs.

Perhaps the costliest element in the current account wrapper is the cheque. Even if the paper no longer flows back to the account holding branch, books must still be printed and the data subsequently captured and stored. Since the debit card does the same basic job more cheaply and with greater utility, UK banks would like to follow the declining usage trend to its logical conclusion and withdraw cheques altogether.

In a world of chargeable services, this would be achieved through pricing. If cheques were priced at a multiple of debit card transactions, usage would migrate rapidly to a point where withdrawal could be easily justified. In a world where banking is free, however, there is no incentive to migrate and consumers insist on their continued right to issue cheques. Small charities make no attempt to collect funds by other means and therefore perceive that cheque withdrawal would have catastrophic consequences, whilst politicians defy gravity by arguing the lack of any business case.

 It is far from clear where matters will go from here. All parties seem deeply entrenched and banks are distracted by the need to nurse damaged balance sheets through the ongoing economic malaise.

One answer is to improve the alternatives but so far no one has really tried tailoring their service towards hardcore cheque users. Substituting new media payments won’t work because these customers are too conservative to find them accessible. Telephone banking through call centre operatives or a simple automated interface offers more promise although authentication is an issue and costs in this channel are relatively high. Prepaid cards could replace cheques sent as gifts but are also relatively expensive if not reused.

Pricing may be a lever. If cheques were chargeable at (say) 50p each, or offered only within packaged accounts, usage would rapidly decline, whilst lobbyists would find it hard to argue the end of civilisation. The first bank to break ranks would still face hostility, however, and - understandably - no one seems keen to assume this role.

The cheque therefore seems set to be a product manager's nightmare for some time to come. Its persistence may be the result of unintended consequences, but that doesn't make it any easier to deal with. In the world of payments, attempts at substitution all too often become additional.


Comments: (3)

A Finextra member
A Finextra member 13 March, 2012, 09:01Be the first to give this comment the thumbs up 0 likes

I think you're absolutely right in that cheque withdrawal can be done on a per product basis. Maybe the place to start is with student accounts. Since younger people hardly know what a cheque is, there's an opportunity to avoid introducing them to the idea in the first place. The next logical opportunity would be accounts marketed as direct. Conversely, retention of cheques could then be come a feature of products aimed at those still attached to the idea.

Nick Collin
Nick Collin - Collin Consulting Ltd - London 13 March, 2012, 11:44Be the first to give this comment the thumbs up 0 likes

Nice blog Andy.  Yes, it would be altogether healthier and more transparent if UK banks charged for the various services they provided including cheques and current accounts.  This is what seems to happen in most of the rest of the world and also for business accounts here in the UK.  But as you say, now the genie is out of the bottle it is very difficult to get it back in and a bank would need to be very brave to break ranks.  Having said this, I notice that Santander is charging £2 per month for an account which offers benefits such as chargebacks - maybe this is the way to go.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 March, 2012, 17:33Be the first to give this comment the thumbs up 0 likes

When faced with declining interchange revenues post Frank-Dodd-Durbin, AmEx and a couple of other banks - albeit in the USA - did bite the bullet by trying to charge for debit cards. That they faced tremendous consumer resistance and were forced to roll back their plans is true but the incident does prove that banks don't shy away from levying explicit / implicit fees to recoup rising costs. But, they're still not doing it for checks. Wonder why. Something tells me that by merely levying fees for check usage, banks won't be able to reduce its consumption significantly. Personally, I believe that most ePayments still have too much friction for the average man on the street to forego the convenience of checks even if the latter attract fees. My belief is reinforced by the decision of ING Direct to actually introduce checks for Internet-only accounts.  

Barclays' PingIt is surely a step in the right direction and I look forward to seeing some figures on how many people it has prevented from writing checks.

Andy Hunter

Andy Hunter


Perficiam Ltd

Member since

02 Dec 2010



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