The humble cheque seems to have some very keen supporters as
Ian Benn's blog demonstrates, so I thought it was worth sharing some material extracted from the most recent MPIE Financial Sector Bulletin (to receive a full copy of this bulletin each month just send an email containing the word subscribe to contact at
Over the last 10 years wave after wave of electronic payments initiatives have been touted as the ‘end of cash’- the one catalyst event that would see us all empty our wallets of paper and coppers, and move onto the new easier, better, quicker form of making
payments - whatever that may have been at the time.
One of those payments methods was supposed to be cheques. In their prime in the early 90’s cheques made up some 64% of ‘non-cash’ payments but this has been gradually eroded down to just 13% of ‘non-cash’ payments in today’s chip and pin, security coded
era and 4% of payments overall. The growth of electronic payments and internet payment channels has whittled down the public’s desire to make use of these less efficient payment channels to such an extent that the UK’s payment council (in a report published
over the last month) has proposed to proactively phase cheques out within 7 to 10 years. Starting on 30th November, there are changes to the minimum timescales for UK cheque processing as mandated by the Office of Fair Trading. These new rules effectively
give banks 2 working days to begin paying interest on a received cheque, 4 working days before the recipient can withdraw the funds, and 6 working days before the funds become irrevocable. This undoubted improvement in cheque processing is unlikely to revive
the fortunes of the humble “low tech” cheque as the increasing costs it imposes for banks to complete this paper based, highly manual process. As we have noted in the past this is particularly difficult for non-clearing banks who often have to wait for the
clearers to first complete their processing. These costs and risks are likely to drive banks to promote electronic alternatives.
At the same time with a focus on electronic payments, the UK banking industry is also wrestling with the implementation of a new same day payments scheme called Faster Payments (see
http://www.fastpayments.co.uk/ for full details), and the multitude of pre-paid cards designed to facilitate low value transactions. Looking across Europe, there is SEPA just around the corner with its strong emphasis on enabling more cost effective payments
processing across borders in the Euro zone, and the implementation of Target2. These initiatives are a far cry from the slow and steady cheque management systems currently in place. So is it game over for the humble cheque? Well ... probably. However, as
we have seen with Faster Payments and SEPA the inherent complexity of large payments initiatives can result in significant delays, so don’t throw that cheque book away quite yet.