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UK to roll out image-based cheque clearing system

22 March 2017  |  10729 views  |  10 cheque

The UK is to roll out an image-based cheque clearing system in October that will slash processing times from six 'weekdays' to one day and pave the way for the introduction of interbank mobile cheque deposits.

Although cheque usage is in decline, 477 million were written in 2016. Previous attempts to abolish cheques caused political uproar and howls of protest from consumer groups and charities which still rely on paper-based donations.

Legislative changes to enable the passing of digital cheque imaging came into force in July 2016 and marked the onset of a number of bank trials of mobile cheque deposit systems for intra-bank clearing. Under the new system, banks will be able to accept and clear cheque images drawn from their peers.

James Radford, chief executive officer of the Cheque and Credit Clearing Company, which will oversee the introduction of the new system, says: “These changes will put cheques firmly in the 21st century, delivering real and important benefits for the many individuals, charities and businesses that regularly use cheques. Not only will cheques clear faster but banks and building societies may offer their customers the option of paying in an image of a cheque rather than the paper cheque itself.“

The new system will go live with some banks and building societies from 30 October, with the rest of the industry coming onboard by the second half of 2018.

Comments: (10)

Andre Hoddevik
Andre Hoddevik - Difi - Agency for Public Management & eGovernment - Oslo | 23 March, 2017, 08:32

I see that the Cheque and Credit Clearing Company thinks that an image-based Cheque clearing system will put cheques firmly in the 21st century. Cheques used to be common in Norway as well, and are still available for those that prefer paper. However, in 2015 only 0.02% of all payments was made through cheques and the trend is clear - cheques are obsolete as a means of payment and does not belong in the 21st century at all. Use of payment cards and mobile payments have taken over, so why does a modern and developed country like the UK still invest in digitizing paper when the payment transactions easily could be made completely digital?

 

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A Finextra member
A Finextra member | 23 March, 2017, 10:02

WP:  The issue here is that there is still a large proportion of the population who do not have internet access (mobile or otherwise), and also a reluctance to share bank details.  I have never seen a tradesman who accepts cards, or a landlord who will take a deposit by card.  These transactions are easily four figures or more, and cheques remain the only practical way to make them.  Systems such as Paym have proved unpopular, and until trades start using apps like Powered Now, we will be stuck in this cycle.  Even then the elderly will still need to write a cheque.

The other thing is...sometimes a cheque just "feels" nicer.  I would rather see one in my birthday card than get a text saying "Someone has put some money in your account.  Please log on".

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 23 March, 2017, 18:38

There was a severe cash crunch in the wake of the de/remonetization of high value currency notes in India. There was a huge drive to popularize mobile wallets, A2A electronic transfers and other forms of digital payments. Arguably there are more types and brands of digital payments in India than anywhere else in the world. However, end of the day, almost 50% of hitherto cash payments could go cashless only because of cheques, not digital payments. Universally, people who just enter a formal financial system (or buy a new financial product) are likely to prefer physical constructs like branch and cheques before they adopt virtual constructs like mobile banking and digital payments over a period of time. There are hundreds of millions of such people in India. I guess there are at least 5-10 million such people in UK. On the other hand, I guess almost everyone in Norway became banked many times over several years ago. Therefore, I laud this move by UK and don't find the Norway situation too relevant for UK.

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James Piggot
James Piggot - Finastra - London | 24 March, 2017, 10:08

Each country is stuck in its own particular rut, surprisingly the US which is generally behind the curve has allowed digital cheques for years, why has it taken so long in the UK? Countries in Africa such as Kenya have shown you can pretty much skip banks and go direct from a cashless society to mobily payments. Perhaps someone can comment here on the relative cost of cheques, digital or otherwise, vs the cost of digital payments. We know handling cash has a cost and presumably cheque processing also has a higher cost compared to purely digital transactions?

 

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 March, 2017, 11:03

In my observation, US is ahead of the curve when it comes to making a sale happen. In other words, its businesses generally don't allow anything to come in between themselves and the customer's wallet. It's also more entrepreneurial in that its political and business leaders understand the role of risk and recognize that Mitigating Fraud Does Not Pay The Bills. As a result, it really doesn't give a damn about a whether a technology is new or old. Adoption of technology depends upon how well it helps a business fulfill its business goals, which, in the case of retail payments, is to make a sale happen. Ergo EMV may be new but it poses friction, so USA goes slow on EMV; 2FA may be bleeding edge in security technology but it's a conversion killer, so no 2FA in USA. On the other hand, checks have been a fairly popular way to pay. But checks are costly. So USA started cheque truncation back in 2003 to cut down operational costs. Although it began cheque truncation way back in 2003, USA made sure to expand the scope of the technology to where it really matters viz. hands of customer via Mobile RDC and supermarket tills. AFAIK, no other country's CTS has done that - they all support cheque truncation only in the hands of banks.

Cost is internal. Even if somebody is able to put forth some concrete figures, it's not easy to get consensus on them. How many John Doe bank customers will agree that a multimillion dollar bonus paid to a bank execute should be apportioned to cost of a certain payment method? IMO, what really matters in driving payment mode preferences is price. And, when it comes to that, banks are coming across as hypocritical about their stance on costs: If cash and cheque are costly, why didn't banks charge an explicit fee for cash / cheque payments all these years? Everyone claims digitization cuts costs, why do banks charge an explicit fee for digital payments?

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Michael Diamond
Michael Diamond - Mitek - San Diego | 24 March, 2017, 15:57

Great discussion. I'm with Mitek, the creators and providers of mobile check deposit in the U.S.

Prior to Mitek, I worked in the mobile payments industry, so I've seen a few sides to this. James from Misys is correct when he points out that each country is "stuck in its own particular rut". Checks have proven to be far more important to consumers and businesses than the tech community would otherwise want. This is true in the US as well as the U.K. The Federal Reserve (US) issued a payment study recently which reported 17 billion checks were written in 2015. Additionally, they reported that the rate of decline had declined, from 6% down to 4.4%. So checks will be with us in the US for quite a while.

To be sure, it's a false alterntive to compare mobile check deposit with other forms of mobile payment, as they appeal to different audiences and have different use cases. But with that qualifier out of the way, the phenomenon of mobile check deposit has re-taught me the importance of engaging in "innovation that matters". We did some social media engagement asking people what they loved about mobile deposit, and the responses were amazing. 

People talked about how they were fighting a life-threatening disease and working full time, and mobile deposit had made a huge difference in their lives. People who were single parents, who had busy schedules, who had lost their vehicle in a flood (true), and many other stories about how mobile deposit had made a major impact on their lives.

The cost savings for check truncation might be in the back office, but the magic in in the front-end empowerment this provides to real people with real payment needs.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 24 March, 2017, 17:55

@MichaelDiamond: 

I've used cash, cheque and mobile payment - all on the same day on many days. Real world customers choose the payment mode that best suits their context. Not on the basis of which payment mode is behind the curve and which one is ahead of the curve.

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Michael Diamond
Michael Diamond - Mitek - San Diego | 24 March, 2017, 20:37

I've published a blog post on this topic with Finextra. It can be found here: https://www.finextra.com/blogposting/13875/innovation-magic-and-image-based-cheque-clearing-in-the-uk

 

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A Finextra member
A Finextra member | 24 March, 2017, 22:30

WP: Fantastic Ketharaman! And did you remember to compare your country to Norway as you swiped?

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Tarique Bhuiyan
Tarique Bhuiyan - Hashkloud Pty Ltd - Glenwood, Australia | 31 March, 2017, 23:40

At our company based in Sydney, Australia, we are trying to bring the cheque back into limelight again using mobile and of course, using cryptography & Blockchain technology! The cheque as a payment instrument is actually quite interesting but instead of paper cheque, we are thinking digital tokenized cheque! We are talking to a bank in Bangladesh to pilot this. UK being so progressive in Blockchain technology, I am a bit surprised that they are going the "image" route!

We have recently (November 2016) done a POC by sending a digital cheque as a remittance from a Middle Eastern bank to a bank in Bangladesh in near real time (url = http://prwire.com.au/pr/64530/pioneering-experimental-demonstration-of-blockchain-technology-integrated-paysha-digital-commerce-platform-by-hashkloud-pty-ltd-Australia)!

And having the cheque as a digital cheque there is the added bonus which is, you can cash the cheque many times, i.e. if you want only partial payments now you can do that and the remaining amount still remained as a new digital cheque and that also never expires (because it lives in the digital world). Anyway, let’s see if this works out well!

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