Despite a plan by the Payments Council to phase out cheques by 2018, it looks like they’re here to stay for “as long as customers need them”, following a raft of objections from consumers and businesses alike.
The government is now pushing electronic cheque deposits as an initiative and at least one high street bank is doing a pilot to make cheque depositing easier and quicker. This will allow consumers and businesses to take photos of physical cheques they are given and submit them for clearing electronically.
So are there any real benefits to consumers, business and banks – or is this just another gratuitous use of technology? And what will be the major impacts on the industry?
The decline in popularity of paper cheques
There is no denying that cheques are declining in popularity in the UK with many shops no longer accepting them and the death of the cheque guarantee card scheme back in 2011.
The below graph from the Cheque and Clearing Council shows how volumes of cheques have been falling over the last 20+ years as we’ve moved to ‘chip and pin’ and other payment methods.
The value of cheques cleared over this period has also declined in line, but only by around half, so we can assume that the average value of cheques has actually been increasing.
Indeed cheques do remain very popular in some key areas:
- 25% of small business payments were by cheque
- 23 million cheques were sent as gifts as surveys show that this is still the most trusted method of sending money domestically by the UK public.
So what are the likely benefits of mobile cheque deposits?
So, coming back to mobile cheque deposits, the main benefits will be
- The ability to pay in a cheque electronically, at any time, from a smartphone or tablet without having to visit the branch
- A decrease in cheque clearing times which will fall from around 6 days (currently) to an estimated 2 days. This is largely because of the reduction in time and effort required to move cheques around, sort them and scan them.
- Cost savings for handling cheques and associated processing costs – the true unit cost of a cheque is estimate at over £1, with other alternatives at least a third lower. So the total estimated savings are significant at around £200m.
But just let’s think for a moment about current consumer behaviour when it comes to cheques.
For received cheques: they typically sit around the house for days, if not weeks, before being paid into the branch, often combined with another transaction or visit to a cashpoint. So yes electronic cheque deposits should definitely speed up the journey to the start of processing which will then be accelerated compared to now.
Then there is also the other side of the equation, writing cheques: many consumers (and businesses!) deliberately write them to delay payment timescales and hold onto their money for another few days, or possibly weeks, due to the above mentioned behaviours and slow clearing times!
So once electronic cheque deposits are in place, the big question in my mind is whether the mentality of cheque writers will change. If you know that the funds your cheque is drawing on will potentially be out of your bank account in less than 48 hours anyway, there is no real advantage and you may as well do an electronic transfer via internet banking, PayPal, Barclays Pingit etc. and save yourself the hassle of finding your cheque book, a pen that works, reminding yourself what the date is and then popping it in the post.
Fraud and other challenges
The challenges around a significant move to electronic cheque deposits for the industry are mostly on the fraud and associated liabilities side. Current regulation is that the liability sits with the receiving bank, not the sending bank so there is no obligation or motivation for the sending bank to detect fraudulent cheques. Coupled with the fact that most current fraud detection mechanisms are based on examining the physical paper of a cheque – making cheque fraud much harder to detect based on a scan of the cheque. There are also other “devil in the detail” challenges such as cheque post-dating and cancellation. Nothing insurmountable – just time consuming to agree amongst all the parties involved and frustrating for consumers who will likely be bounced from one bank to the next in trying to resolve the issue.
So whilst mobile cheque deposits might be a very neat use of technology, I predict that this will actually be a further nail in the coffin for cheques and actually accelerate the move by consumers and businesses to other forms of direct electronic payments. Cheques have been around for over 350 years so that’s a pretty good innings.