The Convenience of Cheques: Long May They Live

[quote] It got me thinking, though.  If cheques disappeared, how would I send this present?  Some people have said that this is where prepaid cards come in ...

...Where can I get a prepaid card at 8:30 in the evening?  I won't be keeping a stock of these things around, so when I took the decision as to what present to send, I wrote the cheque and popped it in with the birthday card. [/quote]

The thing that got me wondering is did you get a cheque and a birthday card at 8:30 in the evening?

The modern way is to log into your netbank, go to the section "gift cheques", choose a nice picture, sign the card, select the amount to be sent, fill in the recipient's name and address, select electronic or postal delivery and press send.  The recipient receives your card, with a code that they enter in their net bank and they receive the money instantly.

How convenient is that?

That is, compared to you writing a cheque, buying a card, stuffing them in an envelope, taking them to the mailbox, forgetting the stamp, going to buy one, missing the mailbox on the way home and going for it for another time...

... and the recipient queuing with the cheques for 60 minutes in a bank branch, just to find out that his/her bank does not honour half of the cheques and the other half bounce due to lack of funds...

...and both of you do this when its raining sleet horizontally at 30 m/s ?

[quote] And then there's the cost.  A cheque costs me diddly squat to issue, and the recipient the same to pay in.  What would the issuer charge me to buy the card and the birthday boy to spend the money on it? [/quote]

Do I even have to mention what cheque clearing costs in banks?  And who is paying for it in account maintenance and service charges?

Your case is a typical Lose-Lose-Lose -situation in the long run.

Cheques are a payment method from the 1970's. Finnish banks moved on and dropped personal cheques from the palette in late 1980's.

When do you decide to leave the 1970's behind and start living in this millennium?

"The modern way is to log into your netbank, go to the section "gift cheques", choose a nice picture, sign the card, select the amount to be sent, fill in the recipient's name and address, select electronic or postal delivery and press send.  The recipient receives your card, with a code that they enter in their net bank and they receive the money instantly.

How convenient is that?"

Not all banks offer electronic gift cheques and if they do, there is a charge for it. If Nordea offers them for free, then I'm sorry that there isn't a Nordea Bank in my neighborhood.

"... and the recipient queuing with the cheques for 60 minutes in a bank branch, just to find out that his/her bank does not honour half of the cheques and the other half bounce due to lack of funds..."

There are such things as deposit boxes. No need to queue. It's also does not cost anything to deposit a cheque and as soon as the money clears, I can spend it anyway I want to. Some 'free' gift cards can only be used with certain stores. Prepaid cards are definitely ridden with fees.

"Do I even have to mention what cheque clearing costs in banks?  And who is paying for it in account maintenance and service charges?"

As far as I know, gift cheques also incur clearing costs. The charge is usually separate from the normal account maintenance charges. 

Cheques are still widely used in France, for example. There are many reasons for this. If cheques are included in the same bundle of service sold by the bank and if there are no charges included in either writing or receiving them, then consumers will continue to use them.  

I know a lot of people who can pay their bills with direct debit but they still prefer to send out cheques and pay for postal stamps. The reason for this is simply because they feel more secure in writing the exact amount in that cheque than for a company to automatically issue a debit against their account. It's a matter of confidence. security and perception.

The only thing I don't like about cheques is that it's paper and I know... we need to think about a 'green' economy. Banks if they want to do away with cheques should offer electronic gift cheques free of charge (or covered by the same administrative charges) and there should also be no charge to the recipient. 

So, cheques are here to stay... until banks find an appropriate replacement.

 Clearly there is a romantic element to some of receiving a cheque, but as this is essentially a financial technology newswire, lets rule that one out as a reason to keep them. If one wants the little dears to have something to open physically with a birthday card then print off the sent receipt! But what about the recipient?

 So to your example, it's your nephew's birthday coming up and you don't happen to have gift card (obviously) but you do have the card and stamp. It's 20:30 so the shops have closed and you can't think of a present- excellent idea I'll give him cash - that'll piss him off. Oh, sorry, he lives in a dodgy neighbourhood so you don't trust cash in an envelope - good point. So write a cheque, pop it in the post and two days later (if you're lucky, but you've missed the last post) it arrives.

 So as it's his birthday, off to the pub he goes for a drink on uncle Roger ... er no, that'll be a trip to the bank, assuming he's an account, oh no sorry the local branch has closed down in cost cuttings so the banks don't have to deal with cash/cheques, so drive to the next town for the bank (topping up with petrol en route), park (another couple of quid), get there to deposit it (with or without queueing, point taken Marite) and then ... wait typically four working days for it to clear, etcetera. And then to the pub for a half as, generous though he is, uncle Roger's stuck in the 70s.

 That's why every birthday I end up carrying half a dozen cheques around for the next fortnight until I can actually get in to deposit the damn things.

 So what should replace the paper cheque?

Gift/prepaid card - points already well made and taken. Thanks for spending the £30 uncle Roger, I look forward to spending the £25.

Credit transfer or mobile phone - 20:30 in evening phone sibling to ascertain where little Johnie banks nowadays and get account number. Hopefully get correct answer but then enquire as to whether monies sent will be swallowed by Johnie's overextended overdraft. Happy birthday, I paid a few bank charges for you. Much quicker and he can gain instant access, but you've no idea where he wants to deposit the money (if at all).

 The cheque has an advantage of sorts, therefore, in that Johnie can choose where to deposit it, but at the expense of a logistical obstacle course that's hardly worth it for £25. You also need to know where they are to receive it, which isn't always convenient/possible (i.e. abroad on holiday).

 That leaves us with a couple of innovative options I've seen being mooted recently, mostly using the mobile or internet as a medium, where you only need to know their mobile or email (and you can save yourself the cost of postage and card (sorry, Marite you're right, save the planet) to boot with an electronic card) but where the recipient gets to choose what they do with the funds thereafter.

So, Marite's hit the nail on the head - a 'virtual' cheque with no charges for payer or payee would appear to be the appropriate replacement.

Looking forward to it, and well before Payment Council drop dead date.

Thanks for reading the item.

I suspect that the cheque will disappear some day; I just hope that, when it does so, there are instruments that meet all the circumstances that are currently satisfied by the cheque.  Too often these days, new products come along that are not properly thought through, and old products retired without sufficient thought given to whether their replacement adequately fills the void.

In this instance, the relative was an older person who does not use internet banking, or anything as fancy as that.  A cheque is what they will continue to be comfortable with and what's been described in the comments above simply wouldn't do for them.  I guess there are enough similar people around to make the cheque a viable payment mechanism - for some events - for many years to come.

In some circumstances, the current alternatives to the cheque don't necessaily work for the sender either - not when you consider not just the need to make a payment, but the circumstance/reason behind the payment, and its context.

That's all I was getting at, really.

I think it will be quite some time before cheques depart forever. 

The best example that I have is when I have to pay the milkman, once a month a note is left with the milk telling me how much I have to pay.  The company does not take direct debits and has no facility to pay by card/ internet.  Since the delivery occurs somewhere between 05:00 and 08:00 in the morning, I do not want to be disturbed.  Leaving a cheque with the empty bottles is the only sensible option. 

A similar thing applies for those "on the spur of the moment" Indian home delivery meals - cheque handed over for payment, on delivery.  I assume that they could take a card transaction, but it would have to be CNP, and presumably cost them more. Coincidentaly the local Chinese takeaway seems quite happy to go down the route of CNP.

and don't forget that one of the values of the cheque is that you can get an extra couple of days of having the money in your own account, because the cheque is in the post...

Some fascinating examples that made me do a little research into life in 21st Century Britain. 

I was surprised to learn that in 2008 7% of UK milk was still delivered by a milkman (note for overseas readers - milkmen are a historic UK institution who deliver milk to your doorstep daily, some of whom like to accept cheques). That said, 7% is a sharp decline from over 20% in 1999 - similar in the drop off in cheque use when you come to think of it.  

Tempted by the thought of paying a huge premium (around 50%) for having my milk delivered I thought I'd have a look at their service - hmmm, note to self - huge premium for continuing outdated and inefficient model. Suggest to bank. Anyway, the UK's largest milkman, Dairy Crest  has a higly inconvenient system of taking online orders and accepting payment by card or direct debit, as does Cravendale the second largest (www.internetretailing.net/news/now-even-the-milkmans-getting-into-ecommerce). Irritatingly, neither seem to offer me the option of being woken up first thing in the morning, but then it appears they don't accept cheques either.  

So enough about milk - onto takeaways. Less scientific this one (many thanks to Defra's marvellous Dairy Supply Chain Forum and their 2008 Milk Road Map for much of the above), but a raid on the kitchen produced a clutch of Indians, Chinese and three Pizzas.  Indians and Chinese are all straightforward - no surcharges for credit or debit, but they won't take cheques at all. Italians less so clear cut. - all three are happy to accept plastic, of course, though two would charge 50p to cover costs. But only one would accept a cheque, again with a 50 pence surcharge. 

Card payments obviously have the disadvantage of not allowing any credit period [are you sure? -Ed], unlike cheques, which do give you a couple of days extra interest, but there we go. 

But cheque lovers will be pleased to know that I have come up with a genuinely unique advantage of cheque use, at least in the UK - Cheque Guarantee cards. I can't think of any other payment system that offers me the ability to write a string of numbers along the back to guarantee clearing and fraudulently make use of up to £250 per time - there's 25 cheques in each of my chequebooks, so that's £6250 per book for free. And with extra books easily ordered, its a potential goldmine.  I did point this out to the Payments Council in my submission last year, as I am concerned that the industry may be neglecting the criminal community, but they've not got back to me for some reason.

The use for cheques I can think of are for:

1.Post dated cheques(PDC) where it is legal.

2.folks who are not computer savy(I feel in next 10 years these types will vanish) or who are afraid to do Internet Banking.

Using Cheques for Gifts is a minor use and does not make compelling to case for banks to continue with Cheque.  

Cheque volumes continue to grow in many major economies, including India, China and some countries in SE Asia. The relative growth may be less than e-payments, but in aboslute numbers they are quite significant. Most often cheques pay for themselves.. think of float the bank's enjoy - fees levied for issuance, clearing. Settlement cycles for e-payments are under pressure, so are those for cheques but less so. No argument can be made for cheques being the most efficient instrument available, but certainly very convenient for a very large segment of people. Unless e-payments can take away some of the barriers to use, cheques will continue to be cut. Some habits die hard, at least for some.

I couldn't help posting this news bit I just saw regarding unemployment prepaid debit cards in the U.S.

http://www.google.com/hostednews/ap/article/ALeqM5jblGb3B-79vVkD-WX7kLBFE4ZBRgD96F34C80

States are saving money by phasing out unemployment cheques in favor of prepaid debit cards but the jobless are hit with card fees on unemployment benefits.   

A classic one.

You'd have thought that some people in charge would have thought of the obvious PR downsides to this (or maybe they just don't care).  The way these programs should be run is that the UB office (or local authority) should pay the card issuer for running the accounts - assuming that is cheaper than issuing cheques, etc.  But, then, thinking things through properly is not a common trait amongst too many people, these days...

The reality is that the future of the cheque is bleak. In countries such as Finland and Sweden cheques have already been totally abandoned, and with recent UK figures pointing to an ‘irreversible decline’ in usage, it seems probable the British cheque will suffer the same fate.  Add to this the introduction of the Faster Payments service and surely we are seeing the final nail in the coffin for the lowly cheque?
 
In the current recession banks are looking to cut their costs and streamline processes, making the high handling and processing costs associated with cheques seem even less attractive - especially when those costs will have to be passed on to the customer somehow. Instead, they will inevitably look towards more automation and innovation in a bid to improve margins. Indeed, industry commentators have recently been discussing the impact the recession has on innovation, see the blog post from Bo Harald on Monday as an example, maybe the current economic environment will force banks to rethink their offerings to more closely align themselves to their customers' needs and we will see a solution to this debate?

I doubt it, Steve.  In a depression like this (which is what it will be soon), cost cutting will be king.  Meeting customer needs will be secondary and therefore they'll do what's best for them.

Giving someone a cheque (or even cash, but that's more dodgy to send in the post), where they can do what they want with it (i.e. decide what account to pay into) without me having to know anything about their bank accounts, is still attractive to me.

Personally, if someone said to me 'I want to give you some money for your birthday, give me your bank details', that would feel less like a 'present'.  Give me an item that I can decide what to do with, any day.  The cheque, and cash, does that.  Not much else does at present - does it?