How not to phase out cheques

People living in the majority of countries that do not use, or make limited use of, paper cheques will be mildly amused if they have been following the controversy in the UK around this archaic payment instrument.

For some, the future of the cheque is no laughing matter, however.

If you are not familiar with this story, it dates back to December 2009, when the UK’s Payments Council set a target date of 2018 for the abolition of cheques. This was a response to a steady decline in cheque use, and the fact that cheques are expensive to process. The USA, another heavy cheque-writing country, introduced the ‘Check 21 Act’ in 2004 specifically to reduce the cost of cheque handling.

If the Payments Council and UK banks had hoped the announcement of the future withdrawal of a payment instrument in decline would go unnoticed, they were wildly mistaken. Consumers’ groups, organisations representing the elderly, charities (who receive a large share of their donations by cheque) and other bodies spoke in unison to condemn the move.

Following the backlash, the Treasury Select Committee launched an inquiry into the issue in February 2010, and in July 2011 the Payments Council made a complete U-turn, announcing it was withdrawing its plans and that the cheque system would be maintained indefinitely. The Payments Council also said its members would now concentrate on improving cheque processing, cost reduction and the provision of other benefits by reducing the delays and uncertainties that affect cheque payments.

So what have we learnt – beyond how not to phase out cheques?

Firstly, there are some people and segments of society who depend on cheques on a regular basis, and who are genuinely concerned with the idea that they could be phased out.

Perhaps more importantly however, hoping that by announcing a date when cheques would be abolished would spur development of alternatives was naïve – consumers want to see alternatives first.

And herein lies the heart of the problem. While some of the concerned parties could use existing payment methods, for others no realistic alternatives are in place. If banks and technology providers work together to establish an effective and sustainable substitute, phasing out cheques will not be anything like so hard.

Reprinted from Banking Automation Bulletin