VocaLink and BancTec win UK cheque clearing mandate

This development adds to the market changes that are improving instant payment, and associated settlement finality guarantees, which the customers of every bank are demanding.  

Would it not be better to move to electronic payments?

You are right Bo Harald. I wonder why Vocalink didnt think of that! We should have insisted that customers stop using cheques and move to faster payments. Wouldn't it be good if there were no custmers, regulators or legacy in financial services to think about, then more ideas would be good ones! 

We did this in 1983 by introducing a fee for cheque forms - disappeared overnight..

We have a market that simply is used to and like "cheques". This development takes the friction out of the process, and you will now see some interesting innovation appear, I am sure. 

Cheques still have several unique characteristics that cannot be replicated by other payment methods. Cheque imaging will be a significant step forward in cutting processing costs and extending their lifespan.

Are you sure that these characteristics cannot be digital?

One of the key characteristics is the ability to instantly hand over a large amount of value in a face to face setting.  For example, a customer opening an ISA in a branch and wanting to put £15k into to the account. Their only choices as things stand are:

- Go onto their online banking on their phone while sitting there or when they get home (which they often forget to do) - also they are likely to have a faster payment daily limit (and they might not use/like to use online banking)

- Bring a briefcase of cash

- Pay by card and the bank gets hit with a huge interchange fee on a £15k purchase which they might have to pass onto the customer

- Or write a cheque for £15k and hand it over

Hi Bo, of course they can be digital, but successful businesses always supply what the customers and market demands. Sometimes that means you have to be patient as enforced change normally fails. That is what happened last time the attempt to remove cheques was proposed. History has it, that, the person who proposed last time it was physically challenged by an irate pensioner with a walking stick in a post office 😊

I fully agree with Nick, let the customer have what they are comfortable with, improve it and take much of the cost out. 

My tenant is supposed to give me three PDCs in advance ever quarter for my apartment. The next batch of cheques is due by tomorrow. He was traveling abroad for the past two weeks and hadn't carried his cheque book along. He came back home and found the cheque book missing. He then realized he'd kept it in his home town, which is five hours away. The earliest he can hand over the cheques is on 10 April. With so many hassles, we both deliberated an alternative to PDCs. India arguably has the maximum number of digital payment alternatives anywhere in the world - real time A2A, credit cards, debit cards, mobile A2A, mobile wallets, you name it, we have it. And many of us use them for all kinds of payments. However, not one of them can serve as an alternative for PDCs. There are many B2C and B2B use cases that use PDCs for very compelling reasons, which have nothing to do with age or demographics or Internet connectivity or whatever. Let's first create a digital payment alternative for PDCs instead of writing off cheque users as Luddites.

James Furlo is Rental Property Owner/Manager in Oregon. Check out his reasons for taking rent payments in cheques:

https://www.quora.com/Apartment-Rentals-Why-dont-landlords-accept-credit-card-payments

Wow - I had no idea that American online banking has an option to automatically print out cheques and send them in the post to places in order to pay their bills!

If only they had some sort of method to send the payment electronically...

Customers do not know what they do not know.. that cheques can be replaced by real time payments - and billions on money wasted on cheques - and they pay every cent

I can't talk for customers in general, but, as a customer, I know very well that when I made a cheque payment, my bank does not charge me a single cent whereas when I make a digital payment - real time or otherwise - my bank charges me several cents.

That is the problem - the expensive one appears free - but of course the consumer pays every cent in some way. In the past banks made tons of money on the float - but now it is probably small

Free is free. Every customer knows what is free and what is not. It's only the fintech crowd that goes around in circles with the "really not free", "actually costly" mumbo jumbo. As a consumer, I feel a cost when there's an explicit fee. On digital payment, there is. On cheque, there isn't. End of story.

As for all the behind-the-scenes implicit costs, even if they're not a figment of the fintech's imagination, it could be argued that they're applied on both cheque and digital payment. So, they don't matter while comparing two modes of payments. We're back to explicit cost being the only tenable measure of cost. Rest is noise.

Nothing is free. Cheques appear to be free - because the costs are not charged transparently.

Not sure which part of my previous comment was not clear but let me try again:

Cheque cost = 0 explicit fee + some implicit fee (if any) 

Digital payment cost = X explicit fee + some implicit fee (if any)

Ergo, digital payment is costlier than cheque.

Many small business or service providers like carpenters , plumbers , milkman , newspaper agent etc prefer cheque if not cash. One of the main reasons is that it is easier for them to keep a track of who has paid and who has not. These people dont maintain computerised records so for them reconciling digital payments is very difficult.

@ChetanGhadge:

+1. You've brought up a very important topic. Reconciliation problems are very real. And not just among handymen. As I highlighted in Enhanced Remittance Data Could Multiply Electronic Fund Transfer Volumes, many payers also prefer cheques (or cash) to avoid RECON challenges.

If only digital payments focused on solving real problems for real customers instead of harping about imaginary costs of cash and cheques, they'll enjoy accelerated adoption.

I must say, some of the sarcastic comments in this thread did make me chuckle. That said there are some very valid points given by both sides to get rid of cheques and to keep them. The main thing I fall back on is we can't take away a payment means without a viable alternative. In the current situation, faster payments does not meet all the requirements to be a true viable alternative.

There is a convienience to cheques that has been pointed out. The ease of writing them, ability to hand them over, post dating (beyond the 30 day restriction placed in most bank sites).

The Future Clearing Model brings an extremely valuable addition to cheques until a true alternative is ready. Float is removed, which is a huge gripe for cheques, but also the need to visit a branch. With all the branch closures a means to deposit cheques without a branch is essential.

Now to the future of no cheques. The Payment Strategy for the 21st Century paper published last November is introducing some essential value add services that will help with replacement of cheques. The ability to validate the beneficiary (assurance data) - no chance of incorrect bank details, notification to the beneficiary of successful payment - simplified reconciliation; Request to Pay - a simplified invoicing and payment in one; Enhanced data - rich remittance data with the payment.

Combine these services with the innovation coming from PSD2/Open APIs. Introduce services to easily initiate payments. For example, the invoice or business card of the supplier has a QR code that triggers the payment app and completes the payment information. Finger print and you've paid. 

Now we have given a reason for people to move to something simpler that adds value to the end to end process.

Real time e-invoicing > real time payments + real time e-receipts in same format from POS to same e-address = automated real time accounting + automated real time VATreporting etc etc. Cheques - forget it....