Is the cheque worth saving?
The paper payment has been given nine years before being scrapped, reports Simon Read
Saturday 19 December 2009
Who will lament the loss of the cheque? It is set to be phased out in 2018, the Payments Council revealed this week prompting a storm of protest from pensioners groups and small businesses, among others. Mark Hunter, the Liberal Democrat MP for Cheadle, slammed the move, describing it as "a scandalous, self-serving decision that puts the whims of City fat cats ahead of the needs of this country's most vulnerable people."
But will life without cheque books actually be any worse? Most major high-street retailers stopped accepting cheques some time ago – Tesco and M&S started refusing them in 2008 – rendering the cheque guarantee card almost pointless. The card is planned to be phased out in June 2011 and will be followed by the disappearance of cheques in October 2018, if the Payments Council has its way.
"Cheque use is in long-term, terminal decline," points out the council. It's true; there are around two-thirds less cheques written in Britain now than at their height of popularity in 1990. Then, some 11 million cheques were issued each day. In the last five years usage has shrunk by 40 per cent and now only around 3.8 million cheques are written daily. And the rate of decline is expected to speed up in the next few years leaving little more than a million or so cheques being written each day by the time of their proposed scrapping in 2018.
There is a reason for the decline, of course, and it's not just because it costs banks lots of money to process cheques. It's true that electronic payment methods are something like four times cheaper for banks to process than cheques. The paper payments cost around £1 each to process, so switching all those to paperless options will save the banks roughly £1m a day, based on today's usage. But, for a change, this is not about bank greed.
Instead the move by the Payments Council is simply a reflection of the fact that many people now choose to use other methods of payment. In the main people have grown out of love with cheques as other ways of paying have proved more convenient. Debit cards have, for example, been used as a replacement for cheques for some time and it is clearly easier to need only to carry one piece of plastic than have to remember a cheque book, too.
There are already almost four times as many debit card transactions in the UK each day than cheques; that proportion will soon grow to 10 times as many debit card payments. With internet banking allowing us to transfer cash or make payments from a mobile phone or computer, the cheque is looking like the least convenient way to pay. Yet Wednesday's announcement by the Payments Council has sparked anger and accusations. Why?
Dot Gibson, general secretary of the National Pensioners Convention, says it's an issue of choice. "This is a selfish decision, made by people who are out of touch with the way millions of pensioners manage their affairs. Chip and pin is not suitable for a large number of pensioners. The Payments Council has taken away choice from older people in the name of profit."
Charities Age Concern and Help the Aged say the removal of cheques will leave many older people reverting to cash, giving them financial worries and putting them in danger. "Without cheques, we are very concerned people will be forced to keep large amounts of cash in their home, leaving them vulnerable to theft and financial abuse," warns Andrew Harrop, head of public policy at the charity.
It's not just older people who are alarmed. Posting at www.independent.co.uk, 28-year-old small business owner austin2410 wrote: "Is there going to be a replacement to the cheque which is easier to pay in at my local branch? There is no access to pay in cash after they close at 4pm so I will have to increase my business insurance to cover more cash and cancel jobs at 3pm to pay in to my account each day."
Indeed, much of the concern centres around how to pay the various small suppliers and tradespeople, such as plumbers and electricians, who do not use electronic payment methods. It also seems that there is an army of people who like to send cheques as gifts to members of their family. The Payments Council says it is aware of all concerns and won't make the final move to scrap the cheque until everyone is happy.
"The real challenge lies ahead if we are going to be comfortable to wave goodbye to the cheque, which undeniably occupies a unique place in British culture," says Paul Smee, chief executive of the council. He adds that it will undertake a full review in 2016 before any final decision is taken.
In other words, the 2018 deadline is a target, rather than a definite. Glyn Warren, HSBC payments industry manager, echoes that. "We will work carefully over the next nine years to ensure a smooth transition with no customer detriment, taking particular care to meet the needs of the elderly and disadvantaged. With a review in 2016 the industry will only press ahead with removing cheque clearing if alternatives are readily available and customers are properly looked after."
Before then, there is likely to be a battle to keep the cheque alive. Indeed, Mr Hunter has already instigated a parliamentary campaign to save the paper payment.
John Bryant of Unisys, the company which processes more than four-fifths of all cheques written in the UK, supports the campaign. "As long as members of the public continue to see cheques as part of the payment landscape and cheques can be processed efficiently, the cheque book still has life in it yet," he says.
Against that, Andrew Hagger of moneynet.co.uk points out: "For the majority of the UK population, the cheque book is very rarely used these days and in many cases is left in a drawer gathering dust. If you've got access to internet banking and a debit card, then there's really no need for a cheque book."
"Debit card and online transactions are also more secure than using a cheque – you haven't got 'the cheque is lost in the post' scenario or the chance that someone could intercept it and try and pay it into their account," says Hagger.
But, yet, there is a nagging feeling that the death of the cheque is being imposed on us by cost-cutting banks and retailers. There's the question of what they will want to scrap next – cash? Before we let them do that it could be time for cheque users to make a stand.
Current accounts: time to cheque out?
A bank account without a cheque book? It's already here. "There are already a small number of current accounts that don't offer cheque books," points out banking analyst David Black of Defaqto. Cahoot's current account is available in two versions: with or without a cheque book, with the cheque-book-free account paying slightly more credit interest of 1.1 per cent compared to 1 per cent.
Leeds Building Society and Citibank's current accounts also offer the choice whether or not to have a cheque book. However, with both there is no differential in interest payments. Meanwhile, Coventry Building Society's Coventry First account doesn't offer a cheque book but customers who need a cheque can contact their branch to get a society cheque issued.
"It would not surprise me if more providers move towards offering current accounts that don't offer a cheque facility as the bank's administrative costs for dealing with cheque payments are very much higher than for their more automated payments," says Black.
But HSBC's Glyn Warren says banks won't leave customers out in the cold. "As the use of cheques has declined we have been investing heavily in payment alternatives such as faster payments and we are working with the industry to make better use of these and tackle any gaps that may exist."
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