Cheques are on the way out, whatever Middle England thinks
Once again, an outraged article in a British tabloid—this time the Daily Mail—about the end of cheque clearing in 2018. Predictably, it is the desperate plight of the elderly that forms the centrepiece of Lauren Thompson’s article “Clueless banks pressing on with purge on cheques”, featuring a case study on a 76-year old woman who sends her gardener to the Post Office every week to collect her £315 in benefits. She says “cheques work perfectly well for me”.
From April next year, Giro cheques will be scrapped. Pensioners and benefit claimants will be forced to go to their nearest PayPoint outlet - found at shops like Co-op, spar and Sainsbury’s Local - instead of the Post Office.
It is not explained why sending her gardener to the corner shop to pick up her benefits from a PayPoint terminal fills her with such dread, but her comment is telling: cheques work well for her because I’m paying for them. I couldn’t care less if I never see a cheque again: the only cheques we’ve written in the last month have been to schools (I simply don’t understand why they can’t take PayPal or payment via FPS) and to the local council, which presumably regards cheques as the most modern of payment instruments. But cheques waste time and money, and it’s right to have a national plan to get rid of them, no matter what the Daily Mail thinks about the Payments Council.
I have to say that I sympathise with the Payments Council. I read somewhere that half of British consumers are unaware of the 2018 target date to end cheque clearing. But then half of them of unaware of anything, so I’m not sure that there’s much the Payments Council could do to change this. We live, as I’m often reminded, in a country where 50% of the population don’t know what 50% means.
The Payments Council seems to have become a particular target for middle England’s hatred. A letter in the very same edition of the newspaper notes that “obviously banks prefer cheaper systems of cards and electronic transfer” (as do I) and asks what about (once again) elderly or housebound people who depend on cheques by post. This is an interesting line of debate. In Finland, no-one has used a cheque since 1993. Nobody in Sweden has a cheque book. You would need a Powerpoint presentation to explain what a cheque is to anyone under 30 in the Netherlands. Yet elderly and/or housebound people seem to survive in Rotterdam and Espoo. Unless the Daily Mail has a specific reason to suspect that elderly people in Amersham are somehow stupider, or less flexible, or less able to learn than elderly people in Amsterdam, I don’t understand the problem.
Of course, the Daily Mail could always step in to ameliorate these desperate circumstances. Cheques aren’t being outlawed in 2018, but cheque clearing is going to stop. If Associated Newspapers wants to apply for a Payment Institution (PI) licence and operate its own cheque system, then good luck to them. I truly hope that they can do this and make a profitable business out of it, because I am genuinely in favour of choice. The merit of this plan is evident: people who want to keep on using cheques can pay for them. I should say, by the way, that this won’t predominantly be pensioners and their domestic staff, but small businesses.
Obviously mobile payments will be huge. But from my perspective, it is easy to get caught up in what the 5-10% first movers are doing and forget that less than 30% of all small businesses accept any form of electronic payment.
This is one of the reasons why I spent my time at PayPal X looking at the SME solutions rather than some of the “sexier” new technology thangs like set-top box payments. I’m not negative about this at all - a great many small businesses are moving to electronic payments (I bought my wife some jewellery from a stall at a charity fair last weekend and the lady happily accepted my credit card using her rented GPRS terminal - she told me it cost her £27 per month plus a per-transaction fee and that she was delighted with it) and I don’t doubt the trend will accelerate as mobile payments grow and their convenience overtakes the conservative inertia around cheque payments.
Even in the cheque’s last redoubt, the United States, its position is being eroded. All new federal benefit recipients will be switched to electronic transfer from May of this year and all existing cheque recipients will be switched to electronic transfer by 2013. These moves will save the government more than $100m per annum. And there are plenty of other problems with cheques aside from the cost (which, to be fair, has been substantially reduced because of Check21). Here’s noted computer scientist Don Knuth, reflecting on some bank fraud problems that arise from the fact that account details are printed on the face of cheques.
One consequence of this debacle is, alas, that I can no longer write checks to reward the people who discover errors in my books. The system that I’ve been using has worked well for almost forty years; but recently I have had to close three checking accounts, and the criminal attacks on those accounts have caused significant grief to my bankers… Instead of writing personal checks, I’ll write personal certificates of deposit to each awardee’s account at the Bank of San Serriffe, which is an offshore institution that has branches in Blefuscu and Elbonia on the planet Pincus.
[From Knuth: Recent News]
The switch is underway from checks as well as cheques. The primary beneficiary of the switch will, I think, more likely be the prepaid card industry rather than the Bank of San Serriffe, because the economics of banking mean that providing what used to be known as “basic bank accounts” to most of these welfare recipients makes no sense, and I expect the increase in volume to bring more players, and more competition, and therefore better products to the sector. Now, let me be clear in saying that I am not shilling for the prepaid boys here. There are plenty of things wrong with the prepaid proposition (and I’ll be writing more about this shortly). But as prepaid evolves to the mobile, TV and other platforms, it provides the natural route to cheque eradication, and even Joan Bakewell will get used to it.
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