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Cheques and checks are both going nowhere

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The British government (inexplicably) want “cheques to have a crucial role in the ongoing success of the UK”. I don’t understand why and I strongly suspect they don’t either.

Cheque fraud in the UK grew 2% last year, although it is still well below its 2008 peak, despite the continued fall in cheque writing. According to the UK Payments Council’s latest statistics for 2013, cheque use is currently falling 12% year-on-year. I can’t remember the last time I wrote a cheque, although I just went and found our household cheque book and I can see that a couple of cheques are missing so we must have written one or two in the last year or so.

Cheque use is falling in the US as well, but according to the American Bankers Association 2013 fraud survey, checks accounted for 37% of the total bank losses to deposit account fraud. The US Association of Finance Professionals 2013 survey says that “checks continue to be the dominant payment form targeted by fraudsters”. It’s surprising to me just how conservative fraudsters can be!

One particular new (and growing) kind of fraud in the US is around remote deposit capture (RDC) and particularly mobile deposit capture (MDC). With MDC, customers use their smart phones to scan a cheque for deposit. The cheque image is fed into the system and the customer can then file or throw away the physical piece of paper. This is very popular with customers.

Mobile check deposit, once a low priority technology for banks, has become one of the most sought out mobile banking app features. But along with popularity and increased use, the potential for fraud is emerging for smartphone check deposits.

[From Mobile Check Deposit Boom Brings Risks – American Banker Article]

When remote deposit was introduced in the United States, I think it was assumed that the stringent legal penalties against check fraud that exist there (for historical reasons) would be a significant deterrent, yet the presentment of duplicate check images to multiple banks is heading toward a billion dollar problem.

Unfortunately, this is just one statistic in a growing wave of duplicate check presentments. In 2006, banks expected five to seven duplicate items per million payments processed. Today, CONIX reports that high-volume banks intercept between 40 to 100 duplicate items per million payments processed, an increase of more than 1100%.

[From New Wrinkle in Remote Deposit Capture: Duplicate Check Presentments]

This is not a counsel of despair. With next-generation fraud detection it should be possible to make mobile deposit very secure: if you authenticate the user, record their location, enter the cheque details in a central register and so forth. In fact, if the mobile deposit system can use new technology to make cheque deposit more secure, they may as well use it in the branches too, because one of the problems in the US is that fraudsters scan a cheque for deposit in one bank then take the physical cheque to another.

Why am I talking about this dated and expensive technology? Well, it’s because the UK government has announced that in 2014 it will begin a consultation on a technological revolution in cheques — well, two technological revolutions in cheques — that it wants the banks to implement to drag the British payments industry kicking and screaming into the seventeenth century. Yes, you read that right: now that Martha Lane Fox has got everyone online and everyone has a smartphone, the government wants investment in cheques instead of letting them wither away. There is a nuclear-powered robot wandering around on Mars, but in Whitehall the exciting vision of the future is that:

  • New technology could mean that your cheque is processed in 2 days in future rather than the 6 days it currently takes under the “2-4-6” scheme introduced in 2007. This was part of the Chancellor of the Exchequer’s vision of the future that he set out in a speech back in February 2013, painting a picture of a future Britain forged in the white heat of new technology (etc etc).
  • Consumers may also be able to take a picture of their cheque on their smartphone and send it to their bank with Barclays planning to introduce mobile cheque deposit next year.

The BBC asked me to comment on this on the Today programme, which I did in true fox & hedgehog fashion, and this conveniently gave me the opportunity to correct the government speaker who said (at 1:53:20) that introducing mobile deposit capture in the US had meant that “people start using more checks”. He probably hadn’t had the time to review the most recent Federal Reserve Payments Study, released two weeks ago, which says that:

The number of checks paid continues to decline, falling to 18.3 billion, less than half the number a decade earlier (37.3 billion). Checks are increasingly being deposited as images, with 17 percent being deposited as an image at the bank of first deposit versus 13 percent as reported in the 2010 Study.

[From FRB: Press Release–Federal Reserve Payments Study offers expanded view of U.S. noncash payment trends–December 19, 2013]

The figures clearly show that even in the heavily check-centric US, check use is falling and while MDC is appreciated by customers, it won’t make any difference to the long-term decline in check use. So the big question to me is… why bother?

Sajid Javid, the financial secretary to the Treasury: “We want cheques to have a crucial role in the ongoing success of the UK,”

[From BBC News – Cheques to be paid in via smartphones]

They don’t seem to have a crucial role in the ongoing success of, say, Germany, where cheques account for 0.2% of all non-cash transactions compared with 4.6% in the UK. In fact the only European countries who use cheques more are Ireland, Portugal, Cyprus, Malta and… France, where 15% of non-cash transactions are cheque. France’s heavy use of cheques is why its payment system is so inefficient compared to its neighbours.

I just don’t get it. One of the government’s “goals” appears to be to help small businesses, although what would really help small businesses is getting rid of cheques completely, putting an end to the “cheque is in the post” nonsense. Speaking as a small business owner myself, I couldn’t care less if I never saw another cheque again. Apart from anything else, once you’ve paid in a cheque you still have no idea whether it will clear or not. So much better to get a text message from the bank to tell you that money has arrived in your account. 

The British government have a profound (and odd) love of cheques. What our National Payments Plan should really be doing is managing the decline and withdrawal of cheques, but when the UK Payments Council suggested setting an end date for the cheque clearing system, the government went bonkers. Letters to The Telegraph, along the lines of “how will I be able to pay my gardener” were seen as being more important than economic efficiency or any calculations of total social cost. But as I pointed out at the time, mobile payments were just starting in the UK at that time and the Payments Council were talking about a decade into the future, so it seemed to me entirely plausible that we might go the way of Sweden or Finland, where no-one under the age of 30 has ever seen a cheque.

One of my sons, when he received his first pay cheque a few months ago, was genuinely baffled as to why anyone would send money this way, and mildly annoyed that he had to a) go to the bank to deposit the cheque and b) wait six days before he could spend the money. When I told him about the government’s vision of a Dan Dare world of the future, where you could deposit cheques using your mobile phone and wait only two days before you could spend the money… he was still baffled as to why anyone would send money this way. “Why don’t they just send the money by PingIt?” he asked me (since that’s how we transfer money around in our non-Dan Dare world of now). Good question, and I don’t have an answer.

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4 thoughts on “Cheques and checks are both going nowhere”

  1. rogerbannerman@yahoo.com' Rog Banner says:

    Wow, you really like ranting,don’t you? Whenever I read tirades like this I look for an agenda, perhaps even some declared self-interest, or some underlying logic.
    All I see here is a rant that young people (presumably anyone under sixty) must be mentally deficient if they contemplate using cheques, and therefore anyone over sixty, especially if they don’t / won’t use a smart phone, must be too stupid to be allowed to spend money.
    So let’s pull apart a couple of your arguments.
    2% rise in cheque fraud. Not statistically significant. Irrelevant to the central argument. If cheque use is down 12% then the numbers of cheque frauds will be down year on year as well. So you could say cheque fraud is down too (but you wouldn’t, would you?).
    Germany uses hardly any cheques. No Shit Sherlock. Have you ever tried banking in Germany? It’s a very different experience to the UK. As is Banking in France, for that matter. So too America. Comparing retail banking systems is like comparing national education systems, or driving, or cheese.
    So the government wants banks to introduce photo chequing. Big deal. If you don’t like it, don’t use it, but let those who do want to use cheques – for whatever reason – carry on doing so. The banks are barely fit for purpose anyway, they remain deluded, desparate to sell you services you neither want nor need, and many would say their business practices are morally corrupt (‘morally’ being an optional word, perhaps).
    The only good point you make is that a single, central cheque clearing database would prevent fraud. But the banks won’t do that in a month of Sundays and no government is strong enough to mandate it. One should ask why.
    The whole topic here doesn’t pass the “so what test”.
    So not very much Thought Leadership going on here (whatever the hell Thought Leadership is anyway, apart from 3 grand a day).

    I can’t believe I’ve wasted minutes of my life writing this.

    1. Dave Birch says:

      “Wow, you really like ranting,don’t you?”

      That’s why blogging is so perfect for me.

      “Whenever I read tirades like this I look for an agenda, perhaps even some declared self-interest, or some underlying logic”

      You don’t need to look for the agenda, as it is explicit: electronic transactions are more efficient than papers ones.

      “All I see here is a rant that young people (presumably anyone under sixty) must be mentally deficient if they contemplate using cheques, and therefore anyone over sixty, especially if they don’t / won’t use a smart phone, must be too stupid to be allowed to spend money.”

      You must be getting mixed up, since I said neither of those things.

      “So let’s pull apart a couple of your arguments”.

      2% rise in cheque fraud. Not statistically significant”.

      Irrelevant to the central argument”

      No it isn’t, since I consistently argue for more secure methods of payments.

      “If cheque use is down 12% then the numbers of cheque frauds will be down year on year as well. So you could say cheque fraud is down too (but you wouldn’t, would you?).”

      I wouldn’t say that, because it isn’t true. Cheque fraud in 2011 was £34.3m, in 2012 it was £35.1m.

      “Germany uses hardly any cheques. No Shit Sherlock. Have you ever tried banking in Germany? It’s a very different experience to the UK. As is Banking in France, for that matter. So too America.”

      Nowhere did I argue that they are the same. However, if you are interested, I do have the figures to hand (from the European Central Bank) that show that countries with lower cheque use have more efficient payment systems with a lower total social cost, and this is what I am really interested in. I want the payment system to be cheaper, faster and more transparent.

      “Comparing retail banking systems is like comparing national education systems, or driving, or cheese.”

      Germany has a better education system, we are better at driving, the French make some good cheese.

      “So the government wants banks to introduce photo chequing. Big deal. If you don’t like it, don’t use it, but let those who do want to use cheques – for whatever reason – carry on doing so.”

      What I said was that if people want to carry on using cheques, then they should pay for them, but that government policy should be to manage them away.

      “The banks are barely fit for purpose anyway, they remain deluded, desparate to sell you services you neither want nor need, and many would say their business practices are morally corrupt (‘morally’ being an optional word, perhaps).”

      Now this genuinely is irrelevant to the point.

      “The only good point you make is that a single, central cheque clearing database would prevent fraud. But the banks won’t do that in a month of Sundays and no government is strong enough to mandate it. One should ask why.”

      Since the consultation hasn’t begun, I have no idea whether the banks will do it or not.

      “The whole topic here doesn’t pass the ‘so what test’.
      So not very much Thought Leadership going on here (whatever the hell Thought Leadership is anyway, apart from 3 grand a day).”

      Not quite three grand a day as the Boxing Day sale started today.

      “I can’t believe I’ve wasted minutes of my life writing this.”

      That’s what thought leadership does: it sets the agenda. Thank you for taking the time to respond.

      Cheers,
      Dave.

  2. phil@yarwell.demon.co.uk' PhilT says:

    As a small time computer fixer I get paid quite often by cheque. I do have a portable credit card terminal but the lack of a signal from the network it uses can catch me out. It also relies upon printing a paper strip and if this goes wrong (as it often does) then it just cancels the whole transaction even though it had gone through electronically.

    Some simple SMS based money transfer arrangement like m-pay or other emerging economy solutions would be better than cheques, but I’m not seeing systems emerging that are compatible with my 60+ yr old customers.

  3. chaosain@ephemeral.firedrake.org' RogerBW says:

    Actually, the banks have already tried to kill off cheques, only to be met with a fairly large protest, so this is probably a populist move by the government. Forget small businesses — small non-commercial organisations, clubs, charities, need a way to receive money by post, and can’t afford the massive admin and cost burden of doing business with a credit card provider. Giving out a SWIFT/IBAN number in the UK still lets any random stranger set up a direct debit on your account. That might be a thing to fix first.

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