In December 2009, some 350 years after the world’s oldest surviving cheque was written in London, the UK Payments Council agreed to phase out cheques completely in the United Kingdom by 2018.
The decision was the culmination of nearly two years of preparatory work involving extensive independent market surveys on cheque use and consumer attitudes to cheques as well as wide consultation with the community. The independent research showed that the key drivers behind the continued use of cheques were habit, tradition and inertia, combined with a lack of awareness and confidence in other payment methods.
In the lead up to the 2018 deadline, the UK Payments Council has undertaken to continue to monitor cheque usage and to enhance the provision of alternative payment methods. A final decision would take place in 2016.
However, in February 2010, the UK’s Treasury Select Committee announced an inquiry into the Payments Council decision. The Committee advised that it would be seeking submissions and evidence on trends over time in the use of cheques as a payment mechanism, the advantages and disadvantages of abolition, and the development of alternative payment mechanisms.
This recent development is in line with what is happening in other countries: governments are playing a crucial role in monitoring the treatment of cheques.
Developments in other countries
USA
In January 2010, the US Federal Reserve announced it had commissioned a 2010 Federal Reserve Payments Study which will provide aggregate estimates and current trends in the use of non-cash payment instruments by US consumers and businesses. Previous studies have revealed significant changes in the US payments system over time, including a continuing decline in the use of cheques and growing use of electronic payments, such as Automated Clearing House, electronic banking transactions, credit cards, debit cards and stored value cards. Preliminary results of this study should be released by late 2010.
Canada
In Canada, some 70-80% of all commercial payments are initiated as cheques, a practice predominantly supported by mid-sized businesses. This makes Canada’s cheque use one of the highest rates in the world. Large corporations already see the advantages of automation and are increasingly adopting electronic payments. However, the need for integrated remittance and payment data is still strong and an essential element in providing a tighter and more cost effective method of payment reconciliation.
The Canadian Payments Association (CPA) plans to promote the migration of paper payments to electronic payments by researching viable alternatives to cheques, enhancing the existing electronic payments framework, and facilitating new and emerging electronic payment instruments in its framework as part of its Payments Strategy Vision 2020 paper. A more detailed proposal will be put to CPA members in 2010.
Ireland
Cheque use in Ireland is one of the highest in Europe, representing 75% of all non-cash payments as compared to the European average of 4%. The short term strategy of the Irish Payments Services Organisation (IPSO) is to reduce cheque use to bring it in line with the European average, but one of the clear goals of IPSO’s National Payments Strategy is to eliminate cheques completely, with no date identified as yet. As part of its National Payments Implementation Plan, Ireland increased stamp duty on cheques in 2009 to meet its short term aims (reducing a similar tax on payment cards).
Other Countries
Both the Netherlands and Sweden have effectively ceased cheque use through government mandate after the introduction of the Euro in the Netherlands, and by the actions of Swedish financial institutions to price cheques out of the market.
Cheque use in Australia
The 1997 Wallis Inquiry Report showed that in Australia, cheques were the most expensive form of payment across the whole economy, followed by cash, ATMs and EFTPOS. Direct credit was viewed as being the cheapest.1
For the last ten years, the use of cheques in Australia has been declining steadily as consumers have access to a greater range of more convenient payment options. In fact in the last three years alone, the total number of cheques in use in Australia has dropped from 437 million to 356 million, a drop of nearly 20 per cent.2
The marked decline in cheque use strongly suggests the future direction of cheques will need to be managed. A first step could involve gaining an understanding of the payments industry position and an appreciation of why those that write and accept cheques do so and whether alternative methods of payments would sufficiently replace the cheque. This work forms part of APCA’s Low Value Payments Roadmap.
1 “Exploration of Future Electronic Payments Markets”, Centre for International Economics and Edgar Dunn & Co., June 2006
2 RBA Bulletin, November 2009 at S33.