/ Money

We need an independent review on scrapping cheques

Close-up of cheque and pen

From the strength of opinion here on Which? Conversation, we know that abolishing the cheque is unpopular, so it’s good that the enquiry’s been reopened. But we need to take it further and have an independent review.

Every time we mention cheques in our Conversations it shows just how popular they still are. It also shows us the strength of feeling that exists against the abolition of the cheque.

Well, it seems those folks at the Treasury Select Committee may read Which? Conversation as they have re-opened their enquiry into the abolition of the cheque.

The consultation so far…

At is stands, the decision to abolish the cheque will be made by the Payments Council. They have held lots of consultations and worked with a huge range of stakeholders, (including Which?) to:

  • Analyse where cheques are still used.
  • Assess what impact, if any, abolishing the cheque may have.
  • Come up with alternative payment methods that could be introduced.

This has been a very collaborative process and we are happy to be a part of it. However, the decision on whether or not to abolish the cheque will still ultimately be made by the Payments Council.

Their decision-making process is largely dominated by industry. This can often mean that vital interests of consumers, such as Faster Payments, are not properly pushed forward. So I have to question whether the Payments Council can ensure that adequate cheque substitutes are in place if, and when, the cheque is phased-out.

Why we want an independent review

The final decision to abolish cheques should be taken out of the hands of the Payments Council and instead it should be made following an independent review. This should consider whether the proposed alternatives to be in place by 2018 are suitable, cost-effective, accessible and safe to use for consumers.

We’re not wedded to the cheque, and understand the arguments behind scrapping it. But it would be foolhardy to scrap the cheque unless suitable replacements are in place – and an independent review would be the best way to do this. What do you think?

Comments

Independent – most definately!
Has it not always been the case that those high up, have decided to change things for the benefit of business and not the people that HAVE to rely on those businesses in their everyday lives?

In an ideal world, the independant review on cheques would be carried out by a board made up of retired people, charity staff, etc.
ie, people and concerns that benefit from and use the service.
Shouldn’t those with most to lose from it being taken away have the biggest say? I believe they would scrutinise the replacement being proposed in a much more stringent manner and speak more for the people rather than those who do not live everyday regular lives as the majority of us do.
Plus they would benefit from any payments and expenses for carrying the review out.

It is fairly obvious that an independent review would find that there is a place for cheques for some time to come, so it would save a lot of time and money if the plan to abolish cheques was postponed.

What must be avoided is increased use of cash. There are too many thefts and muggings as it is.

It’s ridiculous to suggest that just because people are forced to use cheques there is a future for this out-dated form of money exchange. Cheques are virtually unknown in Germany and have already been abolished in Poland. In many parts of Africa, cheques have never been used and today people exchange money using SMS text messages. The UK needs a universal payment platform for the 21st century and inevitability that’s going to be electronic (smart cards, mobile apps, SMS, etc). I’ll be glad to see the back of cheques!

Martin – You and I hate cheques, but I’ve read many postings on the Which? Conversations pointing out some good reasons to keep them for the time being. We need to develop an alternative system to meet our needs, hopefully drawing inspiration from practice in countries which have phased out cheques.

Phone security has not evolved to meet the needs of the 21st century, and it’s not just me that holds this opinion.

I think we are getting off the topic, which is whether we should have an independent review.

Wavechange – OK. To bring this back on-topic then: I don’t see what useful function an independent review would serve except to create uncertainty and delay the introduction of new technologies. Technology is going in one direction only – why put us even further behind other parts of Europe, Japan and South Korea? We already know that a proportion of the community have a preference for low-tech payment methods and the important task is to introduce a user-friendly technological solution for these people.

The distinction between the payment platform and the payment method is important. We need an interconnected platform to process all transactions made by numerous methods (e.g. small payments by phone or NFC are OK but large payments might need two-factor smart cards). This is simply the 21st century equivalent of cash, cheque or dumb card. This approach leaves plenty of room for people wanting stay at the low-tech end of spectrum.

Martin, I don’t know if you have read the vast amounts of information in the previous two Which? Convo’s about Cheques, but if you have you will have noticed (and if you have not you really need to know) that one of the greatest problems with phasing out cheques is that the Banks have a profiteering (or perhaps more accurately racketeering) stranglehold on the machines and systems to process any and all electronic forms of payment and they charge so much (not to mention on costs such as ‘phone lines, etc) that for many sole-traders and small businesses, not to mention charities, the cost of accepting anything except cash and cheques is prohibitive and would indeed force a good number of traders into bankruptcy.

For cheques to be abolished there first of all needs to be legislation to force the banks to facilitate the acceptance of electronic payments by traders for free, including indeed the BANKS paying the on costs such as telephone line rental for the terminals.

If you are in any doubt about the reality of how vast these costs are and the magnitude if the effect they do and will have on traders, go back and read the other two convo’s carefully and look at what worried traders state on there.

Getting back to this thread in particular, the independent enquiry, IF it is really independent (which I doubt it will be) is to be welcomed and Which? should use any and every opportunity that arises to push the issue of costs and the need for legal changes to what the banks are allowed to charge as strongly as possible.

And that’s before we look into the other issues raised above which are absolutely very real indeed and of huge concern to those involved, but are not quite universal as the costs are.

Martin – I am not in favour of an independent review. As I have said in an earlier posting, I am in favour of keeping cheques. I absolutely agree that it is important to develop a user-friendly technological solution for making payments, though it would be a good idea to have a popular and proven system in place before dispensing with cheques.

Dave D refers to some of the important issues that must be addressed, and it really is worth looking at all the comments in favour of retaining cheques that have been posted on this site. I work for a small charity and I am not aware of any practical alternative to cash and cheques for donations. Some of the small businesses I deal with (and I prefer to support local businesses) usually ask for cheques or cash.

I don’t have your technical knowledge but I don’t believe that current mobile phones can be relied on to provide sufficient security for even small financial transactions.

Julian says:
10 June 2011

Martin – I am completely with you.

Dave D – Your point about the cost of processing cards is completely incorrect. Processing a cheque costs us 60p in bank charges alone while a debit card payment costs 10p and (if we did not use broadband) a phone call of 2.5p. These numbers ignore our in-house costs of processing cheques which include checking the cheque when it is written out, writing a card number on back, allocating the payment to a customer’s account, entering it on a paying in slip and going to the bank. None of these costs apply to an electronic payment. Then add the bank charge cost of bounced and referred cheques together with the inability to cash cheques where words and figures do not agree and you might see why we would prefer not to do business with people who insist on making a cheque payment.

Wavechange and Dave D are right to point out the number of discussion about cheques here on Conversation. Out of over 1,000 votes on our poll, a massive 92% majority said that didn’t want cheques to go. And you can read about many of the reasons why here:

https://conversation.which.co.uk/money/you-say-cheques-should-be-here-to-stay/

Julian – You hate cheques and so do I. But let’s not just consider ourselves.

Julian,
I am sorry, but you are incorrect. Please take the time to read the material to which I referred before making a rather arrogant remark.
The cost of processing a cheque may well be 60p, but that is the full cost of the processing.To accept cards retailers have to pay sums varying from £500 to several thousand pounds per year for the rental of the terminals. They also have to pay line rental on ‘phone lines and a minimum ‘phone charge of around 15p every single time a card is inserted, regardless of the value of the transaction or whether it is aborted or declined. Then there is the cost of the electricity to run the terminals (which have to be powered 24/7) and the banks charge “top up” fees (i.e. fines) if the retailers do not process enough transactions per month to make the banks the “floor target” in processing fees. Finally, after all of that, the banks charge the fees to which you refer.

There is a great deal of detail about these “on costs”, from a wide variety of retailers and traders, on the previous two convo’s and I recommend that you read it and digest it before making further ill-informed remarks.

Quite apart from the need for accuracy remember that the costs, ALL of the costs, of accepting payments are ultimately passed on to the customers, ALL of the customers, and a point I’ve made before is that I don’t see why people paying by CASH (which is not me I might add) should have to pay over-inflated prices in order to let cheque-haters pay by card (or, indeed, to let cheque lovers pay by cheque).

Thomas says:
12 June 2011

All,

I work as a Project Manager for a company processing 70% of the cheque clearing market for the major banks in the UK.
One thing i should point out is that it is not 60p to process a cheque no longer, it is around the 25p mark, still more expensive than proicessing a debit card although none the less a bit cheaper (this information came up in a conversation with the CEO).
My feeling is that cheques will decline year on year at the rate that they have been for the least 3-4 years (12%). We should also bear in mind that approximately 2.5 million cheques are still processed in the UK per day so the service is by no means dead yet but in time will be a niche market.
I understand the need for an alternative use to cheque although the Payments Council look as though they are struggling to find a suitable alternative as they are certain scenarios which service such as Mobile payments will not work such as use for the elderly, schools, some businesses to name a few.
I should also point out that to end cheques, the banks will have to recommend an Act of Parliament (in other words ban them and make them illegal). It is effectively not up to the banks.

Thanks
Tom

paul says:
10 June 2011

For a cheque to work, the payer and payee do not have to be present at the same time. Can an alternative be used like this?
I write many cheques to school. I write the cheque, the children take them to school, the school pays them in. Simple. Can an alternative be used like that?
For peripatetic music lessons, the school wants cheques for the year now, but dated several months apart. Can an alternative do this?
If someone sends me a cheque, I can choose which account to pay it into. I will know that I have recieved it, its value, and which account it has gone into. Can an alternative be used like this?

john says:
10 June 2011

Abolish them. At the moment HMRC can only accept repayments by cheque, this will certainly save me loads!! If you are paying by installments and unable to post monthly cheques they will accept 6 post dated cheques. How Quaint

Barry Emmott says:
10 June 2011

My 85 year old father-in-law is semi-housebound and completely confounded by things technical – he has even given up on mobile phones. He pays all his bills by cheque so how would abolishing cheques help him and, I suspect, tens of thousands of OAPs like him ?

Beverley Flood says:
10 June 2011

Agree, I work with the elderly and most other forms of payment rely on remembering a number. Well this is difficult for the majority of our elderly population (and if we are lucky then we will get there as well). Cheques do not rely on memory, the alternative solution must provide the same.

Brian london says:
10 June 2011

Absolutely We need a review

The Banks are way out of touch on this one they want it it will give them phone line rental and 4 % charges for a system electronic which is meant to be free!

I absolutely disagree with getting rid of the cheques at the moment my solicitor wants 4% on top of the amount i already have to pay because he says the banks charge 4 % extra if its not cash or cheque.
I don’t have to be present my friend can and often does deliver my cheque to him.

You can write post dated ones.

And My No1 reason is i work in the technology field and i wouldn’t so so sure about chip and pin i have had my card cloned several times, and I’m sure i’m not the only one.

A cheque is a nice little friend to have in emergencies to inbetween payments when money is a little tight you can ring up arrange an overdarft and write a cheque, guaranteed with the card secure in the knowledge it will be cashed.

J.Clark says:
10 June 2011

I have already heard a tradesman say that now that cheques are not guaranteed he will only accept cash. So there will be a lot more cash jobs with the consequences that entails. I won’t go into them.

Any review must be independent, and must address all of the issues in any replacement before phasing out cheques. I would particularly like to reiterate cases where 2 signatures are required for security, at the moment these do not have to happen at the same place or time. I am treasurer for a club and have had to post a cheque on to another signatory on one occasion. As I sometimes have to pay myself back for payments I have made I prefer to keep these payments obvious and accountable.

SJ says:
10 June 2011

Clearly, big business and banks should not be the ones making the decision on this; they are least affected. Why bring in an alternative that does everything cheques do, when simply keeping cheques works best?

Julian says:
10 June 2011

As a business, we no longer accept cheques at all (in common with many other businesses and several supermarket chains). They are, on balance, vastly more troublesome and expensive to process than electronic payments after taking into account card processing charges and communication costs.

With the disappearance of the cheque guarantee card at the end of this month, increasing numbers of businesses will do the same so it seems likely that cheques will disappear as an acceptable means of payment long before they are abolished.

My turn to be a little arrogant now Julian: presumably your business is a large and highly profitable one that can afford to turn it’s back on the trade that comes from people who don’t have the card option? E.g. some of the disabled population and people with financial hardship to whom the banks refuse to give any form of card, credit or debit?

Must be nice to be able to tell such people you don’t care about them and don’t want to trade with them.

How will you pay next time you need a plumber or electrician who won’t accept anything except cash or cheque? Or maybe a locksmith when you are locked out one day?

M Howard says:
10 June 2011

There is still a need for cheques in our daily lives, I still use them regularly. For instance, I belong to a sports club. We pay our membership fees by cheque. There are also regular theatre and day trips, the organisor needs to accept cheques as he does not have credit or debit card payment facilities at home, nor does the club. When I order goods by mail order I am very reluctant to put my card details in the post. I enlose a cheque, which I feel is safer. Lets hope that the government and the financial institutions will see sense too.

As a retired banker, who latterly was in charge of a major bank’s not for profit sector, and also a current Treasurer of a National Charity, it is banks that want to rid us of cheques. Few people appreciate that banks have a clearing system that rivaled, collectively, that of the Post Office and as such cost them a small fortune in clearing cheques to each other and ultimately our bank accounts. Over the years banks have been trying to reduce these costs – initially by not delivering cheques with your statements, but latterly with the advent of technology and use of debit/credit cards, and deliberate imposition of charges on cheques above those of cards, making cards more acceptable. How often do you see in small business notices to the effect that they no longer accept cheques – this is because the Banks charge their customers significantly more to process cheques to the extent that retailers no longer want to accept them. Therefore banks now highlight the smaller usage of cheques to bolster their case for total abolition.

The problem is that under the Charities Act 2006, all charities with more than one Trustee (almost all of them) must, by law, have two signatures on all of their banking transactions (other than perhaps very small transactions, but that has still to be tested in law). A large number of banks are not able to offer electronic banking that can be used to authorise two signatories, especially if those signatories (as in my case) live at different ends of the country. Also, there is an over-estimate by banks of the number of Trustees of charities that actually have not only an internet connection, but also electronic banking. One off payments would be almost impossible to process.

The cheque is by far the most logical form of payment in such circumstances and it also means that pensioners and others not computer literate can make payments easier. The ONLY reason that there is a move to do away with cheques is that the Banks want to, and it is they who appear to have convinced those in power it is a worthy cause.

As an ex banker, I can think of nothing more simple to replace the cheque – and if banks find that their clearing process is now more expensive per itme cleared because they have reduced volumes deliberately, that it their fault.

Most useful and interesting insight – thank you for this. You have confirmed, as an industry insider, exactly what I and many others believed to be the case here.

Martinmac says:
10 June 2011

until there is a simple cheap, read free, way of accepting small payments from people then cheques have to remain. I am a charity treasurer and 75% of my outgoing payments are by cheque. not many of my ingoing payments are cheque at the moment, but many would be plastic if we accepted them; but the sheer cost of accepting plastic is ridiculous. It costs the banks much more to receive my cash receipts into the bank yet that is free. when the news of the closure of the cheque guarantee scheme came in I researched the costs involved. it would cost us more than if half our cheques paid in bounced. It is scandalous the amount banks charge businesses to receive plastic!!

I’m a market trader and will only accept cheque or cash for items costing typically £30 to £100.

Why? The processing costs. I do business through my personal current account, so do not have the cash and cheque processing costs of other traders. My saviour is the cash machine across the pedestrian street from my market stall – that way, my customers can pay me cash but get it electronically in safety.

For everyone else in business, and me too with my website, the banks (and the online processing systems they own, like WorldPay) are only a little cheaper for the trader than PayPal. In general, the banks traders charge less but make less profit when we use cheques rather than card payment – there is still a need for manual handling, which is expensive. If we have an electronic processing machine, the monthly rental charges for this are several percent of the sale even if we get many sales, and that’s before the percentage they add directly as commission. For smaller, low-volume traders, just the machine rental can be 5% of the sale price – not viable, as we then can’t compete with chain stores.

So, to be blunt, the banks have all worked out long ago that cheques are never going to be profitable for them. With their combined power, I think they are going to force out the cheque no matter what we do. Despite their advertising, banks exist to make profits, and have never in centuries found that good customer service pays when putting profit first can be represented as ‘customer-friendly’ by clever advertising. They jointly control electronic sales, and, like the mobile phone companies, have no interest in lowering the proportion they get from each purchase Which? readers make. They are also too powerful, jointly, for anyone, even the government, to force reasonable behaviour from without Consumer Association lobbying and campaigns.

Taffy says:
10 June 2011

Whoever had this idea did not think out the various implications in full. I admit that my use of cheques has diminished because of the introduction of plastic cards, but there have been occassions when I have had to resort to cheques, birthdays, subscriptions, payment by post to name a few. What is going to be the alternative and will small organisations like clubs be able to meet it. I have currently gone around asking others to transfer to DD to be told I am to old to handle this system.

Fran says:
10 June 2011

I am concerned that Nationwide have just stopped using cards as cheque guarantee and I have noticed that this appears to have prompted firms to refuse to accept them. I think this will accelerated the abolition of the cheque book which I find so very useful. I think the probelm is the increasing cost per cheque of using them as use decreases. Can Which find a cheaper way of doing it?

GCB says:
10 June 2011

Rather than see cheques discontinued, we need to see their use expand.

Years ago, it was possible to acquire a book of Eurocheques, tied to your normal current account, and backed by their own special card, but usable (as the name suggests) in many counties in Europe, and widely accepted for goods and services, just as ordinary cheques were at home. Unfortunately, this facility was withdrawn some years ago (not only without warning, but without notification).

Having recently (for no reason that I can discover) had my credit card blocked while I was on holiday in Germany, I am urgently looking for some reliable way of funding foreign travel, without the fear that the banks will without warning pull the rug from under me. Eurocheques (or something similar) would fit the bill.

David Rickard says:
10 June 2011

Cheques are used to buy goods by post and pay for local jobs done by small firms that live within 10 miles and cash is not alwaws available when job is complete. card machines will not be used so these firms will close.
Please note in Turkey only large super stores have card machines due to the high charges. so you pay by cheque or go to the cash machine.

Cheques are a safe way of making a payment. I can prove the signature is mine, not the case for using a pin number on a card. Just sent a cheque in the post to a friend to pay for tickets she hasd bought. The only other alternative is cash through the post (no) or being given their bank account details for internet banking. Small, independant traders/repairmen visiting the home – will all have no option but to accept cash, or carry switch machines.
The policy has not been thought through, and none of the alternatives are as safe as a signature on a piece of paper.

Karen you are absolutely right. The point about a cheque is that the signatory can prove than he/she wrote it AND that the amount is correct. Furthermore, it is (currently) possible to stop a cheque before it can be compromised, not the case with electronic methods.

I’d like to see how many crossed cheques have been stolen and cashed – compared to how many debit card fraudulent transactions there have been.

If people are no longer allowed to use cheques, they will have to use money orders, at a price.