According to the Cheque and Clearing Company, in 2018, some 346 million cheques were used for payments and to acquire cash across the UK, totalling a value of £442bn. This fact is in stark contrast to the announcement back in 2009 by the Board of the UK Payments Council when it set a date of 31st October 2018 to phase out the use of cheques completely, but only if adequate alternatives could be developed.
“The goal is to ensure that by 2018 there is no scenario where customers, individuals or businesses still need to use a cheque,” the Council said in a statement. Paul Smee, the Council’s Chief Executive at the time added: "Customers are not likely to see any immediate change as the target date is still a long way off.”
The decision was met with great disappointment by the elderly, and those who made payments to sole traders, small businesses, clubs, charities and schools. It was clear that despite the paper-based system being slow and outdated, cheques were vital for certain groups and businesses.
In 2011, following pressure from the government’s Treasury Select Committee, the Payments Council was forced to back down on the 2018 closure date and announced that cheques would stay for as long as businesses and customers needed them.
Today they are still very much alive. But why?
Professor Michael Mainelli, Executive Chairman of the City of London’s leading commercial think-tank, Z/Yen Group, believes one of the main reasons the cheque lives on, particularly for small and medium sized businesses (SMEs), is due to the need for security; even in today’s digital age.
“Proponents of B2B digital payments sometimes forget the need for reliable internet connectivity to make them,” he says. In the internet reliability league tables, Mainelli points out that the UK is ranked 34th whilst the USA, home to some of the biggest technology companies in the world, is ranked 15th. “Until phone and internet connectivity are both reliable and ubiquitous, paper-based connectivity has some strong advantages.”
That’s a finding from in the recent B2B Payments Tipping Point report by PYMTS and Mastercard. It found that cheques still remain the most common method for both making and receiving B2B payments, as for those corporates surveyed, satisfaction with cheques was high.
Indeed, when it comes to avoiding payment fraud for businesses, the cheque is certainly king. According to recent figures from UK Finance, the collective voice for the banking and finance industry, cheque fraud accounted for just 2% of all financial fraud losses in 2018. Out of the £845m financial fraud reported, 56% was by card, 30% by automated push payment and 12% was by remote banking.
Is a shift under way?
But regardless of the stoicism of cheques, there is certainly a shift under way in the infrastructure of the payments industry, simply because there is an increasing demand from corporates for lower-cost, instant real-time payment systems in both domestic and cross-border markets.
According to a recent report by American Express entitled Securing B2B Payments, some 55% of corporate professionals identified real-time payments as their top B2B payments service priority. As such, there could be a change on the way, as expense card solutions provider Bento for Business estimates that around 80% of US SMEs still use paper cheques to make payments.
In September 2019, Bento for Business launched a new solution to help business owners transition from making payments via paper cheques. Its Bento Pay solution enables them to both make and receive payments using personal identifiers such as email addresses. Vendors have the option of how they want to be reimbursed, choosing automated clearing house (ACH) payments delivered to their chequing accounts, or by having payments loaded onto a virtual card.
However, the shift towards a digital payment future remains slow.
In an age of open APIs and of open and alternative banking, universal adoption of technology across the board will be key in order to sound the cheque’s death knell. It will also depend on governments and financial regulation. To take an example, on 1st January 2019, Italy became the first country in Europe to make e-invoicing mandatory for all B2B and B2C transactions, and more countries are expected to follow suit.
Mainelli sums up the future perfectly: “Ultimately, cheques will be phased out some day. But the point at which we can claim that cheque is dead will be the day where the likelihood of automated systems failure is close to nil”.
It seems the cheque will be around for a little while yet.