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« Is there a lawyer in the house? | Main | More regulation »

Chequeing out

By davebirch posted Sep 12 2007 at 11:15 PM
[Dave Birch] Here's another milestone that will probably pass unnoticed. The U.S. Federal Reserve will stop processing paper cheques in 2010. From then on, they will only handle "Check 21" (ie, captured images and details) and I'm sure that the numbers of those will continue to fall. For some people, that's a problem. If, for example, you make equipment to print and process cheques as does Panini North America in Dayton, Ohio. Their president, Douglas Roberts, says that
Checks will take us into 2010, 2011, but we need to be selling something in 2009 beyond checks... Checks will be a maintenance-only industry.

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There's something really unusual -- in the big sense of the word -- rumbling along here. In the course of human history and the march of commerce, new forms of payment have been invented from time to time. Coins, notes, cheques, cards, EFT, Paypal and M-PESA. But over time they have sat alongside one another. We've seen them change their market shares, obviously, but they all continue to exist. In the last couple of days I've used coins as well as chip & PIN cards, Paypal as well as online bank transfers. As each new mechanism comes along, we carry on using the old ones. We've never seen one of them go away. Never. But in the case of cheques, it seems to me to be entirely plausible that they disappear within my lifetime.

Last month, I tried to book a flight on British Airways web site. Every time I pressed "pay" (or whatever it says) it went wrong, so in the end I had to phone up their call centre and sit on hold (on an 0870 number) for ages before I could book the tickets for the whole family. BA punish you for doing this not only through the 0870 charges (note to foreign readers: 0870 is not free) but also by surcharging fifteen quid per ticket for phone bookings. I complained to their customer service centre and got a refund. I assumed that, since BA knew perfectly well which card had been used to pay for the tickets they would simply refund the money to the card. But to my surprise (and slight annoyance) they sent me a cheque. I was looking for it over the weekend but I can't remember where I put it.

I'm almost an anomaly. Half of all British adults didn't receive a single cheque last year. In the last decade, APACS figures show that the number of cheques written in the U.K. has halved, to the point where the billion cheques written account for only one in ten of all non-cash transactions and only one in thirty of all retail non-cash transactions. APACS predict that the fall will continue but slow, so that in 2016 us Brits will still be writing 840 million cheques per annum. Maybe. But on the other hand, perhaps by 2016 P2P payments will have moved entirely to NFC phones and bill payments will be pushed to the handset, and there will be nothing for cheques to do. Except for the giant ones they give to lottery winners, but that's a bit of a special case.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Comments

I read this post back in September and I was particularly struck by your comment that "it seems to me to be entirely plausible that they [cheques] disappear within my lifetime."

It is common knowledge that cheques are on the decline. Sometimes you have to step back to realize that at current rates of decline, your statement is probably extremely realistic. Based on the most recent Federal Reserve Payments Study, I have updated my own model and found that, at current rates, the number of cheques paid in the US may be down to negligible numbers before 2020. You can see my preliminary results here:

http://paymentswatch.com/2007/12/16/noncash-payments-forecast/

"For my friend the hassle factor of receiving the money through an email transfer was not worth the trouble."

Isn't this what Paypal is for :)

I thought I mis-read what David said. I thought the fed was saying no more checks. I then remembered that Check21 does not eliminate checks it simply means that paper checks do not get passed between banks during the clearing and settlement process, the electronic image is.

Having lived in Europe for 15 years I was quite amazed when I went back to North America and found that I needed checks to survive. In Europe the family maybe wrote 10 checks a year, mainly because the wife found it easier to write a check than to figure out electronic banking. Most of the rest of the payments I did.

It is fair to say checks are a thing of the past for any computer literate European.

In North America checks are not as easily replaced. As an example Canada claims to have one of the most sophisticated electronic payment systems in the world. Yet, we still write lots of checks.

Why because the major banks agreed not to allow a consumer to instruct, through a branch or over the Internet, an account to account transfer between financial institutions. Why that is another story.

Recently I had to repay a 20 dollar loan. I had three choices. Mail $20 in an envelope. Mail a $20 check. Use Interac's email money transfer service.

Not having any stamps I tried the email service. My side was easy. The guy I borrowed the money from told me he would have preferred cash or check.

His account was with one of the second tier institutions so not so easily accessed through the web page used to move the funds into his account. For my friend the hassle factor of receiving the money through an email transfer was not worth the trouble.

Several emails later and a call to my bank, I found out that not only did I have to pay $1.50 for the transfer, to cancel it would cost me $5 dollars more.

Anyway. Those of you in Europe should consider yourselves lucky. Your banking system, although not yet SEPA complaint, is more effective and cheaper than what we have here in North America.

The Check in North America is here for the foreseeable future.

My thinking checks are cheap long live the check.

I get two cheques a year. One for my birthday and the other from Inland Revene when I claim back tax owed on mileage. The latter is one of life's simple pleasures that they are trying to take away from us!

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