With analogue (cheque) payments representing just 1.5% of the total Bacs, CHAPS, Faster Payments and Image Clearing System volumes is it the right time to join the Bahamas and decide to donate the humble cheque to that vast imaginary museum – the Museum of Curiosity?
A 17th Century Alternative To Cash
Bills of Exchange began to be used as an alternative to cash for domestic payments during the 17th Century. The earliest surviving cheque printed with the name of the issuing bank is dated 1759 and was drawn on Messrs Vere, Glyn & Halifax.
Innovation followed, albeit at a somewhat pedestrian pace, after 52 years The Commercial Bank of Scotland is believed to have been the first bank to issue personalised cheques and 19 years later customer demand led to the Bank of England issuing bound or stitched books of 50, 100 or 200 cheques.
From these humble beginnings, cheque usage grew over three centuries as the cheque took centre stage as the pre-eminent non cash payment instrument.
Cheque volume growth in the 1970’s was between 4% and 10% per annum although during the 1980’s growth had reduced to between 2% and 6% per annum.
Peak volume was reached in 1990 following 30 years of rapid innovation which included the introduction of MICR reader / sorters (1962), the introduction of cheque cashing cards (1965), the launch of cheque guarantee cards (1966), abolishing cheque stamp duty (1971) and an increase in the cheque guarantee limit to £50 (1977) which was followed by a further guarantee limit increase to £100 and then £250 (1989).
In 1990, 4 billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the Cheque and Credit Clearing Company, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings.
A steady but profound decline
In the 32 years since the 1990 peak cheque volume, there has been a steady but profound decline in cheque use. This rapid decline is brought into sharp focus by the latest published cheque data: in the 12 monthsto December 2021 only 152 million cheques were processed representing a 19% reduction in volume in just 12 months.
Just 1.5% market share
With volumes of digital payments continuing to increase the share of legacy payments within the total continues to fall. For the twelve months to December 2020 the volume of Cheque payments accounted for just 2% of the total Bacs / CHAPS / Faster Payments and Image Clearing System volume – falling to 1.5% by December 2021.
With 330 years of cheque growth, followed by over 30 years of decline are we now at a point where the humble cheque is on the cusp of becoming an historical artefact?
Our payment habits have changed
For over 300 years the only real payment rival to a cheque was cash, but in the 30 years leading up to peak cheque use we saw the introduction of the first generation of electronic payments including: Bank Giro Credits, Standing Orders, Direct Debits, Direct Credits, Credit Cards, Debit Cards and CHAPS.
These alternative payment choices were readily adopted by businesses and consumers and the scene was set for the transition to a predominantly digital payment society.
Since the early 2000s the payment habits of large retailers and petrol stations changed when they stopped accepting cheques for payments, a practice that has generally now expanded to include the vast majority of retailers.
In the 32 years since peak cheque the introduction of initiatives including online banking, mobile banking, Faster Payments, contactless payments, Apple Pay and, recently, Open Banking have led to the formation of deeper digital payment habits. The onset of the COVID pandemic in 2020 has led to these digital payment habits becoming increasingly embedded.
The displacement of cheques by alternative payments options is profound and despite the rejuvenation of cheque processing and the customer offering in recent years (via the expensive cheque imaging project), the rapid decline of cheque use has not been stemmed let alone reversed.
The content of our pockets has changed
In 1975 American Express launched a campaign entitled “Don’t Leave Home Without It” encouraging the aspirational business person or tourist to carry travellers cheques.
The famous tag-line became synonymous with American Express traveller’s cheques from the mid-seventies through to the late 1990s – making it one of the most successful campaigns of all time.
Baby Boomers and Generation X will have distant memories of not leaving home without some cash, a cheque book and a cheque guarantee card. The cheque book and accompanying guarantee card were initially displaced by a debit / credit card and now the physical manifestation of a plastic card has been displaced by a virtual card on a smartphone or wearable device.
For Millennials and Generation Z the cheque is regarded as an uninteresting historical artefact that their parents and grandparents used to buy a tent in Millets. Stereotypically, a Millennial will bank with a challenger bank who doesn’t even offer a cheque book.
As the Generation Alpha members of our society become increasingly financially independent, it is likely that a physical card will also become an historical artefact and be replaced by a virtual card.
The end of the cheque that never was
Celebrating 350 years of the cheque in 2009 was a bittersweet moment.
Volumes of the long-lived cheque were in sharp decline as consumers and businesses were increasingly adopting alternative payment methods and the National Payments Plan published by the Payments Council announced that it would actively manage the decline of the cheque with a view to closing down the cheque clearing system completely in 2018.
To be fair, it is important to record that this decision was based on cheque alternatives being made available that were acceptable to customers and were widely adopted. However, the announcement took many in the banking industry by surprise and the outcry by charities, the media, consumer groups, businesses and consumers led to a Treasury Select Committee.
In 2011, these events led to the reversing of the decision to close the cheque clearing. Along with the decision a commitment was made that cheques would stay for as long as customers needed them.
The reversal of the ‘end of the cheque’ decision and a commitment ‘that cheques would stay for as long as customers needed them’ reinforces the critical fact that alternative payments need to be widely available, be acceptable and be adopted by consumers and businesses before a payment instrument can be truly displaced.
It’s not just a British thing
Cheques are not only on the cusp of becoming an historical artefact in the UK, Canada and the Bahamas are also experiencing a similar downward trajectory in the use of cheques.
The latest payments data published by Payments Canada shows that cheque payments equated to just 2.2% of payment volume share:
Cheque use continued to decline, while average cheque transaction value increased. Cheque transaction volumes declined by 26 per cent, and transaction values by 15 per cent from 2019. But, the average cheque transaction value was $7,075 (compared to $6,142 from 2019). The year-over-year increase in average cheque transaction value is linked to the continued use of cheques for large value business payments.
The central bank of the Bahamas has just announced bold plans to eliminate the use of domestic cheques by 2024. The central bank’s cheque reduction strategy will be supplemented with education around the use of digital alternatives, and will incorporate positive and consistent pricing incentive structures across the financial sector.
Reflecting payer preferences and decisions by recipients to stop accepting cheques, electronic fund transfers and other non-cash transactions in the region are already on the rise. Mobile wallet payments, for example, are poised for greater adoption; with the central bank’s digital currency – the Sand Dollar – providing financially inclusive and interoperable substitutes.
This renewed focus on cheques comes off the back of 2020 discussions with the Ministry of Finance and clearing banks, which set five-year targets to reduce the use of both cheques and cash in the Bahamas.
After a long and illustrious career
After a long and illustrious career, the use of cheques here in the UK is in terminal decline – after 330 years of cheque growth, followed by over 30 years of year-on-year decline we are now at a point that cheques are on the cusp of becoming an historical artefact.
In a recent edition of Pay.UK’s “Friday Insights”, Pay.UK have indicated that they are currently undertaking a strategic review of the Image Clearing System:
The move to eliminate cheques is bold – the decreasing use of cheques has been a centre of debate for the payments industry in many economies (including the UK) for a while and previous attempts have often been marked by a political backlash. As the operator of the UK equivalent, the Image Clearing System, we are currently undertaking a strategic review of our service with customers; we will be looking to more clearly understand decisions by international peer organisations that are considering the decommissioning of declining services.
We can expect other countries to observe the Bahamas’ execution to determine whether the elimination of cheques is viable, and success will depend on appropriate support, particularly from central banks. It is essential that choice and financial inclusion is prioritised in such efforts.
Pay.UK, January 2022
With analogue (cheque) payments in the UK representing just 1.5% of the total Bacs, CHAPS, Faster Payments and Image Clearing System volumes it feels like the right time for the UK to join the Bahamas and decide to donate cheques to that vast imaginary museum – the Museum of Curiosity.
The decade old commitment that cheques would stay for as long as customers needed them has been almost been met. A cheque reduction strategy, similar to that adopted by the Bahamas, could be supplemented with education around the use of digital alternatives and incorporate positive incentive structures across the financial sector.
After a long and illustrious career let’s send the humble cheque off into retirement and let our payment habits truly reflect the digital society we live in.