Don’t write off our cheques! (or has that ship already sailed?)

Don’t write off our cheques!

Earlier this year the Daily Mail carried an online article “sounding the alarm over fears firms are trying to kill off the humble cheque”. The headline read:

Don’t write off our cheques!

Millions rely on them, yet dozens of firms now refuse to take them or charge extra to use them…but you are fighting back.

The Daily Mail article stated that its readers were sounding the alarm over fears firms are trying to kill off the humble cheque, claiming that a surge in bank branch closures means there are fewer places to deposit them and in 2010 more than a billion cheques were paid in falling to 185 million in 2020. And, finally, none of the “High Street” banks now offer a chequebook to customers as standard.

Has that ship already sailed?

Let’s unpack the state of cheques in the UK with a quick history lesson, see where cheques fit in the UK’s payment mix and then take a look at ten insights into our nation’s use of cheques….

Cheques: A quick history lesson

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 but 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.

In the 30 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 published cheque data: in the 12 months to June 2021 only 173 million cheques were processed representing a 26% reduction in volume and a 34% reduction in the total monetary value of the cheques.

Just 1.3% of the payments mix

In the 12 months to the end of August 20221 we see that:

Cheque volumes have decreased by 15% (12 months to July 15%).
Cheque values have decreased by 8% (12 months to July 8%).

Cheque volumes processed by the Image Clearing System in August 2022 were 8% lower than during August 2021 with values also decreasing by 4% in the month.

With volumes of digital payments continuing to increase, the share of legacy payments within the total continues to fall. For the twelve months to August 2021 the volume of Cheque payments accounted for 1.6% of the total (for Bacs/CHAPS/Faster payments and Image Clearing System) falling to 1.3% for the 12 months to August 2022.

For the month of August itself the percentage had fallen further to 1.2%

Ten insights into the UK’s use of cheques

Earlier this year Pay.UK published research2 they had undertaken to assess our attitude to and usage of cheques.

Here’s the top ten insights from Pay.UK’s research:

#1: 44% of current account holders and 78% of businesses write at least one cheque a year.

60% of consumers and businesses are writing fewer cheques than they did three years ago.Consumers who use cheques estimate they only write around 8 cheques a year.Businesses who use cheques estimate they only write around 3 cheques a year.

#2: 51% of over 65’s write at least the occasional cheque (72% in 2014).

#3: More than 7 in 10 of over 65s now say they make fewer payments by cheque than three years ago compared with less than 2% who are making more.

#4: The decline in cheque usage has been driven both by the ‘push’ of the payer’s preference and the ‘pull’ of the payee’s.

The two main drivers of the overall decline in cheque usage are (a) growing preference for other, easier payment methods and (b) recognition by payers that people don’t want to be paid by cheques.

#5: The replacement payment instruments chosen are: cards, online banking and Direct Debit.

#6: Half of current account holders don’t believe that cheques will continue as a payment method.

#7: The overwhelming majority (95%) of charities still receive donations as cheques.

Only 56% of charities currently write any cheques, down from 71% in 2019.
30% of the charities (mainly the larger charities) say they received over 100 cheques in the last year.
78% of all receiving cheques say they are donations with most of the rest payments for goods or services or subscriptions.

#8: 66% of schools made at least one cheque payment in the last 12 months, but 85% of schools say the proportion of payments by cheque is declining.

77% of schools received at least one cheque in the last year although only around half of that number received more than 10 cheques.
67% of those who received cheques say it was towards payment of fees and the second most common reason for receiving a cheque was a payment for a service.

#9: Some are persevering with cheques

The 7% of current account holders who are using cheques more than they used to three years ago cite the reasons for their paper based preference as:

Trust in cheques: believe they are safer and can ensure that the right person is paid.
Control: allows the cheque writer to delay payment or even cancel it and it creates a paper trail.
Lack of trust in /access to, or understanding of online or mobile banking.
Ease and familiarity of cheques.

The 17% of businesses who are using cheques more than they used to three years ago cite the reasons for their paper based preference as:

Habit.
Payee insistence.

#10: Most are predicted a continued decline use of cheques over the next three years

The decline in cheque usage is predicted to continue with half of consumers and businesses who are currently writing cheques saying they will be used less often.

For as long as long as customers need them

With just 138 million cheques being cleared each year in the UK it is clear that after a long and illustrious career the cheque as a payment instrument is in terminal decline.

Rather than a concerted effort to kill off the humble cheque3 it is clear that consumer and business payment behaviour continues to rapidly change which, for cheques, is leading to a self-fullfilling prophecy.

Each research insight shared by Pay.UK reinforces that, for most, the cheque has been donated to the Museum of Curiosity with viable and attractive payment alternatives more than adequately meeting our payment needs.

The ship has certainly sailed as, for most, the cheque has certainly been written off.

The challenge, of course, is maintaining the cheque as a payment instrument given the 2011 industry promise of retaining cheques for “as long as long as customers need them4”.

Does anyone have a definition for “as long as customers need them”?

At just 138 million cheques being cleared each year in the UK representing such a small percentage of the payments mix is it now time for a sensible and balanced discussion on the future of the cheque?