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Cheques are expensive, insecure and slow. Digitising isn’t going to help them.

Although I don’t personally indulge, I am reliably informed that  a  number of people still write cheques for a variety of purposes. Amazingly, there were 838m million cheques written in the UK last year. Note, though, that that number has halved in the last seven years and is projected to roughly halve again over the next seven years. In 1998 there were 2.7 billion cheques written in the UK. In 2008, it was down to 1.3 billion. In 2018, we expect to see it fall still further down to 583m.

Despite that precipitous fall in the number of cheques written, the absolute value of cheque fraud was still going up until last year, even as the number of cheques collapsed, although it has just started going down.

Figures released on 14 March 2014 show that cheque fraud losses fell from £35.1 million in 2012 to £27.5 million in 2013.

[From Cheque and Credit Clearing Company – Cheque Fraud]

One of the reasons for this continuing fraud is, as you might expect, the lack of any identity infrastructure. Cheques are not addressed to a unique “payment name” or financial services identifier (FSI) but to a simple name. This makes it easy to steal cheques and redirect them, yet another example of how effective our stringent (and expensive) KYC procedures around opening bank accounts are.

A postman stole millions of pounds of cheques meant for City institutions in one of the biggest thefts from Royal Mail. For three years, Ajaz Budi, 33, helped himself to hundreds of parcels from the Mount Pleasant sorting office in central London, containing cheques worth more than £2.3 million, the Old Bailey heard. He and his accomplices paid them into accounts set up with similar names to the intended recipients.

[From Postman took millions meant for City firms – Telegraph]

The postal service seems to offer a particularly effective attack vector.  I remember a newspaper story concerning a celebrity called Caroline Fereday (I don’t know who she is, so don’t e-mail me to ask) who wrote a ten grand cheque to Her Majesty’s Revenue and Customs (HMRC). The cheque was stolen in the post and she found herself out of pocket and still liable for the tax. I made a note of it at the time because it is puzzling to me why anyone would bother writing out a cheque and putting it in the post and thereafter trusting their payment’s trajectory to the Gods, when the alternative is doing what I do once every year, spending about nine seconds to pay my income tax using my Barclays mobile banking app (through gritted teeth with salt tears dripping on the iPhone fingerprint sensor) and receiving immediate confirmation. Still, there’s nowt as strange as folk, as they say in mother’s home town of Catterick, and HMRC receive 1.7 million cheques every year.

A Handsworth postal worker has been jailed for seven years for stealing cheque books from a city sorting office – which led to bank losses of £1.2 million.

[From Royal Mail post worker who stole cheque books from Birmingham sorting office jailed – Birmingham Mail]

The transport mechanism isn’t helping, but the fact is that the basic technology used to protect cheques (signatures) is also vulnerable and, as Brett King points out, vanishing anyway. And even banks were to engage the services of some international signature comparison experts to validate cheques, there are plenty of other ways of undermining security.

Council clerk stole £160,000 from taxpayers to fund her ‘shopping addiction’ by forging cheques with an erasable PEN

[From Council clerk Patricia Bell stole £160k by forging cheques | Mail Online]

So what to do? The advice from UK Payments is straightforward and unequivocal. Do not trust cheques.

Never accept a cheque, or banker’s draft from someone, unless you know and trust them.

[From Preventing Cheque Fraud – Consumer – Financial Fraud Action UK]

In other words, they might have said, identity is the new money (!).

By the way, for reasons irrelevant to this narrative, I happened to be reading an Ernst & Young report from the year 2000 called “Prometheus Unbound: Towards a dedicated currency for eCommerce” which argues that digital cheques, customer rewards and micro payments are drivers toward a new kind of payment system, optimised for the online world. We still don’t have this new kind of payment system, but the report reminded me about digital cheques which I remember thinking were an interesting concept at the time, because it was easy to see how they could work as structured XML with some digital signatures.

In fact we will digitise cheques in an entirely different way by opting for cheque imaging and remote deposit capture for the rump while generally bypassing them using the FPS and mobile-instructed A2A. Even with this digitising, they can’t hold on. The costs of the cheque infrastructure are falling on fewer and fewer cheques and we are raising a generation that simply doesn’t get them. Cheques will still be the first payment mechanism to vanish in my lifetime whether they are digitised or not.

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