Ancient and modern

[Dave Birch] I was totally shocked to arrive home from work the other day to find my good lady wife celebrating with her tax rebate cheque. Apparently HMRC miscalculated millions of Her Majesty’s subject’s tax bills and we were one of the lucky overpayers. We are a couple of gallons of petrol better off than before. But a cheque! HMRC must have our ethnic background on file as “Amish”. Despite the fact that since time immemorial (for me) we have paid our tax bill online via internet banking, the creaking hand-cranked contraptions at the Revenue are apparently unable to use any form of payment invented after the Act of Union (in 1701).

To be honest, I’ve always been puzzled by the Amish, the strange religious sect in America made popular by the noted screen actor Harrison Ford in his 1985 film “Witness“. The Amish reject “modern” technology, but they seem to me to have a rather arbitrary definition of what constitutes “modern”. Why, for example, do they use wheels? Or nails? Or chemical fertilisers? What’s the cut-off point? 1750? Why not the invention of the transistor in 1948? Or the synthesis of urea in 1828?

The Amish, particular the Old Order Amish — the stereotypical Amish depicted on calendars – really are slow to adopt new things. In contemporary society our default is set to say “yes” to new things, and in Old Order Amish societies the default is set to “no.”

[From The Technium: Amish Hackers]

Speaking of reactionary sects that eschew the modern world to remain in the comforting cocoon of a romanticised rural past, I read in the Daily Mail that

Plans to scrap the use of cheques from 2018 were dropped today after the UK Payments Council admitted there was no better paper alternative.

[From Cheques will not be scrapped in 2018 but because there are no better alternatives | Mail Online]

Well, the wrinklies have triumphed again. Another minor skirmish in the intergenerational war for resources has been won by Joan Bakewell’s generation and our children are going to be made to subsidise a paper cheque system that should have been a distant memory for them. The Payments Council has been forced to cancel the end of cheque clearing (originally scheduled for 2018) and promise to keep cheques

for as long as customers need them

[From Payments Council – Payments Council to keep cheques and cancels 2018 target]

Note that I am specific in the wording, as were the Payments Council. No-one was banning cheques: they were ending cheque clearing. If someone else — the Post Office, Age Concern or the CBI — wanted to run a cheque system, they were free to do so. And, to be honest, that would be a good solution, because then their members could pay for it and those of us who couldn’t care less if they never saw another cheque could have ignored them.

I suspect that in the coming age riots of 2025, the cheque book will used as a rallying symbol of revolt by our impoverished offspring because the banks (ie, bank customers) are going to have to pay to support paper cheques into the foreseeable future. This is ridiculous. If some people (eg, my mum) want to carry on using cheques, it should be on the basis of full cost recovery: if you want a cheque book, you should pay for it, and if you want to cash cheques, you should pay £2 (or whatever) to do so.

The Government is aware that, although there are declining numbers, 54% of adults still write cheques, and on average every adult write 13 cheques and receives 4 cheques each year.

[From Frequently asked questions on the closure of the cheque system – HM Treasury]

Yes, but that misses the point. When I last wrote a cheque to my son’s school, I didn’t want to. I would much rather have used PayPal, internet banking, my debit card or M-PESA. I don’t want to receive cheques either, from HMRC or anyone else.

When someone sends you a cheque, it’s like being set homework.

[From Digital Money: I could imagine using this]

So what happened? In recent weeks I’ve had some conversations with people countries such as the Netherlands, Belgium and Denmark where no-one has seen a cheque for a generation asking me why the UK is different. It’s the British disease: faced with the end of cheque clearing in a generation, the British response is not embrace electronic alternatives, for charities to look at inventive and efficient online and telephone giving, for small businesses to exploit the Faster Payment Service (FPS) or for the Post Office to create its own paper-based alternative but to moan and complain and demand that everything be kept the same as it is. What happened was that reactionary press comment, entrenched interests, publicity-seeking MPs and a fragmented industry have combined to conspire against the forces of rationality and modernity. And they won.

But why stop there? Cheques are quite modern invention and I don’t understand why the Commons Treasury Committee and the Daily Telegraph want to turn the clock back only to the 17th century. They are not true conservatives, whereas I am. I have therefore decided that my only course of action is to appeal to the European Court of Human Rights to force the Payments Council to reinstate the tally stick system that was prematurely ended in 1834. My great-great-great-great-great grandfather was perfectly happy using tally sticks and was, I’m sure, most distressed by the end of the scheme and the burning of the sticks in the Houses of Parliament furnaces which, as you may recall, resulted in the fire that destroyed the medieval palace and a splendid painting by Turner. It is most unfortunate that Associated Newspapers and Saga did not exist at that time, since I feel they might have been able to spearhead a successful campaign against the introduction of foreign methods (such as double-entry bookkeeping).

Tally sticks had numerous advantages over paper cheques. They were much harder to forge, for example, and were understandable by a largely illiterate population (a situation soon to be restored in this United Kingdom). The sticks were far more durable than cheques are, cheques being made out of flimsy paper instead of fine English wood. Why was this sound and practical system swept away for the convenience of bankers! It is my right to continue to use the tally sticks developed under William I for as long as I need them and quite reasonable of me to demand that the rest of society bears the costs. I hope The Telegraph will support my campaign with vigour. And while we’re at it, why haven’t farthings been legal tender since 31st December 1960? I tried to use some when out shopping the other day and they were refused: outrageous.

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

Lording it up

The House of Lords (for foreign readers, this is the unelected second chamber of government, stuffed full of government placemen – so many, in fact, that the Lords are begging the government to stop sending more of them) has been getting into a bit of a tizzy about cheques.

Lord Sassoon: the criteria which the Payments Council itself put forward and which the previous Government welcomed back in December 2009—I echo that welcome—was that the new system had to be generally available, generally acceptable to its users and widely adopted. There also has to be, in the view of the Government, a paper-based system

[From Hansard – Lords | Houses of Parliament]

For foreign readers, Lord Sassoon is James Meyer Sassoon, Baron Sassoon, the Commercial Secretary to the Treasury, a minister in the UK’s finance ministry. Note his words: the British government wants to replace the current paper-based system with a new, dynamic, forward-looking, white heat of new technology 21st century paper-based system. Hhhmmm….

Surely we can do something more interesting than that. Cheque replacement was a subject of much conversation in my vicinity last week. Consult Hyperion were one of the sponsors of this Intellect / Payments Council conference on Driving Change in Payments, and an excellent event it was too. Here I am with the Conference Chair Michael Alexander (an Independent Director of the Payments Council), telling him just that.

IMG_20110526_150113

Mobile was one of the recurrent themes. Alastair Lukies, the CEO of Monitise, was one of the speakers (see below) and one of the subjects he touched on in passing was the potential for mobile to provide the replacement for cheques in the UK. This is a hot topic, since the Payments Council has announced its plan to end cheque clearing in 2018. This, in turn, caused a predictable response from the reactionary press and various interest groups, all of whom want to retain the current system of expensive cheques subsidised by people like me who hate them.

IMG_0354

Just to give you a snapshot of the views of the British public — which are of no interest to me, naturally, but may serve to frame the debate here — I cut a few comments from a recent article about this on the Daily Telegraph website,

If cheques are expensive to process then increase the price, I think I already pay 35p per cheque

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

Businesses do, but personal customers have grown used to what they perceive to be free banking. I’m all for transparent pricing. If the Payments Council decides to retain cheque clearing but charge full cost recovery to users, that would be a reasonable outcome. However, this would mean that cheques would cost probably even more than 35p each, and once again the pleading for special interests will become the substitute for the real debate.

If cheques go then genuine charities should be given free transfer by card or someone should think of another method of paying small amounts at no cost

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

It is plausible, although I don’t think it is likely, that the government might impose a social obligation on banks and payment institutions to execute low-value transactions (those, say, of a value less than the largest banknote in circulation, €500) for free as a social obligation in return for their licenses. The root problem is that people think not only that payments should be free but that someone payments are free. This is wrong, but you can imagine the newspaper headlines about the charity for sick children being forced to pay outrageous processing fees by the evil financial sector. (The impact on charities came up a few times in casual discussion around the topic at the recent event.) Some people are worried that this will even put an end to some charities.

the Institute of Fundraising has warned that the plans could be disastrous for charities, some of which receive up to 80% of their income through cheques.

[From Finextra: Dumping cheques could “spell disaster” for UK charities]

I don’t understand what they are thinking. Getting rid of cheques will save them a fortune. Charities in countries without cheques — eg, Finland — seem to be able to raise money without too much trouble. I’ve already made a perfectly sensible and reasonable suggestion as to how to set up unique financial sector identifiers that can serve as payments addresses for mobile and online payments and for the 0.1% of the population who don’t want to use these (eg, my mother) they can just call an 800 number and effect the transfer with voice authentication (or something similar). Why on Earth should we be targeting paper-based replacement? Doesn’t this discriminate against people who can’t read or write? Let’s set the bar higher.

It must be further noted that in the Telegraph, as well as a couple of other papers, the particular issue of paying the gardener was also seen as being an important payments use case in the UK. I thought at first that this might be something to do with the English class system, but it turns out that paying gardeners is an issue around the world!

I live in Belgium at the moment and have not used a cheque in years. All the transfers are immediate, not 3 days later which is just a scam by the UK banks to use your money for free for three days. If I pay the gardener its cash or a virement (transfer) easy.

[From Plans to phase out cheques should be scrapped, say MPs – Telegraph]

Look, I’m sure there will be a small number of people who will find it hard to use mobile payments, or web payments, or whatever, just as there are a small number of people who find it hard to use cheques right now, but that’s no reason for the Payments Council to get fainthearted. The end of cheques in 2018 should be a stimulus to innovation in UK payments. Except, as I said before, it isn’t the end of cheques.

Cheques aren’t being outlawed in 2018, but cheque clearing is going to stop. If Associated Newspapers wants to apply for a Payment Institution (PI) licence and operate its own cheque system, then good luck to them

[From Digital Money: Cached]

Surely the noble Lords can contribute some seed capital to assist the Daily Mail, Saga, Oxfam and the House of Parliament Tennis Club in creating the new paper-based system that they want.

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

Cached

Once again, an outraged article in a British tabloid — this time the Daily Mail — about the end of cheque clearing in 2018. Predictably, it is the desperate plight of the elderly that forms the centrepiece of Lauren Thompson’s article “Clueless banks pressing on with purge on cheques”, featuring a case study on a 76-year old woman who sends her gardener to the Post Office every week to collect her £315 in benefits. She says “cheques work perfectly well for me”.

From April next year, Giro cheques will be scrapped. Pensioners and benefit claimants will be forced to go to their nearest PayPoint outlet – found at shops like Co-op, spar and Sainsbury’s Local – instead of the Post Office.

[From Banks and the Government are pressing on with purge on cheques | Mail Online]

It is not explained why sending her gardener to the corner shop to pick up her benefits from a PayPoint terminal fills her with such dread, but her comment is telling: cheques work well for her because I’m paying for them. I couldn’t care less if I never see a cheque again: the only cheques we’ve written in the last month have been to schools (I simply don’t understand why they can’t take PayPal or payment via FPS) and to the local council, which presumably regards cheques as the most modern of payment instruments. But cheques waste time and money, and it’s right to have a national plan to get rid of them, no matter what the Daily Mail thinks about the Payments Council.

I have to say that I sympathise with the Payments Council. I read somewhere that half of British consumers are unaware of the 2018 target date to end cheque clearing. But then half of them of unaware of anything, so I’m not sure that there’s much the Payments Council could do to change this. We live, as I’m often reminded, in a country where 50% of the population don’t know what 50% means.

The Payments Council seems to have become a particular target for middle England’s hatred. A letter in the very same edition of the newspaper notes that “obviously banks prefer cheaper systems of cards and electronic transfer” (as do I) and asks what about (once again) elderly or housebound people who depend on cheques by post. This is an interesting line of debate. In Finland, no-one has used a cheque since 1993. Nobody in Sweden has a cheque book. You would need a Powerpoint presentation to explain what a cheque is to anyone under 30 in the Netherlands. Yet elderly and/or housebound people seem to survive in Rotterdam and Espoo. Unless the Daily Mail has a specific reason to suspect that elderly people in Amersham are somehow stupider, or less flexible, or less able to learn than elderly people in Amsterdam, I don’t understand the problem.

Of course, the Daily Mail could always step in to ameliorate these desperate circumstances. Cheques aren’t being outlawed in 2018, but cheque clearing is going to stop. If Associated Newspapers wants to apply for a Payment Institution (PI) licence and operate its own cheque system, then good luck to them. I truly hope that they can do this and make a profitable business out of it, because I am genuinely in favour of choice. The merit of this plan is evident: people who want to keep on using cheques can pay for them. I should say, by the way, that this won’t predominantly be pensioners and their domestic staff, but small businesses.

Obviously mobile payments will be huge. But from my perspective, it is easy to get caught up in what the 5-10% first movers are doing and forget that less than 30% of all small businesses accept any form of electronic payment.

[From PYMNTS Innovator: Checks are Checking Out – Will that be Cash, Credit or Mobile? – pymnts.com]

This is one of the reasons why I spent my time at PayPal X looking at the SME solutions rather than some of the “sexier” new technology thangs like set-top box payments. I’m not negative about this at all – a great many small businesses are moving to electronic payments (I bought my wife some jewellery from a stall at a charity fair last weekend and the lady happily accepted my credit card using her rented GPRS terminal – she told me it cost her £27 per month plus a per-transaction fee and that she was delighted with it) and I don’t doubt the trend will accelerate as mobile payments grow and their convenience overtakes the conservative inertia around cheque payments.

Even in the cheque’s last redoubt, the United States, its position is being eroded. All new federal benefit recipients will be switched to electronic transfer from May of this year and all existing cheque recipients will be switched to electronic transfer by 2013. These moves will save the government more than $100m per annum. And there are plenty of other problems with cheques aside from the cost (which, to be fair, has been substantially reduced because of Check21). Here’s noted computer scientist Don Knuth, reflecting on some bank fraud problems that arise from the fact that account details are printed on the face of cheques.

One consequence of this debacle is, alas, that I can no longer write checks to reward the people who discover errors in my books. The system that I’ve been using has worked well for almost forty years; but recently I have had to close three checking accounts, and the criminal attacks on those accounts have caused significant grief to my bankers… Instead of writing personal checks, I’ll write personal certificates of deposit to each awardee’s account at the Bank of San Serriffe, which is an offshore institution that has branches in Blefuscu and Elbonia on the planet Pincus.

[From Knuth: Recent News]

The switch is underway from checks as well as cheques. The primary beneficiary of the switch will, I think, more likely be the prepaid card industry rather than the Bank of San Serriffe, because the economics of banking mean that providing what used to be known as “basic bank accounts” to most of these welfare recipients makes no sense, and I expect the increase in volume to bring more players, and more competition, and therefore better products to the sector. Now, let me be clear in saying that I am not shilling for the prepaid boys here. There are plenty of things wrong with the prepaid proposition (and I’ll be writing more about this shortly). But as prepaid evolves to the mobile, TV and other platforms, it provides the natural route to cheque eradication, and even Joan Bakewell will get used to it.

Chinese checkers

There’s a fun piece by Mark Kitto in this month’s Prospect magazine. It concerns a chap who was visiting a friend in Shanghai. The visitor borrowed some cash from the host and wanted to repay it, so he posted a cheque drawn on a major international bank (which took 34 days to arrive). In order to cash the cheque, the host had to go through a time-consuming and expensive process, which culminated in having to open a bank account that now lays dormant (my good lady wife had to go through a similar process in the US a couple of years ago).
The piece is bylined “Shanghai is the financial capital of the far east. But just try cashing a cheque.”
Surely, I thought, reading this piece that only someone with virtually no understanding of retail payment systems and completely cut-off from modern technology would write a cheque in these circumstances? I then I realised that I’d missed a clue at the start of the article: the visitor was described as a “a banker friend from Britain”.
A cheque? Crackers.
I’m actually writing this article while visiting China, and tonight I’m going to dinner with an English friend who is visiting here from Thailand. (To be fair to British bankers, he did tell me that his HSBC Beijing account and HSBC Bangkok account do play together nicely.) Anyway, if I end up owing him money I will either PayPal it to him, post U.S. dollars in an envelope or leave him a Travelex prepaid Visa card which I’ll load for him via the internet, or if he (like all wise travellers) has a spare pre-paid card in his back pocket, I’ll top his up for him. Or I’ll top up his Thai mobile using my credit card, or I’ll load an Oyster card for him to use next time he comes to London, or…
Anything but a cheque, actually. It’s time we started to get serious about getting rid of them: British bankers who write cheques should be made to feel silly. When the UK Payments Council announced a roadmap for getting rid of cheques, the reaction was predictably, well, reactionary. Here’s some typical stuff, in the case from The Guardian, for example.

I’m a sole trader who runs a window cleaning business, and many of my customers pay me by cheque. What am I going to do?

This group is expected to see the biggest impact when cheques disappear in 2018, not least because many won’t be able to invest in the technology the industry is relying on taking over from cheques.

[From Cheques out, but what does it mean for everyday payments? | Money | The Guardian ]

What? Sole traders don’t have mobile phones? What a load of old rubbish. In a list of “8 Things Your Phone Will (Probably) Replace”, the payment terminal shows up as no. 4 and I can’t say I disagree.

Handsets already connect to the same networks as mobile payment terminals so to think they will be able to mimic the same functionality isn’t too hard to imagine.

[From 8 Things Your Phone Will (Probably) Replace – Consumerologist’s posterous]

We already have the cheque replacement technology in our hands. What many people don’t yet have are cheque replacement systems, but we’re getting there as more non-banks move to open up this sector, as has long been obvious to most non-bankers. Of course, cheques are only one part of the payments business that could be replaced by non-bank alternatives.

Indeed, banks have been extremely slow to meet the evolving customer demands of the digital age. With the rise of these new Web 2.0 business models we are experiencing a complete change in the way money is transacted. In the future, it won’t be the banks that are sending out thousands of cheques or triggering tens of thousands of micro bank transfers to these users.

[From Financial World Online]

This isn’t bad for banks – as we were discussing with reference to M-PESA – provided they have a strategy for using these new payment systems to everyone’s advantage.

No more cheque puns, please

The UK Payments Council is currently carrying out a series of workshops around the UK, talking to clubs, charities and societies about the future of cheques. Communique, the Council’s new newsletter, says that these are to explore the organisation’s needs and the alternative to cheques. As far as I can see, though, cheques are already more of a pain than the alternatives. My wife recently had to collect a number of cheques from people in connection with a charity and it was a total hassle: it would have been so much easier if people had just PayPal’d the money to her. Keeping track of the cheques, one of which got lost in a pile of paperwork on my desk, and then depositing them, took time and effort that e-mail doesn’t. I couldn’t care less if I never see another cheque again, but the general public will need some time to get used to this. By way of example, a chap on Finextra asked:

Should the Payment Council have the right to change the method by which I bought my last car or might want to buy a conservatory in the future? Ford wouldn’t take the whole purchase on Credit card.

[From Details | LinkedIn]

Ford is not obliged to take cards at all, that’s got nothing to do with the Payments Council, it’s a matter of private contract. Ford could require you pay in cowrie shells or gold bars if they wanted to.

What if my Debit card had gone faulty or the phone connection had failed on the swipey box?

[From Details | LinkedIn]

What if your cheque book went soggy in the washing machine? What if you are illiterate?

Should the government make it a prerequisite to have a chequeing facility for a bank to be a bank?

[From Details | LinkedIn]

Interesting last point. The answer is no, of course, because bank regulation shouldn’t be anything to with payments. And payments regulation shouldn’t be anything to do with banks. Ever since the Payments Council announced its plan to end cheque clearing in 2018, there have been demands to keep them, and not just from charities, dentists, pressure groups representing the elderly, MPs and various other conservative groups.

The Federation of Small Businesses said it will ‘strongly oppose’ any move to get rid of cheques.

[From End of the cheque book: Traditional paper payment could be abolished by 2018 | Mail Online]

Fine. Let them pay for them then. Remember, it is not cheques that are being abolished in 2018 but cheque clearing. If your bank wants to offer you a cheque service, that is up to them. It will cost a fair bit more than debit cards, funds transfer or any other new-fangled payment mechanism though, because it involves messing around with bits of paper. If you are happy to pay for that, knock yourself out, I don’t have problem with that. But I don’t want to pay for you to do it, if you see what I mean. If some enterprising payments entrepreneur wants to set up a new cheque-clearing system that is paid for by its users, I’m all for competition. But the truth is that they could never make it work.

The price of a first class stamp for a standard letter will rise by 5p to 46p, while second class will go up by 4p to 36p. The rise for larger letters, such as some Christmas and birthday cards, is even more, with first class going up 9p to 75p.

[From Royal Mail: First class stamps to cost an extra 5p in record price rise | Mail Online]

I can’t even post a cheque for less than P2P transaction would cost me, so why on earth people want to keep them I’ve no idea. As it is, they are only used for 11% of such transactions and there are plenty of alternatives available.

P2P Methods 2010

So nearly two-thirds of P2P transactions are still cash and cheques. What a fantastic opportunity for the e-payments industry and what a massive potential cost-saving for society. And this isn’t some hopeful projection: we already know that moving from cash and cheques to card leads to substantial savings.

The London Borough of Havering has appointed Citi to supply pre-paid cards to replace cash and cheque payments.
Potential uses for the pre-paid cards include, payments for social care budgets, asylum benefits, and housing benefits. Havering Council says the move will enable it to more than halve its existing processing costs for cash and cheque payments.

[From Finextra: London council halves cash processing costs by moving to pre-paid cards]

This seems reasonable: cards cost half of cash and cheques. Hopefully, come 2018, there will be a substantial fall in overall cost of payments to society. Who knows what the exact system, or systems, that replace cheques will be, but I think that we can already see that some combination of mobile, TV, cards and so on will do it. There are plenty of other countries where there are no cheques already and society doesn’t seem to have collapsed, so we can do the same.

This very morning I got a letter from my dentist reminding me to pay an outstanding invoice for £100 and asking me to send a cheque. As I could not be bothered to go and find the cheque book, write it out, put it in an envelope, address it and find a stamp., I thought I was just do by bank transfer next time I’m online. Oddly, the payment request did not either give bank account details or a PayPal address, so i sent them a message to ask. It turns out that they can take credit cards (with a 2.5% surcharge), debit cards and cheques only. Oh well. Since I had to log on this morning to pay a couple of bills, they would have had their money via FPS by now. As it is, I’ll pay with a cheque when I pop in for a check up in a few days time.


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