I’d forgotten that some people still use cheques. I haven’t seen one for ages and haven’t the slightest idea where my chequebook is. I can’t even think what I might need a cheque for. In the last couple of weeks I’ve paid our gardener, window cleaner, a contractor and my youngest son using my mobile phone. I have absolutely no need for cheques. Still, they are important to the powers that be.
“These changes will put cheques firmly in the 21st century”
Actually, it will put cheques firmly in the 18th century, which is when they last used to clear in one day because the clerks of the London banks had set up their own informal clearing system down the pub.
“Daily cheque clearing began around 1770 when the bank clerks met at the Five Bells, a tavern in Lombard Street in the City of London, to exchange all their cheques in one place and settle the balances in cash.”
Why waste money supporting the declining cheque business (cheque use fell another 15% in the UK last year) when we should be spending the money on identity infrastructure that is need to support the transition to open banking. It could all have been so different!
Here is an appealing vision for the future from Mr. Dale Reistad, the Deputy Manager of The American Bankers Association. This inspiring extract about the power of fintech is from a speech he gave at the third annual meeting of the joint sessions of the Midwest Business Administration Association and Midwest Economics Association.
Innovations now being seriously developed by the banking industry may eliminate the need for numerous credit cards, checks – and, perhaps, cash – and at the same time expand and simplify customer services. Made possible by the use of electronic impulses as the message, the system would bring large-scale changes in our everyday business transactions. For example, one bank ID card would provide identification, unlock the customer’s bank account, and serve also as the key to his credit inquiry account at the local automated credit bureau. What are the new services, their benefits and drawbacks, if any, and what are the future implications?
Oh, I forgot to mention. This speech was given in 1967, the summer of love, when recreational drug use was widespread. Mr. Resitad went on to say that what he refers to as “checkless” banking “may replace our current system as early as 1980”. As I’m sure you all noticed, this didn’t happen. But why not? And why not in 1990? Or 2000? Or 2010? I was thinking about this as I read the latest detailed figures for cheque usage in the UK.
Cheque volume fell 13% in the UK over the last twelve months, by the way.
Back in 2013 when I went along to the launch of (what was then called) Intellect’s new Financial Infrastructure Reneweal programme, an attempt to create a “joined up” (their words) forum for the consideration of the technology issues. The keynote talk was given by the impressive Andy Haldane, who is the Executive Director for Financial Stability at the Bank of England, who talked about the confluence of demand and supply that points to a “mini industrial revolution”. From the figures that Andy presented, it sounds as if this is long overdue, as he pointed out that the unit costs of intermediation have not changed in a century. A century! I was, naturally, very interested to see that Andy highlighted the payments subsector as the no.1 focus for improvement and referred back to the Chancellor of the Exchequer’s speech (which happened to have been the day before) on banking reform. I’d been reading about this on the way to the meeting and noticed that the Chancellor had made some rather odd comments about payments. We have a nuclear-powered robot on Mars and drones and Facebook. The Chancellor called for improvements in cheque clearing. Yes, never mind blockchains and instant payments, biometrics and smartphones. I thought this was odd. As Gareth Lodge said at the time
Every other country bar one in the world is to trying to, or already has, abolish cheques, yet it seems George wants us to invest massively in them. Do the right thing, not the vote winning thing.
I was thinking about this again at the weekend, because our window-cleaning service called last week and said that they would no longer take cards, only cheques. I was dumbfounded. And, naturally, refused. I told the woman that I couldn’t be bothered to go and look for a chequebook which, although I suspected was in the kitchen somewhere, I hadn’t seen for months. I genuinely can’t think of the last time I used a cheque, so I told her no. Then she suggested that we could leave the money out in an envelope. I refused to do this as well. Then, as last resort, she said well, you can always pay us on the internet. Hurrah! She gave her sort code and bank account (she hadn’t heard of PayM I guess) and it took me about a minute to add her to the list of payees on our current account.
When the window cleaner called at the weekend, I paid via the internet (using my phone of course) and the money was their a few seconds. Sorted. To the very best of my knowledge, there is no longer any reason for a chequebook in our household.
But perhaps I am unrepresentative of the population as whole. I say this not because I am and the only person listening to Hawkwind on the train this morning, but because the last time that there was even a whisper of getting rid of cheque clearing, in 2011, things went weird. As you will undoubtedly recall…
Outraged Daily Mail readers, unable to imagine any alternative mechanism for sending £5 birthday money to a favourite grandchild, put pen to paper and their MPs, in turn, went moaning to the Treasury Select Committee (TSC), who promptly set about bullying the Payments Council into reversing their decision.
One of the reasons given time and again is that the elderly feel more comfortable with the cheques than with new-fangled mobile phone gizmos, and there is certainly some evidence of this from the House of Lords (warning: link not suitable for work or, indeed, for anywhere else either).
The House of Lords, though, is hardly any more of a cross-section of the population than I am, and it’s hardly the vanguard of the fintech age either. Should we really be subsidising their cheques? It seems to me that if Saga or The Daily Telegraph want to run a cheque system, that’s up to them (and I can see there might well be a niche for cryptographically-protected limited use cheques for adult services with in-built age verification and two-sided conditional pseudonymity*), but I don’t see why everyone else should pay for it or be inconvenienced for it. Australian legislators had the same fit that UK ones did when the end of cheque clearing was mooted at around the same time, although I noted then that the Australian Payment Clearing Association (APCA) said in their report on the topic that:
It is predominantly the market that is best able to address the future needs of current cheque users as cheque usage declines. Providers and users can continue to make their own decisions about cheque use, though it needs to be understood that users may be charged fees as a result of increase in marginal costs.
I put that phrase in bold. Indeed, leave cheques to the market. But stop cross-subsidising from more efficient payment mechanism and if there is to be subsidy make it explicit. If you look at the statistics, you can see that cheque usage is falling faster than expected, but still not as fast as it would if the costs were allocated correctly.
There is, however, at least a glimmer of hope. I think it is now possible to imagine the end of cheques. So what’s different between then and now? Why were predictions of the end of cheques so wrong in 1967 but so right now? We all know the answer. Well, the two answers.
One of the reasons behind this slow adoption is fairly easy to understand: people are generally very careful with their money and are consequently suspicious of unfamiliar payment technology… However, the reality is that mobile payments will be used by the majority of consumers in a matter of years.
The mobile phone changes everything, as my window cleaner discovered. As smartphone penetration continues to rise (it will exceed 80% in 2017), the day of reckoning for cheques gets ever closer, especially because the mobile phone puts a POS terminal in the hands of almost all of the population. Fifty years, Dale’s vision is coming into focus.
(* We at Consult Hyperion stand ready to begin the feasibility if anyone wants to fund this.)
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