Cheques have been in terminal decline since the birth of
the internet, and cash could be next.
The financial services industry is often lambasted for its
continued use of legacy systems, but this is not just applicable to
technology systems, as its continued use of cheques, which
celebrated their
350th birthday this week, shows.
The onslaught against cheques began in 1989, when First Direct
launched its first telephone-only bank. In 1997 Nationwide launched
the first internet banking service.
Cheques reached theirpeak in 1990, the year Tim Berners Lee
invented the world wide web, when four billion were written in the
UK.
The internet allows payments to bemade and cleared faster than
ever. At the same time the cheque has become relatively expensive
to process.
Last year the Payments Council published the National Payments
Plan to manage the decline of the cheque. It predicts that the
cheque clearing system may close by around 2018. By 2007 there
were less than half the number of cheques written compared with
1990.
The Association of Payments and Clearing Services (Apacs) says
the cheque is unlikely to reach its 400th birthday, but it will not
disappear until a viable alternative is available and used
widely.
Mobile telephony is the latest threat to the cheque. People can
use mobile phones to make all sorts of payments today. They include
instructing a bank to pay a bill or even paying for a coffee using
a handset fitted with contactless payment technology.
Terry Dirienzo, product and marketing director at Experian
Payments, says the internet has introduced more efficient ways of
doing business. "Cheques and cash are the most expensive things
that banks have to process."
He says in the Netherlands and parts of Scandinavia cheques have
disappeared, because banks started to charge back users the cost of
processing cheques to encourage them to use electronic methods.
Chris Skinner, CEO at financial services think-tank Balatro,
says UK banks would like to go down the same route, but
wouldprobably not be allowed. "It could happen if there is an
agreement between all the banks and the authorities such as the
Financial Services Authority," he says.
Skinner says there are so many different methods of making
electronic payments that paper money is hardly needed today. He
maintains that the need for cash will erode but its "anonymity"
will mean it will not disappear.
The introduction last May of
the Faster Payments System, which enables online and phone
payments that clear in near real time, could be a final nail in the
cheque's coffin. Most major retailers stopped accepting cheques
after the system was introduced, and about 83 million Faster
Payments, worth £32bn, have been made since then.
The technology system that runs Faster Payments is in two
parts: a front office that links to banks, via the internet, to
capture all payment details, and a back office that records, stores
and settles payments.
Dirienzo says banks still need to get together and find a way of
getting rid of cheques because they are costing more and more to
process. He says cash should eventually disappear as well.