What the future of cheques means for innovation in payments

You may have read that the UK Payments Council has abandoned its plans to get rid of cheques by 2018. The first cheque was issued in 1659 and, despite much innovation since then, we can’t seem to live without them. In fact, with this stay of execution, the real value of cheques has been thrown into a sharper relief.

A view widely-held by those working in the payments industry was that nobody wants cheques and they should be made obsolete. They’re expensive, critics point out, and they’re environmentally unfriendly. So why were the plans abandoned? Well, in the words of the Treasury Select Committee Chairman, Andrew Tyrie MP, “The Payments Council had seemingly forgotten about the millions of people who remain less at ease with the latest technology… Many charities, small businesses and vulnerable people – including pensioners – depend on cheques. Their needs must be considered.”

The indispensable nature of cheques was only uncovered when niche groups of users, faced with the 2018 deadline, raised their voices. Charities, clubs, small businesses, householders, and pensioners rely on cheques, some on an almost daily basis. While not representing the majority of payments users, for these groups, cheques are irreplaceable. They use them to make payments in ways that actually depend on some of the much-criticised idiosyncrasies of the cheque. For now, there’s no ubiquitous and easy-to-use alternative.

So what’s special about cheques and why can’t electronic payments take their place? For one, cheques are highly transferrable, they support the exchange of money between any party. They’re easy to use and don’t require you to be technology-savvy or connected to the Internet. Consider, for example, people living in rural locations with no easy access to bank branches. They’re also flexible: you can write a cheque and fill in the payee or amount later, or have someone else you trust do it (e.g. a spouse while you’re away). They support multiple signatories, essential for clubs and small businesses. They’re safe. Imagine your  elderly relative writing a cheque for the plumber. Now imagine the same relative remembering and keying in the pin in front of the plumber.  Cheques offer control – they can be sent in the post, they can be post-dated, and they can be cancelled. Some people rely on these systemic safety-valves. Neither prepaid, gift, nor debit cards quite fulfill the role of cheques. Mobile payments promise much of the convenience required but not yet all of the features.

The payments business has witnessed massive innovation in recent times. Mobile and contactless payments are gaining mainstream acceptance and schemes like MPESA in Kenya are supporting rural communities and the unbanked. But the business models behind such innovations generally look for large, sustainable markets. It’s hard to make a business case for dwindling pockets of users. Unless of course you have a social responsibility agenda.

3.1 million cheques were issued every day in the UK in 2010. However, with the closing of the cheque guarantee card scheme on the 30th of June this year, it is likely that fewer recipients will be willing to accept cheques. So the problem of finding alternatives isn’t going to go away.  It looks like the cheque will be with us for some time, at least until new payments models develop to replicate the sophistication of the cheque model. It’s unlikely, however, that there will be a ubiquitous replacement for cheques – rather the needs of each group or situation will eventually be fulfilled by solutions like faster payments, Internet banking, mobile and contactless payments. More progress needs to be made with the development of alternative payments options. In doing so, it’s worth considering what the cheque offers right now as a benchmark for future payments innovation.