Cheque mate: Do paper cheques still have a role in the digital age?

In 1659 an English trader, Nicholas Vanacker, signed what is thought to be the first cheque in the UK. Ever since the cheque has long been a reliable payment method for both businesses and consumers worldwide. However, with research showing an ongoing decline in the numbers of consumers and businesses using cheques as a payment method, do paper cheques still have a role in the digital age?

Figures suggested by Banking & Payments Federation Ireland (BPFI) are showing decline use of cheques in Ireland is continuing to decline 6.6 million payments were made by cheques in the first three months of 2020, which is a decrease of 15% from 7.8 million in 2019.

According to BPFI with no surprise, say that consumers are relying heavily on card transactions for shopping online and in-store, and are mainly paying by debited card to pay their regular bills. BPFI says that Ireland in particular is now only of “only a handful of countries” worldwide where cheques are still regularly used. Based on figures from the European Central Bank and the Bank for International Settlements, countries besides Ireland that still use cheques are including; Canada, Cyprus, France, Portugal, Singapore, the UK and the US.

Cheque payments have almost halved since 2016.  Card Payments accounted for 49% of the total number of non-cash payments in 2021 according to the European Central Bank 

Cheque usage in Ireland & the UK

In a bid to reduce reliance on cash and cheques, the Irish Government launched its National Payments Plan in 2013 to promote the use of innovative and secure online payments. As part of that plan, from September 19th of that year (dubbed e-Day), all public sector bodies in Ireland no longer issued or accepted cheques in their business dealings.

Although increasing efficiency plays a part in the decision to phase out cheque usage, another major reason, unsurprisingly, is the associated cost for banks and other financial institutions.

While usage of the long-standing payment method has more than halved in the last decade, Ireland is still one of the top processors of cheques in Europe with 10.8 million cheques signed in Q2 2017 alone. In the UK in 2015, 558 million cheques were used for payments and to acquire cash, even though this number is expected to more than halve by 2025.

Even though the use of cheques is in decline, a level of demand still exists, most notably amongst older consumers and small businesses. With rapid developments in financial technology (Fintech) that offer convenient electronic alternatives to paper payments, why are cheques still being used, particularly by businesses?

Cheque usage in B2B disbursements

A 2015 survey of 1000 businesses in the UK by the Cheque and Clearing Company showed that over half of those surveyed are still making and receiving payments by cheque. When questioned why:

• 30% deemed cheques the most familiar method
• 29% stated that it was easier to manage cash flow through cheques
• 25% revealed that the payee requested cheque payment
• 21% stated that money, processed through cheques, leaves their account slowly

It is interesting but hardly surprising to see that many businesses are using paper payments to take advantage of the sluggish cheque clearing system (cheques can take 5+ days to clear). This gives a lot of delaying power to smaller businesses that may need to make a payment before officially having the funds to do so.

In the USA, research published by the Association of Financial Professionals (AFP) for its 2016 Electronic Payments Survey revealed a one per cent increase in the use of paper cheques for B2B payments compared to levels seen in 2013. This is surprising given the fact that digital payments are seen as a way to combat the security, speed and efficiency problems associated with paper cheques.

With the rise of same-day Automated Clearing House (ACH) payments, however, the AFP noted that corporate bodies are more likely to support the ongoing shift toward electronic B2B payments in line with the rising trend away from paper payments.

Cheque payments: cost and security issues

Even though there is still evidence of resistance among certain businesses to go paperless, the AFP’s 2017 Payments Fraud Survey revealed that cheques are the most common payment method for payments fraud in the US. 75 per cent of the companies hit by payments fraud fell victim to cheque fraud — up from 71 per cent in 2015.

Technology is advancing, allowing vendors to pay faster, reconcile accounts more quickly and eliminate fraud associated with cheque payments. Fraudulently altered cheques are a particular problem in a business where a beneficiary’s name or the amount has been altered on a genuine cheque before it is paid. Counterfeit and forged cheque frauds are other examples that can be mitigated.

There are also extra associated costs and administrative work associated with cheque payments. Time is wasted locating payee addresses, and bank charges, postage, cheque stock and printing materials all add up.

Cost implications for returned and stopped cheques due to inevitable processing errors are another problematic factor. For the supplier, there is the hassle of waiting for a cheque to clear after having to pay to bank it.

Businesses are adopting more efficient and secure AP automation processes to help manage their payables and also guarantee a good return on investment, however, some challenges still remain. The process to migrate to fully-automated processes for electronic B2B payments including AP and reconciliation remain fragmented. Smaller companies, in particular, find this challenging, particularly when many financial service providers only offer automated payment services to larger corporate clients.

Time to cheque out? The future of paper payments

Although usage of the cheque as a payment instrument has fallen dramatically over the last decade, some consumers and smaller businesses, in particular, are still in no rush to shred their chequebooks just yet.

The payments industry had announced in the early 2000s that the chequebook was to be consigned to history by 2018. Many argued, however, that paper-based forms of payment such as cheques should not be phased out until suitable alternatives for older people were introduced, making the case that more mature people are not comfortable using new technologies.

Ironically, security issues with new technologies are also a concern for some. Many fear a clearing out of their accounts if sophisticated thieves gain access to their mobile phones or bank cards.

Cloud Fintech services are growing in popularity because of the convenience, affordability and flexibility they offer. The sheer range of offerings in payments like Fexco’s bank transfer solutions, accountancy platforms like SageOne or mobile wallets like ApplePay is further reasons why this technology is so popular.

So what does this all mean for the humble cheque? Technology has come to the rescue in the form of mobile cheque imaging. This relatively new technology allows consumers and small business owners to take photographs of cheques using smartphones and deposit them without physically having to go to the bank.

It’s possible that this will accommodate small businesses and consumers who are still reluctant to break the bond with their chequebook. Only time will tell, however, it is clear that it doesn’t matter which payment mode is in front of or behind the curve. Real-world customers will choose to pay for whatever addresses their needs and solves their problems. Technology simply needs to adapt to tick these boxes.

Fexco International Payments provides global payments and receivables solutions to businesses and individuals. Sign up for a free account or talk to us Ireland: 1800 246 800 or Email: fcpsupport@fexco.com about our range of payment products.