The Cheque Remains The Payment Tool Of Choice For Many Businesses
In light of the ongoing FinTech revolution, increasing accessibility to online banking, innovative third-party payment platforms, and the phenomenal growth in smartphones and their capabilities, the number of cheques issued by both businesses and consumers continues to fall.
Figures from the Cheque & Credit Clearing Company (C&CCC) reveal that 405 million cheques were used for payments and to acquire cash across the UK in 2017. This represents a 15% drop in volume between 2016 and 2017 but that still means that around 1.6 million cheques are being processed either by the C&CCC, the Belfast Bankers’ Clearing Company or by the banks themselves every working day throughout the year.
We think this shows that cheques are still an important part of the payments landscape in spite of this downward trend, so the TALL Group of Companies recently conducted a detailed cheque usage analysis, and I wanted to take this opportunity to share this information with the readers of this blog.
We have monitored the motivations behind customer cheque issuance applications within our Bureau Service, a cheque outsourcing fulfilment service, to understand why customers use cheques, this most traditional payment solution.
First of all, we discovered that the many businesses continuing to issue cheques were doing so primarily to make B2C payments, rather than B2B. When we examined the activity further, we were able to identify a number of specific payments types:
Insurance Claims Settlements
Many insurance companies continue to utilise cheques when issuing settlement payments to their policyholders.
Similarly, many individuals being paid compensation payments will receive a cheque, including those getting mis-selling settlements or remediation payments for interrupted, late or failed consumer services.
Cashback Initiatives or Prize Giving
Cashback incentives continue to grow in popularity and are often distributed by cheque, as are the fulfilment of cash prizes.
End of Agreement Payments
With many of us reviewing our utilities, mortgages, and other financial services in an increasingly competitive marketplace, it is a regular occurrence for consumers to receive an ‘end of agreement settlement’ by cheque upon switching service providers.
Dividend and other general payments
Company dividends are regularly paid by cheque, as are ad hoc and emergency supplier and general payments.
Fundamental to this analysis are the reasons why organisations continue to favour cheques when making payments of this nature. Firstly, many of these businesses will only have limited personal information regarding the beneficiaries of the funds. It is not uncommon for companies to possess only the name and address of the payee – and in such a case the cheque remains the only method for fulfilling the transfer of funds.
Whilst a bank transfer may see the recipient obtain their funds more quickly, in turn they must agree to share banking details, which is not always the preferred option, or it is even possible that no dialogue exists between payer and payee. In other cases the beneficiary of the funds will have just severed the relationship with the payer, and an arm’s length relationship is all that is available, or required. Payment by cheque ticks that box.
One of the current downsides for consumers receiving cheques, particularly for small sums of money, is the inconvenience of cashing them immediately, with many not being cashed at all. However, the introduction of the widely-anticipated Image Clearing System will potentially allow them to pay these cheques into their bank or building society without leaving their homes using Remote Deposit Capture (RDC).
Once cheque imaging is fully implemented, every bank will be required to clear all cheques on the image and data files alone, and paper cheques will cease to be exchanged between banks during the clearing process.
If offered by their banks, individuals and businesses will be able to use RDC to scan their cheques, using a desktop scanner or smartphone, sending the image securely to the bank at a keystroke. This innovation will in turn give businesses peace of mind that those issued cheque payments can be quickly and simply cashed by their payees.
In conclusion, whilst cheque volumes may decline further, many businesses and consumers will continue to realise the benefits of using the cheque as an effective payment tool, especially for the provision of those payment types outlined above.
The introduction of cheque imaging will also help to streamline the model, leading to efficiency gains for both cheque issuers and their payees.