The
National Payments Plan, which was launched in April this year, aims to make
savings of c.€1bn annually to the Irish economy by increasing the use of
electronic forms of payment such as debit cards and electronic banking. Ultimately this
means the removal of cheques as a payment method for Irish people.
This won’t be easy as according to the Central Bank, Ireland has the second highest usage of cheques among major European
countries. This practice is quite
ingrained and it will take a long time – and consumer-friendly alternatives
–before we see cheques disappear completely.
Granted there is a significant cost-saving to be gained by the
removal of cheques. An ECB study estimates that a cheque costs around €3.55 when all costs
are included. For a small business or consumer this cost includes the 50c stamp
duty on each cheque, bank charges and postal charges, as well as time taken to
process cheque payments.
A date will be set in 2014 at which time the public sector will
no longer write or accept cheques to or from business users.
However, how realistic is it to think that there will be large
scale reductions in cheque volumes, particularly for consumer generated
payments?
Despite the Cheque Guarantee Card Scheme closing on December
31st 2011, Government figures state that consumers account for more than one
third of all cheques issued. The
majority of these (56%) are payable to businesses, primarily to SMEs.
Just over one third of all cheques issued by consumers are payable to other
consumers.
For these cheque payments to disappear, there needs to be
easier, cheaper and customer friendly solutions deployed across the market.
At the moment, for many C2C payments and C2B payments, there are
only two alternatives – cash or cheque. At this time of year I find myself
writing numerous cheques to cover my kids back to school expenses – lunch
vouchers, drama classes, sports classes, etc. The most effective way for me to
send funds to these recipients is still via cheque – notwithstanding that this is
now effectively a “trust” based system.
Certainly there are already some payments services available
which could potentially fill these gaps but others are still in the very early
stages of development or deployment. And we know that customer adoption is
frequently slow!
The mobile phone, already an integral part of most peoples’
lives, could offer part of the solution. Mobile phone based payments – P2P - are
available today but these will not cover all instances where a cheque is simply
an easier solution. Account details and
prior registration are frequently involved – a barrier to simple once-off
payments to tradesmen for example.
With aggressive targets being set to end cheque circulation in
2014 (from government to SMEs) and in 2016 for the rest of the population, I’m
not convinced that there are viable alternatives in place yet for consumers
which will facilitate this.
In fact, I suspect that they will be around for a long time yet
…. Unless, of course, the forthcoming budget increases the cheque stamp duty to
a €1 or €2 per cheque. Now that would change consumer behaviour pretty quickly!
Sources: National Payments Plan (April 2013) & Central Bank Report on Cheque Usage (February 2013)
