The death of cheques?

2011-09-10 00:00

BANKS are currently debating discontinuing cheques as a payment mechanism, but not everyone is convinced that they will disappear.

Standard Bank’s director of banking products, Sugendhree Reddy, says “the issue of discontinuing cheques as a payment mechanism is currently being debated at a worldwide level, with South Africa being no exception. In the early days of banking, cheques dominated as a payment instrument, however, “new electronic-payment mechanisms are more convenient, secure, cost-effective to operate, reliable, less risky and timely from a settlement perspective. As a consequence of the foregoing, we have noted a significant reduction in cheque usage in preference to alternative electronic-payment mechanisms.”

FNB spokesperson Steve ­Higgins agrees with Reddy, saying that “cheque usage within SA has declined significantly” over the past five to 10 years. Absa’s Gavin Opperman, chief executive for Absa Retail Bank says the industry has seen a “steady reduction in the number of cheques of up to 25% year-on-year”. However, technology is not the only reason for the decline in the usage of cheques, three of the big-four banks agree that the costs of processing cheques is more laborious and expensive than alternative electronic options. Nedbank was unable to respond to Moneyweb’s query at the time of going to press.

Reddy says: “Once a cheque is written out it has to be presented to the branch, carefully screened for fraud, and couriered to the central processing centre where further screening is performed until settlement. This requires high investment in fixed infrastructure, which comes with high resource demand.” The high risk of high fraud was also highlighted by Opperman. While the banks don’t offer clients any benefits for using any alternative to a chequebook, its clients do pay a hefty price for this “paper-money” service in comparison to the other payment methods. On average, the price of issuing and/or drawing a cheque range from R10 to R34 per cheque, with different cost structures applied to varying accounts and banks. Meanwhile, the average cost of performing an “electronic transaction” (including EFT, debit cards, online banking, etc) will not exceed R5. Reddy says with the personal market volumes dropping at an annual rate of 20%, and the unit-processing costs continually increasing “drastically” annually, it’s inevitable that these costs get passed on to the customer.

Will cheques ever die?

The reduction of cheque usage in the country is expected to continue as it tends to be senior citizens and small companies that use them as a security measure, and payment-control mechanism. One such user, Moneyweb’s consumer journalist, Pat Sidley, says her use spawns from her security concerns of using other payment methods, despite the fact that she has embraced some of the new technological advancements. “I also happen to spend a lot less when I use my chequebook, unlike swiping a card,” said Sidley.

It’s not yet certain if we will ever live in a chequeless society, but Reddy says: “Given the shift to alternative electronic-payments methods. Cheques will die in the long term as the alternative ­payment methods are more convenient. The risks associated with cheque fraud and increased lack of acceptance among retailers also poses a threat to this payment instrument.” Meanwhile, Opperman says the bank will continue to develope solutions to ­provide cheque substitutes as a means to provide more value. ­ — Moneyweb.

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