How not to phase out checks
People living in the majority of countries that do not use, or make limited use of, paper checks will be mildly amused if they have been following the controversy in the UK around this archaic payment instrument.
For some, the future of the check is no laughing matter, however.
If you are not familiar with this story, it dates back to December 2009, when the UK’s Payments Council set a target date of 2018 for the abolition of checks. This was a response to a steady decline in check use, and the fact that checks are expensive to process. The U.S., another heavy check-writing country, introduced the Check 21 Act in 2004 specifically to reduce the cost of check handling.
If the Payments Council and UK banks had hoped the announcement of the future withdrawal of a payment instrument in decline would go unnoticed, they were wildly mistaken. Consumers’ groups, organizations representing the elderly, charities (who receive a large share of their donations by check) and other bodies spoke in unison to condemn the move.
Following the backlash, the Treasury Select Committee launched an inquiry into the issue in February 2010, and in July 2011, the Payments Council made a complete U-turn, announcing it was withdrawing its plans and that the check system would be maintained indefinitely.
The Payments Council also said its members would now concentrate on improving check processing, cost reduction and the provision of other benefits by reducing the delays and uncertainties that affect check payments.
So what have we learned – beyond how not to phase out checks?
Firstly, there are some people and segments of society who depend on checks on a regular basis, and who are genuinely concerned with the idea that they could be phased out.
Secondly, and perhaps more importantly, was the mistake in hoping that by announcing a date when checks would be abolished would spur development of alternatives, which was naïve – consumers want to see alternatives first.
And herein lies the heart of the problem. While some of the concerned parties could use other existing payment methods, for others no realistic alternatives are in place. If banks and technology providers work together to establish an effective and sustainable substitute, phasing out checks will not be so hard.
Companies: Retail Banking Research Ltd
Dominic Hirsch Dominic Hirsch is managing director of Retail Banking Research, a London-based strategic research and consulting firm. www