Banks ban cheques

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Is this the end of cheques as we know them in SA too?

JOHANNESBURG - Banks in the United Kingdom have voted to ban cheques, ending its 350-year history. Moneyweb looks at what the big banks think as well as what upstart Capitec has to say.

The theory around cheques is that they are outdated, expensive to process and vulnerable to fraud. The advent of cheap, effective and relatively secure electronic options started cheques' death clock.

Stuart Grobler, senior general manager at the Banking Association of SA, which represents Absa (JSE:ASA), Nedbank (JSE:NED), Standard Bank (JSE:SBK), FirstRand (JSE:FSR), Investec (JSE:INL) and three international banks, says "Currently the maximum cheque value is pegged at R5m per cheque, and there are less problems with false/cloned cheques due to improved bank processes. However, there would appear to be a number of corporates/businesses that still prefer to pay by cheque, possibly because the delays in clearing them allow for ‘cash float management', and the returned cheques present irrefutable proof of payment."

"This is still a formidable and loyal constituency, and the banks are unlikely to "take them on" by dropping the cheque product."

One bank, however, which doesn't offer them is upstart Capitec Bank, it only allows cheques to be deposited if required. Capitec likes to see itself as leading the charge of modern banking.

Andre Olivier, card services and business development executive at Capitec, says "We view cheques as outdated, cumbersome and presenting a higher risk of fraud to both the owner of the cheque book and anyone who accepts cheques as a form of payment. The back office security and administration associated with cheque books and a cheque system are indeed very expensive, complex and cumbersome - another reason why Capitec Bank does not offer this product as it would simply not fit in with our simplistic approach to banking."

Olivier goes on to note that some retailers and service providers have already stopped accepting cheques.

"This is a clear indication that they also believe that a cheque is no longer a relevant payment instrument. We view electronic payments to be safer, technologically more advanced and more cost effective", he says.

"We have also noticed a reduction in cheque deposit transactions in our branches even though our client numbers have increased substantially over the past few years", explains Olivier.

Grobler explains why cheques are still pervasive, "It is very difficult for a client-centric business like banking to summarily stop providing cheques as a payment instrument, as there are a number of customers who, for whatever reason, prefer to still pay by cheque."

"However, when a major bank charges its customer a ‘cheque deposit fee' of R15 when that customer uses the same bank's cheque to settle his credit card debt, then presumably that customer will re-consider his loyalty to the cheque book. As banks pass the increased cost of handling cheques on to their customers the usage will also decline", notes Grobler.

A ban on cheques is feasible in a first world country with easy access to electronic facilities. How does this apply to a third world country such as South Africa?

"We are firmly of the opinion that there is adequate technology infrastructure and innovative developments available that can replace cheques as a payment tool. Not only are these tools technologically more advanced but they offer greater security to both the sender and recipient of the funds. The future generations of financial services users are bound to find these tools more effective and better aligned to their lifestyle."

"It is our opinion that the use of cheques in South Africa will continue to decline and eventually become completely immaterial relative to other payment instruments", explains Olivier.

Grobler gives a more concrete view on what the future holds for SA cheques, "I cannot answer on the banks' strategy for the future of cheques, but the UK example certainly sets a precedent for other countries to consider."

"The SA banking system alternatives to cheques are probably more developed than the UK banking system, and our existing cheque-using population probably a lot smaller. The challenge will be for the industry to wean its remaining cheque-using customers off cheques by persuading them to use the alternatives."

"I would imagine that in this scenario there will come a point beyond which the industry can no longer continue to offer the product due to high costs, low volumes and problems with equipment maintenance. It would then be constructive, as in the UK, to provide a firm future date from which cheques will no longer be valid. Unfortunately I cannot speculate on when this date will be set, if ever, nor when it would be."

Looks like South Africans will still have the option of using cheques for the time-being. Even the UK is in no rush, setting the date for the ban quite long way out.

Write to Chris Blaine: chris@moneyweb.co.za