The earliest cheque is said to have been written some 350 years ago: apparently Nicholas Vanacker issued it in favour of a certain Mr Delboe for the amount of £400.
The cheque as a payment instrument is therefore almost as old as banking itself. It has had a good innings – as the English would say – and it would be no surprise if it were to be put ‘out of service’.
Yet a little research reveals that cheques are still one of the most widely used means of payment in Malta. It is estimated that around 12 million cheques were drawn in 2005 with the total value an astonishing €13.03 billion; the figure falls to 10 million cheques issued in 2011, according to the ECB Blue Book. The long-term trend, however, is for people to opt for alternative payment solutions such as card payments, which in 2006 amounted to 6.4 million transactions. By 2011 this figure rocketed to 13.84 million transactions. Experts claim the trend is for more ‘efficient’ and ‘modern’ payment solutions to replace cheques and cash.
With Malta part of SEPA, the emphasis will undoubtedly be on a move in favour of more ‘modern’ and ‘efficient’ methods of payment, namely credit transfers (better known as internet-based bank transfers), direct debit, credit cards and e-payments (better known as online purchases). Some even argue that mobile payments are about to revolutionise payments and disrupt an entire industry. The deadline for the Single European Payments becoming a reality is February 1, 2014, and this changeover is bound to impact our beloved cheque to some extent.
In the UK, the reaction to the possible end of the cheque created a bit of an uproar. Granted, the English tend to be conservative and do things differently to those on the continent, but we are much the same where this issue is concerned.
Treasury Minister Mark Hoban was forced by circumstance to declare last summer: “Until it is demonstrated that there is an alternative system to cheques in place, that is as easy to use and as cost-effective, I do not believe there is a credible and coherent case for abolishing cheques… The Government is keenly monitoring the progress of the cheque replacement programme, and is considering whether it may need to intervene to protect vulnerable individuals and businesses if there is any threat that cheques may be withdrawn without suitable alternatives being put in place for all.”
Anticipating similar discontent in Malta should the local cheque be abolished or phased out after February 2014, I contacted a few friends in banking and was reassured that no such thing was being contemplated. The cheque is here to stay for the foreseeable future (or so I was assured).
Thank heavens for that! Despite the availability of more ‘efficient’, though not necessarily less expensive, payment solutions, I still consider the cheque as a relevant local payment instrument, especially for businesses. The cheque is offered to customers as a payment instrument at no direct cost even if the payer and payee use different banks: when one pays a third party by means of a cheque the bank levies no charge or fee.
Granted, the anti-cheque brigade will argue that the cheque comes at a significant ‘social cost’ (the figure of one per cent of GDP is often quoted) but I am still not convinced with this argument. Cheques currently carry no direct fees or charges and that, surely, is good for business. It is easy and convenient to use (especially for small businesses) and widely accepted in Malta.
The cheque is uncomplicated and is not dependent on internet banking or technology. It is ‘processed’ after the payer has issued it and at a cost to the bank, rather than the payer or payee.
I still, however, fear that SEPA will bring about a change, which may eventually negatively affect the cheque as a payment instrument. I appreciate the value and benefits of modern payment solutions but the best solution is not to abolish the cheque (as some north Europeans would have it) but to allow several payment options to co-exist.
The regulator should guarantee a healthy mix of payment solutions, including cash and cheque, and ensure that each and every payment solution is secure, reliable, flexible, cost-effective and simple.
Payment by credit transfer is useful when, for instance, paying a third party who banks with same bank. Payment by direct debit is useful when paying fixed and recurring bills like utility bills. Payment by credit card is useful when funds are not available in the short term. Payment by cash is useful for small amounts and everyday items. Payment by cheque is arguably always useful.
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Kevin-James Fenech is director-consultant at Fenci Consulting.