Did you know:
• In 2013, on average two million cheques were issued every day (1990 – 11 million)
• The average value in 2013 was £239 for a personal cheque and £2,171 for a business cheque
By way of contrast, debit cards were used on average 23 million times a day in 2013.
Although there has been a steep decline in their use since the 1990 peak, cheques are still an important payment mechanism – the Government estimates that they account for 10% of all payments by individuals and over 20% of payments by small businesses.
The ‘2-4-6’ model
At present in the UK, clearing a cheque works on a ‘2-4-6’ timeframe – a customer paying a cheque into their account starts to earn interest on it two days after paying it in; the customer can withdraw the amount paid in after four days (even though, strictly, the cheque could still ‘bounce’); and it is only after six days that the customer can be certain that the money is theirs.
In large part, the reason for this timetable lies in the fact that, under the present law, a paying bank (being the one on which a cheque is drawn) can require that the physical cheque is presented to it before deciding to make payment on a cheque. The system results in delays for businesses in getting assured payment and high fixed costs for banks in running clearing centres and transporting paper cheques.
The Government has, therefore, decided to introduce cheque imaging – a digital image of the cheque (both front and back) would be sent for clearing, rather than the paper cheque itself. Cheque imaging is already in use in the USA, France and parts of Asia. The key elements of the proposals are:
• A paying bank’s right to require the original paper cheque will be abolished – it will only be necessary to deliver a certified digital image of the cheque
• Cheques will still have to be on paper – it will not be possible to ‘write’ a cheque digitally
• As well as the new option of paying in cheques by smartphones or other mobile devices, banks will be required to continue offering the existing options for customers to deposit cheques (over-the-counter, by post, etc)
• A ‘1-2-2’ clearing timeframe should replace the ‘2-4-6’ one – interest would be earned from the day after the cheque is paid in and the cheque itself would be fully cleared within two days.
The Government anticipates introduction of the new cheque imaging infrastructure for the whole industry at the same time. It is currently consulting with banks and others as to a suitable timetable for migration to the new system.
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