Why Are Cheques Being Phased Out?

Cheques have been in use for more than 350 years, but they now appear to be on their way out as the internet and other forms of electronic payment bring us closer towards a cashless society. But what does this mean for people who rely on cheques?

In the Netherlands, the cheque is no longer used at all. Its use is also rare in Belgium, Germany, Switzerland and Sweden. But it is used much more commonly in the US than in the UK.

The tide began to turn in 2007, when cheque usage fell to its lowest level in the UK. It was calculated that personal cheques accounted for only 6 percent of all personal transactions that did not involve cash.

Many retailers no longer accept cheques and consumers have been increasingly using online transactions and electronic payment methods to pay for goods and services instead.

This led the payments industry to announce that the chequebook was officially to be consigned to history, and they began to make plans to phase the chequebook out by 2018.

These plans, however, have faced a backlash this year, as cheques have returned to popularity with cash strapped consumers, and also because of security concerns surrounding the alternatives. So why are cheques being phased out? Unsurprisingly, a major reason is the costs for banks and other financial institutions.

Alternatives to Cheques

The move away from cheques and cash has not been as rapid as the industry originally expected. In the mid-noughties estimates were that non-cash electronic payments would overtake cash payments by 2011. Now, this has been pushed back to 2015.

These institutions have been investing heavily in the latest microchip technology that allows customers to use their credit and debit cards to activate a payment simply by pressing their card against a sensor; similar to the Oyster travel system operated on the London Underground.

Mobile phone payment systems are also being heavily touted as the ‘next big thing’ for non-cash payments, whereby if, for example, you want to pay for a service such as an electrician you can do so by exchanging text messages via telephone numbers that act as bank account details.

Security fears

So far, however, these new technologies have failed to capture the public imagination, with one of the biggest concerns security. Many people fear that if their bank card or mobile is stolen by sophisticated thieves they run the risk of having their bank account cleared out.

Payment companies have therefore tried to limit the amount a customer can lose on these forms of payment. For example, a contact-less card will usually have a transaction limit of around £10, and where a higher limit is applicable the cardholder will be required to use a Pin number before the transaction will be authorised. So far, these measures have yet to convince the public, but the use of contact-less cards is on the increase.

Older Users

Charities such as Age Concern have also protested against the phasing out of cheques, rightly pointing out that many more mature people are not comfortable with using these new technologies.

They have argued that paper-based forms of payment such as cheques should not be phased out until suitable alternatives for people of all ages are agreed upon.

The Government appears to agree, and recently announced a formal inquiry into the proposed abolition of cheques and publicly stated that cheques will only be phased out if adequate alternatives are in place.

They also accepted that cheques are still widely in use for sole traders, skilled tradesmen, small businesses, charities and schools.

So, for now your chequebook is still safe, but in less than a decade it could be consigned to history