Those of you who know me have heard that I am passionate about the game of hockey (the variety played on ice rather than grass). The NHL playoffs have just started and so this is my favorite time of year. It’s a fast-paced game and it takes physical and mental stamina to win four best-of-seven series against top 16 teams before you can hoist the Stanley Cup. Many experts believe this is the hardest team trophy to win in professional sports. Physical contact is inevitable and “checking” (using body contact to separate your opponent from the puck) is an important part of the game. You can see some good examples of that in action here. So imagine my shock when reading a headline stating that checks should be abolished!
Thankfully the news was about another kind of check – you know, the paper ones that make you impatient when the person in front of you at the supermarket pulls out their checkbook to pay for their groceries. The Finextra article in question can be found here. The news is that after the UK Payments Council voted to eliminate cheques by 2018, UK MPs have decided to launch an inquiry into this. Checks, or cheques, are an expensive mechanism for banks and merchants to manage. Processing of paper is intrinsically more expensive and time consuming than electronic payment methods at the point of sale and in back office processing. It is natural that banks, merchants and payment processors would prefer cards or other electronc transactions – not least because of pre-authorization of the transaction – and cheques accordingly are in terminal decline in all major payments markets. In an industry where innovation is moving into mobile and digital payments, support of cheques as a payment instrument is a somewhat schizophrenic reaction. I understand preserving 350 year old buildings, but it is probably about time we moved beyond supporting 350 year old payment instruments when at the same time investment in EMV chip and PIN, mobile payments, and digital wallets intensifies. In the US, regulation has actually extended the life of cheques through the Check21 Act. As for innovation, scanning cheques into a mobile device for remote deposit is innovative, but it does the same thing. Both initiatives have electronified and simplified the processing, but do nothing to discourage cheque use.
So how do we reduce the number of cheques in circulation? The answer isn’t in processing efficiency, it’s in disincenting their use. Payments, like all products and services are price sensitive. By raising the fees associated with cheque issuance and processing will aid the transition to true electronic transactions. In the meantime, next time you are at the supermarket, keep your head up when waiting in line or you might get ‘checked!’