Examination of Witnesses (Question Numbers
16 MARCH 2010
Q1 Chair: Welcome to this one-off session
on The End of Cheques? For this first session we have 30 minutes
until 10.15, so each of you will have to be very brief with answers
so that we can get through the session. Can you introduce yourselves
for the shorthand writer, please?
Ms Richards: I
am Louise Richards. I am Director of Policy and Campaigns at the
Institute of Fundraising.
Mr Holland: I am Geoff Holland
I am Chief Executive of the British Cheque and Credit Association.
Ms Perchard: I am Teresa Perchard.
I am Director of Public Policy at Citizens Advice.
Ms Weatherhead: I am Linda Weatherhead.
I am the Principal Policy Advocate at Consumer Focus.
Ms Vass: I am Jane Vass. I am
the Financial Services Policy Adviser at Age Concern and Help
Q2 Chair: You do not all need to
answer the same question. We have only got half an hour and it
is important that the message that you want to get across gets
across in that period of time. Maybe I could start with Geoff
Holland. The rest of Europe seems to get by without cheques. What
is the problem in the UK?
Mr Holland: In the Netherlands,
for example, it is often said that the Netherlands do not have
cheques. They do in fact have a paper system for transferring
money and it is quite a substantial system. What you normally
find is that countries that do not use cheques use a lot of cash
instead; that is the issue, so the more cheques countries use
the fewer cash transactions there are. This is for personal transactions.
What appears to have happened in Europe in a lot of countries
is that the centralised cheque clearing system has gone. In other
words, they still use cheques but they do not use the same sort
of cheque clearing system. They use a different method of processing
the payments even though they are paper based.
Q3 Chair: Linda, the issue of payment
systems affecting companies' competitiveness, will it affect it?
Ms Weatherhead: I do not think
so. If there are alternative payment systems that are developed
which provide companies with better control over payments in and
out then there are a lot of advantages to be had from developing
alternative payment methods, particularly electronic payment methods,
where transactions occur in real time. I think we have been a
bit slow in developing alternative payment methods. Other countries
have set the pace in those areas and there are lots of lessons
that we can learn in terms of adapting those things.
Q4 Chair: Teresa, the Payments Council
say that cheques are in terminal declinecase shut.
Ms Perchard: I am not sure. Even
looking at their forecasts, there would still be a reasonably
large number of cheques in issue by individuals in 2018, which
is the suggested date for closing down the cheque clearing system.
I think Geoffrey's evidence is particularly helpful in raising
the question of whether terminal decline is really there. We agree
they are in decline and we support the idea of setting an end
date and having a managed programme of coming up with alternatives
for those people who prefer to use and maybe can only use a cheque
to make payments, because otherwise cheques just will be withdrawn;
traders are already pulling out of accepting cheques for reasons
which may be perfectly legitimate to them but there are not any
alternatives being provided for those people who really cannot
use anything else.
Q5 Chair: Jane, older people can
adapt just like everybody else in society; witness Terry Wogan's
internet step-by-step guide this weekend. What is the problem?
Ms Vass: Older people are very
much the heaviest users of cheques and across the population as
a whole the industry's own figures show that 21% of people say
that moving away from cheques would be a major problem for them.
The concerns we have are first of all that it will encourage people
to return to cash with all the concerns about large amounts of
money kept at home, and, secondly, it will force older people
who are perfectly capable of managing their own affairs into dependency
on others. For example, if you imagine that you are 87 and you
have just come back from hospital after a hip operation, you cannot
get out to get cash, you have not got friends or family nearby,
how do you pay for what you need, and, indeed, how do you pay
people who come in and do your shopping? Our concern is that it
drives a lot of the problem underground and that people are giving
debit cards and PIN number to people they may not know very well.
Q6 Chair: Louise, is the announcement
that cheques are likely to be abolished in 2018 likely to mean
that banks stop issuing them or businesses stop accepting them
before that deadline? If that is the case, what implications does
that have for charities?
Ms Richards: That did happen in
Belgium. You mentioned Europe earlier and that is exactly what
happened, it was much more difficult to get cheques and banks
did not want to issue them. We have had a recent case submitted
to us by a small hospice where a woman of 88 went into a bank
(which will remain nameless) and asked for a new chequebook, and
they gave her all sorts of problems in getting that chequebook.
She is 88 years old, does not have a computer and when she told
them that she said that they said, "Find a relative or friend
that can do it for you", which for a woman of 88 is not acceptable.
It is not acceptable for anyone really. In terms of charities,
we have got evidence from large and small charities. We represent
300 organisational members and 5,000 individual members and the
problem is that a lot of them rely on an older supporter base.
We have had evidence from large charities and small hospices telling
us that upwards of 70% of their donations come in in the form
of cheques through their supporters and that those supporters
are very unlikely to opt to use other methods if they are available.
I think you have to remember that 6.4 million people over the
age of 65 do not have access to the internet.
Q7 Ms Keeble: Teresa, you talked
about some vulnerable groups who would be particularly affected
by this. Could you say which groups those are?
Ms Perchard: The Payments Council
has particularly highlighted older people but "older people"
is a very large group with lots of different abilities and preferences.
We have identified in some of our recent evidence people who are
older or who are ill and not very mobile who may need to make
a payment to a third party through another party, typically asking
a carer to do some shopping for them. The identities of carers
can change quite frequently, so it is not realistic to set up
some kind of shopping account through that carer. There are also
people who need to make some form of small payment, perhaps giving
money to a child to take to a club, like the Brownies, or to school
to pay for trips, or people who are paying to participate in an
informal club of some kind.
Q8 Ms Keeble: Looking at the row
there was some years ago when DWP moved to paying directly into
bank accounts, which caused a lot of consternation, what lessons
would you draw from that which should feed into the phasing out
Ms Perchard: The first thing is
that cheques have not been abolished for benefit payments, as
a recent parliamentary answer highlighted. There are 340,000 people
still receiving benefit cheques through the post weekly.
Q9 Ms Keeble: So it has just not
been possible to get the change?
Ms Perchard: It is not realistic
for everybody. In many ways those cheques that are floating around
in the post are far less secure in terms of a record of payment
for the individuals than the benefit book that the Government
was determined to abolish. That is why the idea that cheques may
be in terminal decline by 2018 perhaps needs to be looked at.
There are still likely to be people who need some paper-based
method to make and receive payments which is more secure than
Q10 Ms Keeble: Jane, do you think
that the move towards accepting electronic payments and being
able to cope with those is going to be something that pensioners
will be able to deal with in times to come, and do you also thinkand
Teresa might comment on thisthat there are some younger
groups of people who also have real difficulty with non-paper-based
payments? I do not just mean mums paying for kids to go to school
outings; I mean people who have real difficulty with electronic
Ms Vass: Yes. I would pick out
people with visual impairments who do often quite like cheques
because they give them that control. People who are registered
blind often can sign a cheque and they prefer something, according
to the RNIB, where they can, perhaps with a magnifying glass,
check the figure themselves rather than having to use a PIN pad
where, even if you can enter the number, it is almost impossible
to read and double-check the figure you are using.
Q11 Ms Keeble: But are pensioners
moving towards accepting electronic payments, which is a point
the Chair was making earlier?
Ms Vass: Some certainly are. As
Teresa says, it is a very broad group. The problem is that even
if you have grown up using all this technology there may come
a time through the normal impairments of ageing when it is less
easy for you to do so, and we need to take those considerations
into account now in the mainstream design of financial products
rather than treating it as a special need for the minority. For
example, chip and signature cards are available for people who
cannot manage PINs, but again the RNIB in some mystery shopping
they did found that a third of the staff at the banks they asked
about it said that there was no alternative to PINs, so you have
to get those methods to people who need it if you take the approach
of treating it as a special need.
Ms Perchard: Ofcom has recently
reported on take-up and use of different communication services
and what they say is that on usability it is older people who
report the least take-up and use of internet and mobile phones
and the most difficulty with using those. As we move forward older
people may be less likely, if they are not already using those
services, to take them on board unless they are helpful.
Q12 Ms Keeble: Is there a financial
inclusion issue for younger people as well? That is really what
I want to know.
Ms Perchard: Yes, there is, because
we have still got a million, maybe two million, people who do
not have access to a bank account with transactional services
and they are not all older people. There are a lot of older people
who prefer the post office card account, limited though it is,
as their way of receiving money, taking it out in cash and then
paying it back to the post office to pay their bills, and that
is their preferred way of budgeting.
Q13 Nick Ainger: Mr Holland, in your
submission you say that many SMEs find cheques the most convenient
method of making and receiving payments, but the Payments Council
say the key drivers of the use of cheques by small businesses
is based on habit, tradition and inertia. Who is right, you or
the Payments Council?
Mr Holland: I run a small business.
I run a trade association which is set up as a standard limited
company, although its shares are held in trust on behalf of its
members, so therefore I am the guy that has to pay bills and so
on. By far the most convenient and cost effective way of paying
bills from my point of view is the cheque, and I am typical of
hundreds of thousands of small businesses around the UK.
Q14 Nick Ainger: You say it is the
most cost effective way. What is the difference in the processing
charges made by banks between having an electronic transfer and
Mr Holland: It is the administration
of the process in the office as well. A bill comes in, I sign
it off as approved, and that is the last I see of it until a cheque
arrives on my desk. I sign the cheque; the cheque is already made
out, and that is all I do. It is a very quick and easy way of
doing things. If I were to do an electronic payment I would have
to log on to a machine and I would have to process the payment.
With cheques it is the bank that processes the payment through
its systems. For electronic transactions I have to do that. I
cannot give access to our company's bank accounts to somebody
on £20,000 a year, but she is the one who makes the cheques
out at the moment. Rather than doing mundane things like paying
bills I should be doing this sort of thing; that is what I am
Q15 Nick Ainger: So the costs are
notor perhaps they arethose that are imposed by
the banks on cheque or card processing. What you are saying is
that within the SME there is a cost in terms of who can access.
Mr Holland: If you are a small
business you should be doing whatever it is you do to make money,
not administration. There is a quote here from the Payments Council,
from one of their publications. It is talking about SMEs. "Cheques
are valued for their convenience, the provision of a tangible
audit trail and the ease of reconciliation", which is true,
and there is a perceived control of cash flow. You feel more in
control. "There is also the perception that the payment has
been made once the cheque has been received. Cheques may also
be the only method available at the start of a new company and
may be more convenient than setting up automated payments for
each of its new payees." I would agree with every one of
those points. That is in a Payments Council publication.
Q16 Nick Ainger: Your argument is
that this is a convenient and cost-effective way of getting money
in and paying money out?
Mr Holland: Very much so. What
does concern me a little bit is that the Payments Council has
said that its members should encourage migration away from the
cheque and I would hope that that does not include increasing
the costs, particularly to SMEs, of processing cheques.
Q17 Nick Ainger: Can I move on to
Linda Weatherhead on that? In your submission Consumer Focus say
that the use of card payments is inhibited by significant bank
charges despite processing costs being lower than for cheques
for the banks.
Ms Weatherhead: That is right.
There have been a number of reports, including from Visa and the
Payments Council itself, about the cost of cheques to banks, and
I think one of the submissions talked about the truncation system
and the huge costs involved in that, whereas the processing costs
for card or electronic payments are much lower and would save
banks, consumers and the economy an awful lot of money. In terms
of what Geoffrey was saying, I can understand that people are
quite tied to cheques. They have got a system and they are using
that system. I have also run small businesses in another country
where I have used electronic payment systems. I have been in a
remote place 400 kilometres from the nearest bank. I would not
have been able to cash cheques if they were paid in. My processing
occurred along with an accounting system that the bank provided
linking all of my accounts that enabled my accounts to be processed
at the same time I was making payments or paying in. It gives
you, I think, greater control over money in and out and you can
schedule payments, whereas payments by cheque, particularly for
small businesses, means that you actually have to go to the bank
to cash cheques and you have to wait for them to clear and there
is a real uncertainty about that.
Q18 Nick Ainger: You are saying that
there are ways to overcome these practical problems, but in your
submission you say that one of the reasons that so many SMEs are
still using cheques is because of the costs of the alternative
methods and you are saying that those alternative methods in processing
costs for the banks themselves are lower, yet the SMEs get charged
significantly more than the cheque processing. Are you basically
saying that the reason we have not seen more SMEs move to an electronic
system is the charges that are being imposed on them by the banks?
Ms Weatherhead: I think that is
one of the main concerns and one of the main problems with the
current system, that moving to electronic processing has not involved
a decrease in costs. A lot of consumers are very concerned about
the introduction of new payment methods and the possible costs
or charges that will be associated with them. There has been very
little innovation in the industry, and where there has been innovation
people see greater charges. I think there are some legitimate
concerns about how this might go. It is quite a challenge for
the Payments Council to monitor the introduction of alternative
payment methods to make sure that we do not see them as just being
another way to elicit new charges.
Q19 Nick Ainger: Can we be clear.
You are saying in your written submission that the processing
charges for electronic transfers are significantly lower than
for cheques, and yet the costs for electronic transfer and the
introduction of the equipment and so on is a deterrent. Is that
Ms Weatherhead: It is indeed,
particularly in relation to cards. The costs that small and medium
enterprises have to pay in terms of having processing terminals,
and Geoff may be able to back me up here, are quite significant.
There are also percentage costs associated with each transaction
in some instances. The other thing is that businesses who want
to issue their employees with credit cards so they have a better
trail of accounting are also inhibited because there are costs
on businesses in terms of issuing credit cards, though not necessarily
on individuals. The whole cost structure issue is probably one
of the challenges that needs to be looked at in the development
of alternative payment methods.