The end of Cheques? - Treasury Contents

Examination of Witnesses (Question Numbers 1-19)


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 the Aged.

  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 decline—case 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 of cheques?

  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 cash.

  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 think—and Teresa might comment on this—that 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 transfers?

  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 a cheque?

  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 paid for.

  Q15  Nick Ainger: So the costs are not—or perhaps they are—those 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 right?

  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.

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