Written evidence submitted by The British
Cheque and Credit Association (BCCA)
1.1 The British Cheque and Credit Association
(BCCA) is a trade association which was formed in 1994. It represents
the interests of businesses which offer encashment facilities
for third party cheques and/or certain other forms of very short
term, unsecured consumer loans which are repayable within six
months or less.
1.2 The BCCA has around 850 members,
the vast majority of which are small businesses which operate
from High Street premises. Two members are public companies listed
on AIM, one is a subsidiary of a company listed on the main market
and two others are the UK arms of companies listed in the USA.
The BCCA also represents several lenders which operate solely
via the internet.
1.3 The BCCA is in daily contact with its
members and therefore understands fully their commercial needs
and concerns.
1.4 This submission has been submitted following
consultation with BCCA members.
1.5 We confirm that there are no confidentiality
issues contained in this response.
2. EXECUTIVE
SUMMARY
2.1 Many SMEs, charities, clubs, societies,
voluntary organisations still consider that cheques are the most
convenient method of making and receiving payment. They are also
particularly useful for the elderly and people who are housebound.
2.2 Although the Payments Council frequently
mentions the cost to the banks of processing cheques, there is
nothing at all about convenience for cheque users.
2.3 In 2009, there were, on average, 3.461 million
cheques issued every day with a mean average value of £994.
2.4 In 2008, APACS/The Payments Council
projected that there would be 735 million cheques issued
in 2017.
2.5 APACS/Payments Council projections
indicate a considerable decrease in the decline in cheque usage
up to 2017 and an apparent leveling off after that date.
2.6 We consider that any decline in cheque
usage should be left to market forces rather than by pressure
from the Payments Council and its members.
2.7 The Payments Council has only recently
admitted that there will be a paper system even if centralised
cheque clearing is scrapped.
2.8 Fraud due to cheques was just 5.9% of
total payment industry fraud in 2008.
2.9 The OFT Review of the Payments Council
specifically excluded examining compliance with competition law.
2.10 The Payments Council rejected the OFT
Report's recommendation on modifying its membership criteria and
the make up of its Board.
2.11 We consider that the effective abolition
of cheques could have a detrimental effect on the viability of
the current bank branch network, possibly leading to further branch
closures.
2.12 We feel that any final decision whether
or not to end centralised cheque clearing should not be made by
the Payments Council but by an independent body.
3. SUBMISSION
AND COMMENTS
OF THE
BRITISH CHEQUE
AND CREDIT
ASSOCIATION (BCCA)
3.1 The BCCA welcomes the opportunity to
submit comments to the Treasury Committee on the UK Payments Council's
declared intentions for the UK cheque clearing system. For the
convenience of all, we have kept our submission brief. However,
we hope our comments are of interest and would be pleased to expand
upon any of the points mentioned. Please contact Geoff Holland,
Chief Executive, using the contact details given on the previous
page.
3.2 Many SMEs, charities, clubs, societies
and voluntary organisations still consider that cheques are the
most convenient method of making and receiving payment. This is
mainly because many such businesses do not have dedicated administrative
staff or sophisticated software systems. In addition, cheque payments
have a highly transparent audit trail. The elderly and many of
those who are housebound also find cheques a very convenient way
of making payments.
3.3 Although the Payments Council frequently
mentions the cost to the banks of processing cheques, there is
nothing at all about convenience for cheque users. Indeed, the
actual cost to a SME of making a payment electronically via, for
example, internet banking may be much higher if that payment has
to be administered by the proprietor. It would be irresponsible
for the proprietor of any small business to give a junior or part
time employee on-line access to its bank accounts.
3.4 In 2009, according to figures released
by the Payments Council in January 2010, there were, on average,
3.461 million cheques issued every day with a mean average
value of £994. This is hardly an insignificant number and
it is difficult to imagine exactly how alternative payments systems
can replace all cheques.
3.5 In 2008, APACS projected that there
would be 374 million business cheques issued in 2017 out
of a total of 735 million. This is still a very significant
volume which, again according to APACS's projections, is likely
to be maintained after that date. Please see next paragraph.
3.6 Whilst the BCCA acknowledges the decline
in total cheque volumes, APACS's statistics and projections show
a considerable decrease in the rate of that decline up to 2017,
with an apparent leveling off after that date.
3.7 It is, of course, far less costly for
banks to process wholly electronic payments but this should not
be the main driver for the phasing out of cheques. Neither does
the BCCA accept that, according to the Payments Council, "the
cost of processing each cheque will keep on rising", as we
feel that the clearing system could be scaled back at a rate which
reflects the reduction in volumes.
3.8 In Section One of the Payments Council
Consultation Document "Consulting on Change in UK Payments"
(2008), it is stated that "the best outcomes may often
be achieved through the operation of market forces alone."
The BCCA feels that the decline in cheque usage should indeed
be left to market forces. There will be no need for a plan as
suggested if alternatives to cheques which offer genuine cost
savings and which are just as flexible and convenient are developed.
Customers would, in these circumstances, migrate from cheques
by choice rather than being forced to do so.
3.9 The Payments Council has recently admitted
that there will indeed be some form of paper system for the transfer
of money even if centralised cheque clearing is closed in 2018.
The Payments Council has been in existence for nearly three years
and has never in the past stated that this would be the case.
Indeed, it had concentrated solely on promoting electronic payments
systems as alternatives. We understand that other countries which
have "abolished" cheques do indeed still retain paper
systems.
3.10 If cheques are effectively abolished,
it may well be that the viability of the current bank branch network
would be reduced, resulting in further closures of smaller branches.
We understand that the Payments Council and its members have not
carried out any research into this possibility.
4. FRAUD
4.1 The Consultation Document mentioned
in the previous paragraph states that "Retailers perceive
cheques as ... prone to fraud." However, this perception
is not born out when comparing cheques with other payment methods.
In the document "Fraud—The Facts. 2009",
published by APACS, the figures for payment fraud in 2008 are:
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| Plastic cards: | £609.9 million
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| Online banking: | £52.5 million
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| Cheque fraud: | £41.9 million
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Therefore, cheque fraud accounted for just 5.9% of total
payment industry fraud in 2008.
4.2 It is therefore important that any alternative payment
methods, as well as being convenient and flexible, are no less
secure than cheques and do not facilitate fraud.
5. COMPETITION ISSUES
5.1 The Payments Council's membership comprises major
banks and some other payment service providers. Many of the banks
are foreign owned and do not provide current accounts with cheque
books, at least in the UK. However, these banks still have a say
in whether or not the UK should retain its centralised cheque
clearing system, as do the other payments system providers which
would benefit directly if cheques were effectively abolished.
5.2 The original report from the Office of Fair Trading's
(OFT) Payments Systems Task Force, which resulted in the formation
of the Payments Council, stated that it (the Payments Council)
should comply with all UK and EU competition law. The OFT was
also charged with reviewing the Payments Council's operations
after two years in operation and did so, publishing a report in
March 2009.
5.3 However, the OFT, which is also the UK's competition
watchdog, did not include competition issues in its review. Indeed,
this aspect was specifically excluded from the Review's Terms
of Reference.
5.4 Bearing in mind the make up of the Payments Council's
members and its Board as well as the voting structure at its General
Meetings, it is surprising that at least some sort of monitoring
of its operations is not carried out as a matter of course, in
the interests of reassurance if nothing else.
5.5 The OFT Report made a recommendation that the Payments
Council amended its membership criteria in such a way that the
result would be "a seat or two" on the Board
for bodies other than payments service providers. In its response
to the OFT's Report and its recommendations, the Payments Council,
in effect, rejected this recommendation. This decision has not
been followed up or queried at all, certainly not by the OFT.
We feel that the Treasury Committee should investigate.
6. THE FINAL
DECISION
6.1 The Payments Council has stated that it will make
a final decision in 2016 whether or not to close the UK cheque
clearing system in 2018. Bearing in mind the vested commercial
interests of many of the Payments Council's members in the abolition
of cheques, we feel that any decision should be made by another,
independent organisation. This could be, for example, HM Treasury,
the OFT, the FSA or a combination of all three.
February 2010
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