Written evidence submitted by Consumer
1. We welcome the Treasury Committee's inquiry
into the Payment Council's decision to phase out cheques by 2018.
It is a progressive decision but not without controversy and genuine
concerns need to be addressed. In order to overcome resistance
to change the significant savings to be made by the abolition
of cheques need to be passed on to consumers in terms of accessible,
user controlled, efficient alternative payment methods. Education
and information about the alternative methods and their benefits
and suitability for different segments of the population will
be needed in making the transition. It is important, therefore,
that the Payment Council targets and timelines are met and that
clear responsibility for meeting these objectives is shared by
industry, Government and regulators.
2. Our responses to the call for evidence
in relation to the proposed abolition are as follows:
Trends over time in the use of cheques as a payment
mechanism, including estimates of likely usage over the next five
to ten years
3. The Payments Council has recently reported
on the decline in usage of cheques as a payment mechanism.
It is likely that the decline will continue, but unlike in most
European countries and in countries like Australia and New Zealand,
volumes of cheque usage in the UK are still significant.
4. The efficiency and functionality of cheques
is becoming more limited, with more businesses and retailers refusing
to accept cheque payments, the rise of e-commerce hastening the
trend towards e-payments, and the move away from automatic inclusion
of a cheque facility with all bank accounts. As, by nature, cheques
cannot be processed as efficiently as other means of payment,
the use of cheques in a cross-border context is increasingly discouraged.
5. In a study of low income families in
Wales, very few people we spoke to said they personally wrote
cheques these days.
The advantages and disadvantages of abolition,
including the impact of abolition on particular groups in society
6. We are supportive of a managed decline
in cheque usage, however it's critical that appropriate and affordable
alternatives are in place before total abolition. Other countries
have seen the abolition of cheques and the movement to faster,
more efficient payment methods. Innovation in payment methods
in the UK has been limited and has not therefore been a driver
in the way it has elsewhere. However it is a way of enhancing
reputation and distinguishing brands so that some trust and confidence
can be restored to the system. For cost reasons there is a genuine
public interest in moving to alternative payment methods.
7. The uncertainty of when a cheque is going
to be presented and cleared, with clearance times taking up to
six days, causes difficulties for consumers and businesses alike
in managing their budgets (although we are aware that some people
use this to buy time on payments). The penalties and fees associated
with bounced cheques are another reason to avoid their use and
move to more efficient and easily controlled methods of payment.
Fees currently range from £5 for each cheque to £35 per
cheque and then there is the risk of additional fees on top of
these for going into unauthorised overdraft. Electronic payment
methods trusted and initiated by the consumer, in real time, can
provide a better way of managing budgets, giving information on
balances and credit, and the capacity to better time and defer
payments without the risk of punitive fees and charges.
8. Cheques are particularly difficult for
the blind, those with arthritic conditions or mobility impairments,
those with English as a second or other language and those with
poor literacy, and for those in remote areas without easy access
to a bank branch. The use of online or key pad options for these
groups often enables greater accessibility and functionality.
9. In most European countries, cheques are
now very rarely used, even for third party payments. In these
countries it is standard practice for businesses to publish their
bank details on invoices in order to facilitate the receipt of
payments. UK businesses, big and small, who want to see business
growth and remain competitive in the European and domestic market
will need to adapt their payment systems accordingly.
10. The Payments Council research among
consumers and small and medium enterprises (SMEs) cites habit,
tradition and inertia as the key drivers behind the continued
use of cheques, combined with lack of awareness and confidence
in other payment methods.
These factors themselves don't constitute disadvantages of the
abolition of cheques but do present challenges to the implementation
of alternative systems.
11. In particular cheques are more commonly
used by older people,
those who are housebound or who live in homes, and electronic
payment methods by the more affluent
and so the socio-economic divide indicates that those already
vulnerable or on low incomes may have greater difficulties with
transition. Information and education work needs to be focused
on particular segments of the population. (Although a regional
split of how people make payments seems to indicate greater cheque
use in the South and particularly in London than the North, with
the fewest cheques issued in Scotland). Given the long phase-in
time and the planned reviews, the effectiveness of education and
information work can be assessed and adjusted accordingly.
12. However there are areas where disadvantage
could occur if the transition is not managed well.
13. Cheques are often favoured for consumer
to consumer transactions or small business transactions. Older
or vulnerable people, those with particular disabilities, or those
who are not comfortable or competent in utilising electronic methods
will find the transition difficult, even though for many people
electronic or phone payments provide a better alternative. Remembering
PINS and passwords can be a challenge even for those who feel
comfortable with electronic methods.
14. For SMEs, particularly your local small
tradesperson, cheques are a usual method of payment but not necessarily
a convenient form of payment given the need to take time to bank
them and the delays involved in receiving payment. Direct Debit
or e-payments are the easiest solution but the use of card payments
is inhibited by the significant charges banks place on facilitating
these for businesses, despite the fact that this sort of processing
is much cheaper for the banks than cheques.
15. Careful supervision of institutions
will therefore be needed to ensure unfair or unjustified fees
and charges for cheaper payment systems do not creep in and that
current fees and charges are more reflective of the cost of the
16. The current lack of universal access
to affordable and functional internet services is a further barrier
to the abolition of cheques. Proposed universal service obligations
in relation to internet access
may assist but these are long term and have no guarantees on affordability
so there will still be those left outside the net having to utilise
expensive and slow payment options.
The development of alternative payment mechanisms
17. The continuing failure of many UK financial
institutions to provide systems for instant payments and a range
of alternative payment methods has been an obstacle to the pace
of natural attrition seen in other countries. There has also been
a relative consumer disadvantage in the failure to offer the consumer
mechanisms to control timing and amount of payments in the electronic
methods currently offered. The abolition of cheques should come
with commitments from all institutions to real time electronic
payments initiated by the consumer, and to provision of alternative
payment methods with all bank accounts.
18. While the Faster Payments Service was
intended to provide commitments for electronic payments to be
made in real time, it has not delivered. There are different conditions
as to what qualifies for faster payments processing in different
banks and not all banks are members, so a payment can go out fast
and then ramble around a receiving bank's system for days. A real
and enforceable commitment to real time processing of all electronic
payments and transfers (including on-line faster payments in e-commerce)
needs to enforced. The Payment Services Directive as a harmonised
standard requires execution of payments throughout the community
within a maximum one day execution time;
it is unlikely that all UK institutions are currently in a position
to comply even with this standard. While the Payments Council
has set a number of targets, there needs to be co-operation from
the industry, and if there is no co-operation then a means to
secure it. It is estimated that the abolition of cheques represents
£200 million per annum cost savings to banks and £750 million
per annum to large corporations and the public sector in 2018.
These cannot just be absorbed into bank profits or bankers' bonuses
but need to be invested in more efficient and effective payment
methods controlled by the user, into specifically designed accessible
payment methods for particular segments of the population, and
returned in savings and competitive bonuses for consumers.
19. Current options for payment need to
be extended to enable access and availability. Access to cash
machines, Direct Debit facilities and a Direct Debit card should
be standard on all accounts and are regarded as an essential feature,
particularly amongst low income consumers.
Real time processing of payments needs to be assured. The availability
and access to ATMS should be extended and services offered should
include the ability to make payment to third parties.
20. It is clear that new payment methods
are being developed and adapted to meet development needs. Increasingly
micropayments systems for our £1 daily newspaper online
will become the reality and iPhone applications and personal mobile
devices will be the future medium for most of our daily transactions.
Smart cards and RFID technology will play a greater part in offering
convenient payment systems.
21. As the Payments Council recognises,
new payment mechanisms will have to be developed for a variety
of transactions that are currently largely made by cheque payments,
such as person to person, person to sole trader or community group
and business to person payments. There appears to be some consumer
reluctance to share account details with a person or business
they did not know well in order to receive an automated payment.
Assurances about security or development of payment methods that
do not require this information are required.
22. Furthermore, alternative payment mechanisms
designed for the mass market will not necessarily be suitable
for everyone and so innovation needs to provide tailored solutions
for those with different needs.
23. Our research supports the following
additional payment methods in relation to low income consumers:
Modified bill payment and payments in systems
24. The modified bill payment facility would
enable low-income consumers to make automated bill payments for
utility bills with confidence. The account holder would be able
to set the frequency of payments, including on a weekly or fortnightly
basis. Outward payments would be synchronised to follow the receipt
of regular inward payments, and the payments would only be made
if the account holder had sufficient funds in his/her account.
No fee would be liable to the account provider if a payment was
missed, therefore overcoming the consumer fear of punitive charges.
25. Other bill payment options currently
exist on line, for example, bank account linked bill payment services
such as B-pay in Australia or the independent PayPal network which
might pave the way for further innovation in small consumer transactions.
26. The DWP is currently undertaking a procurement
exercise to identify alternatives to the green giro scheme,
citing the disproportionately high costs associated with this
option compared to other payment types, this is taking place on
the basis of competitive dialogue, with the DWP seeking to identify
procurement-led solutions that will enable vulnerable consumers
to continue to receive pensions payments easily as well as more
cost-effectively. Industry should monitor the outcomes of this
exercise to scope alternatives for those reliant on cheques, and
for whom other existing payment models may be unsuitable.
27. Prepaid cards do offer a number of opportunities
to financially excluded consumers, particularly those without
a bank account or those who are reluctant to use a standard current
or basic bank account to its full potential eg being able to transfer
a set amount of money onto a prepaid card can potentially help
them to manage their budgeting needs while at the same time, allowing
them to use ATMs; buy goods on-line or over the phone or use the
cash-back facility in shops. However there are a number of consumer
protection issues regarding the prepaid card market, primarily
concerning "open-loop" cards.
28. Currently there is a big variation between
providers on how the fees and charges associated with the use
of the cards are applied (eg monthly fees; top-up fees; transaction
fees; ATM withdrawal fees)some of which may be more openly
advertised than others. More "hidden" charges may include
replacement card fees (due to the limited lifespan of most cards),
inactivity charges and charges for refunding money held on a card.
A transparent and cost reflective fee/charging structure for "open-loop"
prepaid cards is critical.
29. We agree with the Financial Inclusion
that it is important for government, regulators and providers
of prepaid cards to minimise the danger of consumers losing funds
stored on prepaid cards due to fraud, physical loss or the insolvency
of the card provider.
30. In addition it is likely that some groups
will need alternative payment methods which may include some form
of paper based payments. In the Netherlands, Austria and Germany,
all kinds of invoices are commonly accompanied by so-called "acceptgiro's'
(Dutch) or 'überweisungen' (German), which are essentially
standardised bank transfer order forms preprinted with the payee's
account details and the amount payable. The payer fills in their
account details and hands the form to a clerk at their bank, which
will then transfer the money. Also, it is very common to allow
the payee to automatically withdraw the requested amount from
the payer's account'Lastschrifteinzug' (German) or 'Incasso'
(machtiging) (Dutch)". Though similar to paying by cheque,
the payee only needs the payer's bank and account number.
5 Payments Council UK, "The Future of Cheques
Report" December 2009 Back
Consumer Focus Wales, The Cost of Cash, November 2009, p7 Back
Payments Council UK, "The Future of Cheques Report"
December 2009, p13 Back
"Personal Current Accounts in the UK", An OFT Market
Study, 2008, Glossary Report Back
Digital Britain, Final Report, BIS, June 2009 Back
Directive 2007/64/EC, para 43 Back
Payments Council UK, "The Future of Cheques Report"
December 2009, 6 Back
Consumer Focus Opportunity Knocks, Providing alternative banking
solutions for low-income consumers at the Post Office, January
Consumer Focus response to the BIS consultation on developing
the financial and banking services available at the Post Office Back
The DWP developed the "green giro" exceptions service
to ensure those who were unable to receive their pensions and
benefits through a standard bank account or a POCA could continue
to receive their payments through a cheque-based solution Back
CF Wales submission to Payments Council user forums Back
"Fourth Annual report on Progress Towards the Shared Goal
for Banking", Financial Inclusion Taskforce (October 2009) Back