The end of Cheques? - Treasury Contents

Written evidence submitted by VocaLink


    — VocaLink processes all automated payments in the UK, including all Direct Debits, Direct Credits and Faster Payments; this accounts for approximately half a billion payments a month. We also operate LINK, the world's busiest ATM network of over 63,000 cash machines.

    — We believe that the 2018 end date is achievable.

    — There are credible alternative systems already available for the vast majority of cheque users, although there is a small subset of users that require new payment mechanisms.

    — We perceive that the bulk of cheque costs lie in clearing, and that consideration should be given to the closure of cheque clearing in its current form but maintaining a small amount of cheques for use by vulnerable groups (cleared via an alternate mechanism).

    — We regard the Faster Payments service, the ATM network and the Post Office counter network as key enablers of cheque replacement.

  1.  VocaLink welcomes the opportunity to contribute a submission to the Treasury Committee's Inquiry into the Payment Council decision to phase out cheques by 2018. This submission deals with how alternative payment mechanisms can be developed to replace the cheque, with particular reference to payments made by vulnerable groups such as the elderly and disabled.

  2.  VocaLink is a specialist provider of transaction services. We process all automated payments in the UK including Bacs Direct Debits and Direct Credits, the method by which 95% of salaries and 98% of state benefits in the UK are paid. It is estimated that over 70% of household bills are paid by Direct Debit, and the total value of payments flowing through the Bacs system in 2009 was £3.8 trillion.

  3.  We provide the real-time central infrastructure for the UK Faster Payments Service—which enables payments, including state benefits, to be made into accounts within seconds.

  4.  Our services operate in highly secure data centres on "never fail" technology which ensures total reliability and availability, 24 hours a day.

  5.  The specific purpose of this submission is to demonstrate that there are credible alternative systems already available for the vast majority of cheque users, and that the foundations are in place for a viable alternative solution for the remaining user communities.

  6.  The Payments Council research identified current and potential electronic alternatives as part of its research. Faster Payments was identified as a suitable alternative for all payment types, with the exception of cash acquisition. We support this view.

  7.  Faster Payments does require the payee to disclose their banking details to the payer—this may be an issue given the Payment Council research identified that 90% of consumers said that they would be fairly or very uncomfortable in providing account details to a person or company that they did not know well, compared with 41% of SMEs.

  8.  We do not see that there is a significant issue providing the central infrastructure for alternatives to cheques; the issues lie in the following areas: providing a suitable way of initiating a payment; educating the public and catering for specific vulnerable groups.

  9.  One of the principal perceived benefits of the cheque is the tangible transfer of value: a tradesman or school will physically receive the cheque and will perceive the transfer of value (even though the payment is far from final under the 2-4-6 rules). Faster Payments provides an immediate and irrevocable payment, but it is invisible to the recipient unless they have online access to their bank account. This is likely to drive greater use of mobile phones to initiate payment and also confirm receipt of funds; both payer and payee could conveniently see that the payment has been made.

  10.  Payment of bills by cheque can best be served by payment services such as although there remains the issue of those users who cannot or will not use online services. We believe that a credible alternative can be offered via bill payment at ATMs or over the counter, particularly at Post Offices.

  11.  There are now almost 40,000 free-to-use cash machines in the UK. This is more than ever before, and they continue to increase in number. ATMs are generally available 24 hours a day, seven days a week. It is important to note that most ATMs do not currently have the facility to transfer credit (other than via mobile phone top-up) or pay bills, but they have the potential to do so and we are investigating how this could be achieved.

  12.  VocaLink has successfully enabled over 30,000 individual Post Office counters, the largest branch network in Europe, to introduce and support a wide range of basic banking transactions. Some 94% of people live within a mile of a Post Office branch where they conduct 2.7 billion transactions every year. This extended service offering, enabled by VocaLink technology, has helped address some of the government's concerns over financial exclusion and helped to promote the "inclusive banking agenda". We believe that the Post Office offers a safe and familiar environment for bill payment, credit transfer and cash acquisition and could form part of the overall cheque replacement offering.

  13.  Our perception is that the majority of cheque costs lie in clearing, although this requires full analysis. On the basis that the majority of costs could be removed by closing the current clearing mechanism there is a reasonable case for retaining cheques (or a similar paper-based system) for use by vulnerable groups who cannot cope with alternative methods.

  14.  As a central infrastructure provider we are working with the payments industry to define how the alternative propositions will work in practice. We will work to provide a central payment mechanism; we do not expect to develop a direct consumer offering.

February 2010

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