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
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 Servicewhich 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
7. Faster Payments does require the payee
to disclose their banking details to the payerthis 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 www.mybillsonline.co.uk
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
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