Written evidence submitted by The Payments
Council
1. INTRODUCTION
1.1 The Payments Council welcomes this opportunity
to submit written evidence to the Treasury Select Committee for
its inquiry The end of cheques? As the body responsible
for initiating this debate and setting the target date for closure
of the cheque clearing in eight years' time, we are keen to engage
with all those affected by the announcement and believe that this
inquiry will extend public engagement on the subject.
1.2 Our reason for contemplating the closure
of the central cheque clearing is that use of the cheque is in
terminal decline; it is better actively to manage that decline
so that alternatives are available, accessible and being used
by those groups which traditionally have relied on cheques, rather
than leaving it to market forces and those least equipped to change
being left disadvantaged. Our proposed closure date is subject
to review in 2016 to ensure that those conditions are indeed being
met; and until then we will be keeping a constant dialogue going
with the groups most affected.
1.3 We believe that there are important
efficiency gains for the UK economy as a whole, if users adopt
the most efficient, usually electronic, methods for making payments.
Cheques have long been criticised for the length of time it takes
for them to clear; innovation in the payments market would deliver
more efficient and acceptable alternatives for consumers and businesses
alike.
2. BACKGROUND
2.1 The Payments Council is the organisation
that sets strategy for UK payments. It was established in March
2007 to ensure that UK payment systems and services meet the needs
of users, payment services providers and the wider economy. Whilst
the Council is funded by its membership, which consists of banks
and other bodies that provide payment services, the Board does
have four Independent Directors who represent consumer and business
interests and, whilst in a numerical minority, can collectively
veto any decision of the Board. The current independent directors
are: Professor Martin Cave, Stephen Locke, Moira Black and Michael
Alexander. The first independent chair of the Council was Brian
Pomeroy who stood down from the Board in November on his appointment
to the FSA Board. His successor is currently being recruited.
2.2 To enable the Payments Council to better
understand user requirements of the payment system over a wide
range of subjects, three User Forums were established covering
large corporate users, small and medium sized businesses, and
consumers. Each is chaired by one of the Payments Council Independent
Directors who then takes the views of the Forum direct to the
Board. We have also recently launched a new forum for vendors
in conjunction with Intellect, the trade association for technology
companies, and this will work on a similar basis.
2.3 The Council looks at the efficiency
of the payment system; it identifies and seeks to understand changing
user needs; it encourages innovation and it has regard to the
system's overall integrity. The work of the Council in reviewing
the future of central cheque clearing is relevant to every aspect
of this remit.
3. WHY A
TARGET DATE
FOR CLOSURE
WAS SET
3.1 Cheque use has been in sharp decline
since 1990. There were 43% fewer cheques issued in 2009 than in
2003 and in 2009 alone cheque clearing volumes fell by 13%. Our
projected forecast is that even if nothing is done to introduce
new ways of making payments, there will be a further fall of 47%
by 2018. The past and projected figures for cheques as a percentage
of all and of all non-cash payments are:
— 2003: 6% of all transactions, 16% of
all non-cash;
— 2009: 3% of all transactions, 7% of all
non-cash (provisional figures); and
— 2018: 2% of all transactions, 3% of all
non-cash.
It is generally accepted by all parties that
this decline is irreversible.
3.2 So the Payments Council was faced with
the choice of either managing this decline or leaving it to happen
over time. On 16 December 2009, having consulted widely and assessed
all the evidence, the Board decided that setting a target date
for closing the cheque clearing in 2018 was the best way of ensuring
that viable alternatives for those who use cheques would be available
by that time. The Board felt that if cheque decline was not managed,
not only could it result in confusion, if some institutions withdrew
cheque facilities, but it could lead to increasing disadvantage
for those consumers who are at present largely dependent upon
cheques and are least equipped to change of their own volition.
3.3 The Board also took account of the impact
on overall economic efficiency which a move from cheques to more
efficient payment mechanisms would bring. We believe that there
will also be substantial value delivered to users through the
uptake of alternatives, not only in the provision of more efficient
methods of payment but also that customers will benefit from cost
savings to banks and businesses via competitive pressures. Our
research has shown that users are amenable to cheque replacements
provided that they are offered accessible alternatives which meet
their needs. There will also be significant on-going cost savings
across the economy, especially for business and the public sector.
Our broad estimate is that these could amount to £750 million
in 2018. As for the banks, their saving is somewhat smaller and
we estimate that it will be around £200 million in 2018.
4. REVIEW PROCESS
4.1 Closure in 2018 is by no means a foregone
conclusion; there are several key milestones that must be achieved
before a closure can be confirmed. There will be regular reviews
of progress by the Board and major reviews will occur in 2014
and 2016:
— 2014: there must be significant
progress in reducing cheque use in areas where alternatives are
already available; alternatives will need to be in place for all
of the major areas where cheques continue to be used, and there
will need to be widespread awareness of them; Payments Council
members will have completed targeted replacement strategies for
the cheque payments which they make and receive in their own right.
— 2016: alternatives to cheques
accessible to users for all significant types of payments where
cheques continue to be used will need to be in place; the alternatives
will have shown themselves to be acceptable to users and there
will be widespread awareness and adoption of them; and Payments
Council will have determined what measures to put in place to
ensure that those users least equipped to change are not disadvantaged,
including any requirements for the use of paper to continue.
We intend to make public the criteria against
which we will measure progress and have already publicly indicated
the need for alternatives to be:
4.2 Concern has been expressed that we are
setting a target end date before identifying all the alternatives
in all the various situations in which cheques are currently used;
however, a target date is essential to focus attention on the
need to innovate and to adapt existing payment mechanisms, as
well as to better inform consumers of services that currently
exist. There has also been agreement that there will be no precipitate
withdrawal of cheque facilities before those alternatives are
available.
5. CONSULTATION
WITH THOSE
AFFECTED
5.1 The future of the cheque clearing was
raised in the public consultation on the National Payments Plan,
conducted in 2008. The future of cheques was an issue on which
most of the 82 respondents commented and there was broad agreement
that cheques were both in decline and that the decline should
be managed. As a follow-up to the plan and before reaching any
conclusion on the subject, we conducted further extensive research
and we continued consultation with users through a variety of
means. Our work involved large corporates, small and medium enterprises
(SMEs), public sector bodies and organisations that represent
those consumers that are dependent upon cheques and comprised
workshops and bilateral meetings, as well as regular discussion
in the User Forums.
5.2 As a first step, Payments Council commissioned
the independent market research agency Andrew Irving Associates
to conduct in-depth qualitative consumer and SME research on the
reasons why cheques are used and the barriers to using alternatives.
This research specifically targeted those businesses and consumers
who may be reliant on cheques for particular reasons, including
small locally-run clubs and charities, individuals who are housebound
and individuals who have the power of attorney on behalf of someone
else.
5.3 The meetings and workshops focused on
identifying the barriers to cheque replacement and the main gaps
in the provision of alternatives, and identification of how those
should be addressed. We made especial effort to engage with those
representing disadvantaged consumers who are dependent on cheques,
including Scope, Toynbee Hall, HM Prison Service and a care home
owner. These meetings particularly focussed on understanding the
nature of dependencies on cheques and how the payment needs of
those consumers identified are not being met by existing alternative
payment methods.
5.4 Additionally, Leonard Cheshire Disability
ran a workshop that discussed the dependencies on cheques and
the problems experienced with alternatives directly with disabled
people, the findings of which have contributed to the overall
picture put together by the Council.
5.5 We have also engaged with those who
issue significant numbers of cheques and are keen to move to more
efficient methods of payments, including large corporate companies,
public sector bodies and financial institutions. The challenges
which these heavy users face in achieving this are significant
and we will work with them to help identify solutions.
6. CONCLUSIONS
6.1 The key findings that came out of our
research and discussion with stakeholders were:
— There needs to be an emphasis on education
on different payment methods, particularly for SMEs and consumers;
— There need to be alternatives which meet
the needs of users who do not use online or telephone banking
or automated payments;
— Of key importance are the development
of criteria that will be used to assess the situation in 2016
and the targets which will need to be met, particularly what is
meant by "acceptable" alternatives;
— Those to whom we spoke were conscious
that they were being asked to take on trust the statement by banks
and the Payments Council that alternatives will be developed and
that a closure will only go ahead if public targets are met; and
— There was agreement from all three User
Forums with the managed decline approach.
6.2 All these findings are incorporated
in our plans for the next stage and in the announcements which
we have made on the subject. Since announcing our decision, we
have continued and deepened our engagement with stakeholder groups
to better understand the barriers that currently exist to using
alternatives and to identify the gaps that will need to be filled
by new innovations and to give them confidence in our commitment
to take their concerns into account. We have had some particularly
productive and helpful discussions with charities and those representing
older people. We are committed to continuing this consultation
process with all parties.
We have not been presented with unexpected evidence
of the sort which would cause us to rethink the basis of our decision.
As we anticipated, the main challenges lie in the areas of:
These will be the focus of especial attention
in the next phase of our work. Our current priorities within these
areas are person-to-person payments, payments to and by sole traders
and other small businesses, and the needs of charities both in
terms of donation acceptance and also in the paying out of grants
and other similar expenditures.
7. NEXT STEPS
7.1 We do not underestimate the level of
work required to achieve the conditions necessary for closure
of the central cheque clearing to be confirmed in 2016. We are
developing a detailed plan.
7.2 One of our principal actions is to agree
the targets for monitoring the success of the programme and the
criteria for determining in 2016 whether to go head with a 2018
closure. Input from the User Forums and other user groups will
be extremely important in developing the criteria.
7.3 We will be pursuing an agenda of education
and communication. We will be undertaking a more detailed look
at existing alternatives; how their accessibility can be improved
and how we can increase awareness about those alternatives.
7.4 The development of new alternatives
will not only happen within Payments Council and our members,
but also through providers bringing new ideas to the marketplace.
In developing new alternatives, the Payments Council is committed
to applying our Financial Inclusion Policy, which provides criteria
to ensure that financial inclusion is addressed against any payment
innovation. Whilst we cannot mandate this policy on organisations
outside of the Payments Council membership, we will be encouraging
its use.
7.5 We are also considering the means by
which we obtain the views and input of those most affected, to
complement our existing channels. We have, for example, considered
how to bring together those in the charitable sector with especial
concerns about these proposals and are therefore in the process
of setting up a working group devoted to their needs.
March 2010
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