Cheque clearing process may get faster

Cheque payments could be speeded up if work carried out by the UK Payments Association is continued.

This year, cheques were granted a stay of execution by banks following public outcry at the announcement that they would be abolished by 2018.

Charities, small businesses and the elderly – who were identified as those most reliant on cheques – complained that no alternative as trusted and convenient as the existing 300 year old system of payment had been put forward.

As a result, the Payments Association, the industry body planning to phase out cheque use, backed down and said that the system used to clear cheques would remain open for as long as banking customers in the UK wished to write them.

Most of the research done by the association in search of a better alternative to the cheque will now be consigned to the bin, but the association says it will now focus on the clearing system itself.

In 2006, when the Office of Fair Trading looked into the possibility of speeding up the time it would take to clear cheques, it estimated the cost of a faster system to be £760m and said that the plans would take 8 years. These plans were not implemented.

Instead, the industry focused on possible replacements for cheques themselves, including contactless cards, mobile phones and alternative paper systems.

Research into a paper alternative will not be continued, according to Sandra Quinn at the UK Payments Administration, but work will carry on in examining how the mechanism works.

“We are looking at how the process will be managed, and one of the by-products of that may be that the process becomes slicker or faster,” said Quinn. “The background to this story is that cheque volumes are still decreasing. There is no danger of the system falling over, but as fewer cheques are written, the cost of processing each one increases.”

Consumer groups have questioned whether banks will continue to provide cheques as part of a free service, if the cost of processing them, currently around £1 per cheque, continues to rise. Some also doubt whether banks will be interested in investing in a payment system in decline, albeit one still used to make a billion payments last year.

Quinn pointed out that not all customers may want to see the system improve – especially as some businesses use the cheque system to delay payment. “The days between the date a cheque is written and when the money is taken from a customers account is regarded as one of a cheque’s more positive features by some,” she said.

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