The use of cheques is in universal decline and the increasing digitisation of business functions across the globe has accelerated the trend.
Finland eliminated cheques in 1993 and Dutch banks haven’t accepted personal cheques since 2001.1 Danish banks stopped accepting cheques in 2017 and major service stations, retailers and supermarkets in the UK joined the trend from 20052, where cheques remain in circulation there but at vastly reduced rates. Closer to home, Kiwibank was the first of New Zealand’s banks to move, announcing two years ago that it would stop processing cheques, and the country’s remaining banks followed suit in July 2021.
Similar to the UK, cheques remain in use in Australia, but their use has declined significantly over the past decade. They now represent just 0.2% of all payments. The Australian Payments Network says cheque use in Australia dropped 83% over the past 10 years and by more than 20% each year since 20163
Reserve Bank of Australia (RBA) data from November 2020 drills down even further. It shows that retail cheque volume fell 27.6% from the year earlier to 3.2 million and dropped 33.3% in value to $31.2 million.
The Department of Human Services stopped issuing cheques for welfare payments through Centrelink in 2016 and Medicare and Pharmaceutical Benefits Scheme rebates and refunds soon followed.
Some industry sectors have eliminated cheques altogether. AMP is the first of the financial services organisations to take the first step – announcing in late August this year it would stop issuing and processing cheques from its own customers in November but would continue to issue bank cheques and accept cheques drawn by other banks for deposit into customers’ accounts.
Moves to phase out cheques gather pace in Australia
Legislation still requires cheques to be used in some instances in Australia. But a deregulation taskforce attached to the Department of Treasury is currently reviewing the mandatory use of cheques, paper signatures, physical records and newspaper notices. The Modernising Business Communications paper notes there are a variety of payment methods now available that are not reflected in existing legislative provisions.
As a starting point, the government is proposing payment methods should only be prescribed when necessary, stating: “… a technology-neutral approach to legislation would require that legislative provisions do not mandate any particular payment method (e.g. payment by cheque, bank order or cash).” 4
All financial institutions in Australia use one system to process cheques and as volume declines, the cost per cheque has increased significantly. And whilst increasing cost is one aspect, it is the out-dated state and federal legislation or formalised rules based on the legislation, that many say prevents them from reducing or eliminating cheques.
“There are businesses that are actively looking to reduce cheque issuance and remove cheques as a payment channel for their customers,” says Adam de Bree, Executive Director, Head of Business Development & Client Consulting, Transaction Banking Solutions at CommBank.
“They tell us the number one reason they use cheques is because the key record they have for the client is a physical address. They don’t have an account number for them. They’re hitting a hard core of customers and payments which they can’t easily move to another channel.”
Some customers don’t want to share their bank details. These people may be overseas which adds complexity, or they may be in the very small cohort of unbanked, such as communities in remote regional Australia.
There’s also a proportion of the community that has grown up with and are comfortable with cheques. The RBA’s 2019 Consumer Payments Survey showed that 80% of all cheque payments were made by Australians aged over 65 and the remaining 20% made by those aged 50 and over.5
Businesses, and the government in particular, also need to be mindful of those that are not digitally engaged. The result is that the cost for these customers to eliminate their use of cheques and move to a different channel can exceed their willingness to do so.
Eliminating cheques could prompt a payments transformation
“Most businesses we speak to recognise the high cost and inefficiency of payment by cheque or receipt of a cheque,” says de Bree. “What we’ve discovered more recently is that if a client has high cheque volumes, there are often opportunities to make process changes that could be more efficient and take advantage of current account applications, ERPs and digital services.”
If businesses were able to review and upgrade their financial processes they would go a long way to meeting community expectations for digital engagement. They could also improve cash flow by removing delays from the revenue cycle.
As businesses face a multitude of rapidly increasing risks, where real-time information drives better decisions, business leaders are asking finance teams to deliver with a focus on business strategy and risk management. An updated payment process using the myriad of products and digital solutions now available would allow that and would also free up staff to be redeployed to more value-add tasks.
How can CommBank help?
de Bree says all businesses are faced with a huge number of high-priority risks, and as such cheques and their removal is pushed to the bottom of the list, particularly if the business has managed to minimise cheque usage.
In that instance, it may be useful to ask: if cheques were removed in Australia today, would your business be ready?
If the answer is no, or you’d like some advice on your accounts receivable and accounts payable systems, CommBank’s Client Consulting Team can map processes and help your business to become more efficient. Please contact your Relationship Manager to discuss.
Adam de Bree is Executive Director, Head of Business Development & Client Consulting, Transaction Banking, Institutional Banking & Markets at Commonwealth Bank. Adam has a strong background in payments and a keen interest in helping clients automate and improve their payments processes.
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