Cheques to be phased out in bid to modernise payments
In a bid to modernise payments, it is proposed to phase out cheques by 2016. But concern about the security of electronic methods means the move may prove a challenge, writes John Cradden
IF you still prefer to write cheques rather than use a debit card, credit card or even online banking, you may need to start preparing yourself for the end of an era.
They've been around in some form for hundreds of years, but cheques may finally become obsolete here by 2016.
At least, that's the date being proposed by the Irish Payment Services Organisation (IPSO), which oversees the cheque clearing system, as part of an ongoing plan that aims to modernise the way payments are processed by banks and other institutions here.
The National Payments Implementation Plan (NPIP), which is being jointly co-ordinated by IPSO and the Department of Finance, aims to secure agreement on, among other things, putting new electronic mechanisms in place that will negate the need for cheques and provide easy-to-use and efficient alternatives.
It certainly seems that all the banks here will be glad to see the back of the chequebook.
"It is a legacy payment system that is slow and inefficient, and along with cash has been shown to cost the economy in the region of 1pc of GDP per annum in terms of production, fees, management, security and processing etc," said Una Dillon of IPSO.
The Government also shares this view, as evidenced by the increase in stamp duty on cheques from 15c to 50c each over the last two Budgets, the extra funds being used to cut stamp duty on combined debit and ATM cards from €20 to €5 over the same period.
For many consumers, the processing of cheques can seem frustratingly slow compared to the speed of electronic payments. It takes between three and five working days for a cheque to clear.
As well as the growth in the use of debit/credit cards and online banking, the fact that there are now ATMs on almost every street corner has also speeded up the decline in cheque usage.
In most European countries, such as Germany, Austria, the Netherlands, Belgium, and Scandinavia, cheques are rarely used now, while others, such as Sweden and Norway, no longer accept them at all.
However, in Ireland, Britain (which is planning to phase out cheques by 2018) and France there is still a heavy reliance on cheques by some sectors of the population.
Ireland is still the fourth highest user in Europe of cheques on a per capita basis, according to IPSO.
This means that any phasing out of cheques here may be a tougher challenge than for other countries.
The number of cheques being used in Ireland has been falling since 2005, but only very steadily.
In 2005, there were 131.5 million cheques used compared with 117.2 million in 2008, according to IPSO statistics.
By contrast, debit-card usage more than doubled over the same period. In 2005, 79.5 million payments were made by debit card, rising to 181.2 million in 2008.
IPSO estimates that around 75pc of cheques in Ireland are used for business transactions.
Indeed, its figures show that the average cheque value in 2008 was €6,800, while the total value of cheques issued that year amounted to €797bn, compared to a mere €11.5bn for payments by debit card.
The cheque does offer at least one significant advantage for business payments over other methods.
Some cheques are normally not presented for some days after the date of issue, thus providing a further extension of credit, which may be important for many businesses at this time.
But some will also be concerned that electronic payments do not leave a paper trail or physical proof of payment as provided by a cheque stub. "People are used to paper," says Brendan Burgess, founder of Askaboutmoney.com. "Some people still send out receipts, which I find very odd, as payment can always be proved.
"If I owe you €300 and pay you by debit card but you say you never got it, how do I prove it? Will the bank give me some certificate or other?"
The legal profession appears to have some long-standing concerns about security of electronic payments, particularly those working in conveyance.
"The abolition of the use of cheque books is likely to happen, but once concerns on traceability and other issues of concern to solicitors are addressed, there is no reason why solicitors should be viewed as an obstacle to this course," says Thomas O'Malley of McDowell Purcell Solicitors.
The Law Society has been engaging with IPSO on the matter. "Their issue is less about the paper trail and more about guaranteed payments," said Ms Dillon.
"IPSO has spoken to the group about paper imaging and faster payments in this regard." There is also the issue of charges. "If I am buying, say a painting from a gallery for €2,000, I would always offer to pay by cheque instead of by credit card, as they will be charged €60 for the credit-card payment," says Mr Burgess.
Nevertheless, many retailers here, particularly British chains like Marks & Spencer, Argos and Boots, no longer accept cheques.
It was also reported last year that the country's banks are preparing to phase out cheque guarantee cards to encourage greater use of electronic payment methods.
IPSO says no decision has been made to stop the cheque guarantee scheme, but that it will be considered as part of the NPIP.
"Individual card issuers can decide to pull out of the scheme at any time but we have not been advised of any member doing so just yet," said Ms Dillon.
Any decision to phase out cheques will only be done by agreement with all the relevant parties involved and not before alternatives have been put in place, she said.