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Old-fashioned and costly, cheques are a remnant of a labour-intensive banking era. But there are strong reasons for keeping them.
Digital payments are not universally trusted and have repeatedly been shown to be vulnerable to fraud, cyber attack and power failures.
The vulnerable and elderly, in particular, believe cheques can be more reliable than electronic payments. There are no Pin numbers to remember and no need for 20:20 vision to read numbers on a screen.
A relative of mine uses hers for gifts to her nephews and great niece. She does not trust the internet, after reading so many reports of victims of banking fraud who fail to get their money back. However, she finds it harder and harder to use cheques for day-to-day transactions such as food shopping.
Cheques now account for less than 1 per cent of retail bank payments, totalling 185m transactions last year, compared with 272m in 2019. Cash too is on the decline — accounting for only 6 per cent of UK transactions last year, down from 23 per cent in 2019.
Yet for the minority who use cash frequently, it matters. Consumer group Which? estimates that 1.9m people rely on notes and coins for nearly every transaction. Cash and cheques are essential back-up systems to protect us against the catastrophe that the internet or our power supplies are sabotaged.
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But that does not stop the authorities from attempting to phase out both traditional means of payment. National Savings and Investments (NS&I) tried to abolish paying prizes by cheque last year but had to change its mind this year after some of the 22m Premium Bond holders refused to give their bank details to receive the prizes.
Still, many holders did switch from cheques to bank transfers. In July 2021, the number of cheques sent out was 319,752, down from 1,009,165 a year earlier. Almost nine in 10 prizes were paid directly into customer bank accounts or reinvested into more Premium Bonds.
Banks have neglected customers who depend on cheques. My relative recently found herself with an empty cheque book and no means to pay birthday gifts. In her area of Lincolnshire, her bank had closed its last branch. The telephone helpline was anything but helpful. A recorded voice warned that it would be a long wait to talk to a member of staff because of the pandemic. She tried to use the automated system but was cast out when she could not supply an internet banking code. She did not have one.
After trying several times to contact the bank she asked me to speak to the Co-operative Bank on her behalf. The bank said: “According to our systems a new cheque book has been triggered and will be on the way to her. They automatically get requested once a certain number of cheques have been used from the book.”
Cheques are still a secure way of paying someone when you do not know their bank account details: cheque fraud totalled just £12.3m in 2020, on 185m transactions. Online authorised payment scams totalled £479m last year, in 4.1bn online payments.
But big business seems to be resurrecting cheque payments, possibly in response to the increasing number of “phishing” frauds, where fraudsters send fake emails to get personal details. Customers no longer trust emails or phone calls claiming to come from their bank or provide bank account details.
Last month I received a letter from the AA saying it had “reviewed your membership and identified that you may have had an error in your previous renewal invitations for your Breakdown Cover”. It invited me to access its review team online to find out if I was eligible for a goodwill payment. Five days later a cheque for £37 arrived.
Many thousands of customers of HSBC, including subsidiaries First Direct, John Lewis Finance and M&S Bank, have received cheques out of the blue between October 2020 and March 2021 because the bank decided they were due compensation for poor service. HSBC says: “Cheques were issued to allow the recipients to have full control over the account that they paid it into.”
Lloyds Bank recently made voluntary payments of £13.5m to 350,000 insurance customers who were told they would have a discount when they renewed their policies, but none was applied. The average payments of £40 were made by cheque or bank transfer.
Reduced banking hours during the pandemic have helped to modernise cheques. Customers can pay them in by an imaging gizmo on their mobile banking app. It’s convenient and quick, allowing the recipient to receive the money in their account in a day or so.
Lloyds Bank customers deposited 3.8m cheques via the mobile app in the first half of 2021. Typically, the largest amount to be paid in by this method is £1,000 with up to four cheques totalling up to £2,000 allowed each day for personal customers.
Bank of Scotland, Barclays, First Direct, Halifax, HSBC, NatWest, RBS, Starling and Virgin Money also offer the service.
This reinvigoration comes more than a decade after the UK Payments Council decided in 2009 that cheques would be phased out in the UK by October 2018.
But in February 2010, the House of Commons Treasury Committee opened an inquiry into the plan to abolish cheques. Following protests from charities and others, the inquiry resulted in the payments council saying “cheques will continue for as long as customers need them”.
While internet banking will doubtless maintain its huge market share, cheques have a future as well as a past. Paying by cheque via an app would be more useful and more popular if the upper limits on transfer amounts were removed. The system could be further expanded if other banks joined in.
Until banks have stronger online systems many customers will feel they still need cheques. And don’t forget the emotional bonus — a cheque falling out of a birthday card is so much nicer than a sterile online bank transfer.
Lindsay Cook is the co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House. If you have a problem for the Money Mentor, email money.mentor