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Time to cheque-out?

Before card payments hit in Australia in the early 1970s, the paper cheque book was a major component of the payments landscape.

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“The cheque’s in the mail” was a commonly quoted phrase – typically because in fact the payment hadn’t been made – but card or device not present transactions mean the excuse no longer works.

“There will be zero cheque value processed in Australia before the next decade has passed.”

Digital payments havecaused a huge decline in the total number of cheques processed and the share of payments attributed to cheques is now a small fraction of that enjoyed in its heyday.

This paper payment instrument is rarely (if ever) used by anyone under the age of 40 and given the present rate of decline in use, must be considered to have a finite and limited lifespan.

But that ignores a history of resistance to phasing out systems – including passbooks – which are rarely used but still favoured by some customers.

In 2003 (the first complete year in which Reserve Bank of Australia data is available), the use of customer and financial institution cheques in Australia was 29.99 per capita; that dropped to 16.57 in 2009 and was down to 2.57 in the last year. The use of personal cheques declined from 7.88 per capita in 2003 to 4.30 in 2009 and is currently at just 0.8. (It is worth noting the sum of the personal and commercial segments does not equal total customer as some agency cheques are included in the total.)

In the June 2017 bulletin, The Ongoing Decline of the Cheque System, the RBA reported in 1980 cheques accounted for 85 per cent of the number of non-cash payments and almost all of the value.

But the acute (and ongoing) change in payment behaviour is illustrated by the changes in payment card use and cheques over the past decade. In that time, credit, charge and debit purchases increased by 99.7 per cent from $A319,916 million to $A638,814 million whilst the value of cheques declined by 52.2 per cent from $A1,537,808 million to $A734,403 million. The decline in personal and commercial cheques was even greater at 67.9 per cent.

Ten years ago, the annual value of cheques was almost five times the value of purchases made with debit, credit and charge cards. However, that relationship is changing dramatically.

The annual value of payment card purchases is now almost double the value of customer cheques and will overtake the value of total cheques in 2020. The annual value of cheques exceeds payment card purchases in most major economies but one exception is the United Kingdom where the value of purchases on cards was more than 50 per cent above the value of cheques in 2017.

However, the extent to which personal cheque accounts have increased in number over the last ten years is perhaps a little surprising. Together with falling cheque numbers, the outcome is a decline in annual cheques from 17.1 per personal account in 2009 to 5.2 in 2015 and 2.1 in 2019. A similar decline has occurred with commercial cheques which have fallen from 77.7 per personal account in 2009 to 34.4 in 2015 and 14.6 in 2019.

Often the domain of higher value transactions (think house deposits, for example), the average cheque value has been steadily increasing over many years. The last 12 months has however seen a change in this trend with customer and financial institution cheques experiencing declines.

The decline in value of cheques over the last ten years was $A803 billion. Should that rate of dollar contraction be maintained, there will be zero cheque value processed in Australia before the next decade has passed.

That position is already at hand in a number of European countries such as Sweden and the Netherlands. International payments data compiled by the Bank for International Settlements (known as The Red Book) shows key markets can be allocated into two broad categories with the average value of cheques per inhabitant either relatively steady or rapidly falling.

There is an aggressive downwards trend in most markets for cheque use and one can only assume that with the emergence of various cryptocurrencies and the entry of organisations such as Facebook planning direct participation in payments, the product life cycle for cheques is limited.

The competitive advantages of other non-cash payment options together with an increasing unit cost for cheques as their volumes diminish are likely to see cheque use virtually disappear. But that could also be said for passbooks. Which are still with us.

Mike Ebstein is Founder & Principal at MWE Consulting

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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