Money better spent
The ABA cited RBA research showing personal cheques are very rarely used for consumer payments.
“These trends are seen across all age groups, cementing Australia as a nation of ‘early adopters’ of new technologies,” according to the ABA. While all cheque payments in a 2019 RBA survey were made by people over 50, even for consumers aged over 65 personal cheques represented less than 1 per cent of their number of weekly payments, down from about 2 per cent in 2007.
“There is a significant opportunity cost for Australia in maintaining legacy payment and financial market infrastructure,” the ABA argues. “These investments in legacy systems would be better spent on enhancing and developing additional functionality that utilises new payments infrastructure such as the New Payments Platform (NPP).”
The NPP allows near real time payments and the ability to add richer data which also aids business.
The ABA ran through a list of benefits which come with more digital payments and noted during recent bushfire crises the RBA was able to directly credit emergency payments to those affected. In such times, physical cheques are much less efficient and more problematic.
Beyond the opportunity cost of maintaining expensive and increasingly less-used payments infrastructure is the direct benefit of greater efficiency and security.
The ABA research identified reduced accounting administration costs through better data matching with e-invoices; more remittance data that can be matched automatically with electronic invoices, avoiding manual reconciliation; a much lower risk of non-payment for services/goods as cheque payment is not instantaneous; removing the cost of “bounced” cheques; alleviating the uncertainty created by multi-day cheque payment times which also removes the issue of cancellation.
The ABA also cited the RBA’s 2014 Payment Cost Study which examined the costs borne by merchants, financial institutions and individuals in the use of different payment methods.
“If the RBA’s costs were applied to the number of cheques used in 2020, the ABA estimates that phasing out cheques reduces costs to the economy of up to $A250 million a year and those savings sit alongside other economic benefits,” the ABA.
Against those costs the ABA noted there have been technology advances that have likely lowered cheque processing costs however, because cheque payments are an inherently physical payment, they “likely to still be the highest-cost and slowest payment type for business and customers”.
In that RBA study, the central bank tracked the decline in cash usage noting “cheques were the most important non-cash payment method in Australia a few decades ago” but since 1980, when cheques accounted for 85 per cent of the number of non-cash payments and almost all of their value, usage – and the reasons for use – have shifted dramatically.
“With changing consumer preferences, the growth of other instruments such as debit and credit cards, and increasing technological payments innovations such as direct credit payments, the use of cheques has declined significantly over the past few decades,” the RBA said.
“As a result, in 2016 cheques represented about 1 per cent of the number of non-cash payments, and – reflecting the higher average transaction size than for other payment types – about 7 per cent of the value of such payments.
“Today, cheques represent a very narrow segment of the payment system and are no longer used by the majority of the general public.”
Ironically, among those who still do use cheques are banks. Refunds by banks and on behalf of other institutions remain a significant category – but banks are obviously focusing on digital solutions to their own need to mail out cheques.
Even five years ago, when managing the decline of physical cheques surfaced in discussions, stakeholder groups were quick to argue for their retention. But with use continuing to plummet and the community using digital alternative more and more, check out for cheques is approaching more rapidly.
Andrew Cornell is Managing Editor of bluenotes