Che­que­mate?

Brits have saved the cheque, but is it worth keep­ing in South Africa?

Finweek English Edition - - INSIGHT - BRUCE WHIT­FIELD brucew@fin­media24.com

YOU KNOW YOU put it some­where safe but when last did you see your cheque­book? Con­sid­er­ing what banks charge to write and process cheques, you’d be jus­ti­fied in think­ing the fi­nan­cial sec­tor is do­ing its best to erad­i­cate a pay­ment mech­a­nism that’s at least 800 years old with its roots set in early Euro­pean cross-bor­der trade. A num­ber of coun­tries – in­clud­ing The Nether­lands and Switzer­land – have suc­cess­fully weaned them­selves off cheque­books.

How­ever, Bri­tain – which was plan­ning to elim­i­nate them as a pay­ment mech­a­nism by 2018 – has done an about face. Why? Be­cause more than 1bn of the things were writ­ten in Bri­tain last year and the coun­try’s Pay­ments Coun­cil has de­cided they should be re­tained “for as long as cus­tomers need them.”

So what about South Africa, where bank pric­ing struc­tures have been de­vel­oped to dis­cour­age their use? No call has been made as yet, says Wal­ter Vonke, CEO of the fi­nan­cial sec­tor funded Pay­ments As­so­ci­a­tion of South Africa (Pasa). Ac­cord­ing to Pasa ap­prox­i­mately 3,5m cheques – worth R80bn – are writ­ten by in­di­vid­u­als and com­pa­nies in SA ev­ery month, with 99% of those for less than R500 000. That amounts to 42m in­di­vid­ual cheques each year worth more than R1 tril­lion.

Large com­pa­nies pre­fer elec­tronic pay­ments, wary of the skill of fraud­sters in al­ter­ing ben­e­fi­cia­ries on cheques. “There’s been a con­sis­tent de­cline of 20% in cheque us­age an­nu­ally over the past decade,” says Vonke. “That’s likely to con­tinue. But the in­dus­try has no plans to dis­con­tinue them as yet.” as 2003, 40% of Gold ac­count hold­ers and 60% of Plat­inum clients wrote cheques while the vast ma­jor­ity now trans­act elec­tron­i­cally.

Stan­dard Bank di­rec­tor of bank­ing prod­ucts Su­gendhree Reddy says though the cheque will even­tu­ally be­come ex­tinct, she wouldn’t put a time­frame on its demise. “Many re­tail­ers have al­ready cho­sen to stop ac­cept­ing cheques as con­sumers have adopted the use of debit, credit and cheque cards. ”

While the num­ber of cheques writ­ten is fall­ing, the value of in­di­vid­ual ones has risen steadily, partly as a func­tion of in­fla­tion. For ex­am­ple, in 2005 Ned­bank clients wrote 28,5m cheques with an av­er­age value of R12 300. Last year 12m with an av­er­age value of R21 180 were signed by clients.

Mur­ray Stocks, ex­ec­u­tive head of Ned­bank Cor­po­rate Shared Ser­vices, says at some point pro­cess­ing cheques will be­come sub-eco­nomic for in­di­vid­ual banks, at which point they’ll have to make some rev­o­lu­tion­ary de­ci­sions: ei­ther dis­con­tinue them or find a way of mak­ing them cost-ef­fec­tive. “Over the medium term the only vi­able op­tion for cheque pro­cess­ing will be the adop­tion of an in­dus­try so­lu­tion to achieve some ef­fi­ciency of scale and in­di­vid­ual banks will cease their own pro­cess­ing,” says Stocks. That might not sit well with SA’s competition authorities, wary that any sug­ges­tion of in­dus­try co-op­er­a­tion raises the spec­tre of pos­si­ble price col­lu­sion.

San­jeev Orie, head of Prod­uct Growth at FNB, says: “Only a small mi­nor­ity of per­sonal bank­ing clients tend to still use cheques. De­spite that, the group has no plan in place to phase out cheques.”

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