For the past forty years, businesses have had the option of accepting a cheque with a guarantee (up to a specified limit) if it was accompanied by a customer’s card carrying the Shakespeare logo. Although many businesses no longer make use of this functionality when accepting cheques, if yours does, you should be aware that it’s being withdrawn from 30th June 2011. You may want to know what alternatives exist and why the decision was taken – even though after this date you can still accept cheques – just not guaranteed with a card. Jacqui Tribe, Manager of the UK Domestic Cheque Guarantee Card Scheme, spoke to The Grocery Trader.
Why was this decision taken?
Guaranteed cheque use has been in rapid decline over the past 20 years. Since peaking in 1990, when over 1 billion guaranteed cheques were written, numbers have dropped twelve-fold to just 88 million in 2009 – making up only 7% of cheques written. Interestingly, banks also report that a large percentage of guaranteed cheques are actually written in situations where the guarantee can’t be applied: for instance where the customer has posted the cheque rather than presenting it in person – a Scheme requirement.
In light of their falling usage, the Payments Council – which sets strategy for payments in the UK – decided to review whether it would be in customers’ best interests to let the Scheme wither on the vine, or to set an end date. The real risk of the ‘do nothing’ approach was that individual banks would withdraw the Scheme separately at their own timescales, resulting in confusion. Before taking a decision, the Payments Council consulted widely with business and consumer representatives who still use guaranteed cheques, supplemented by market research. The results supported the conclusion that it would be better for all parties if the decline and demise of the guaranteed cheque was co-ordinated centrally.
How our use of payments has changed
When the Cheque Guarantee Card Scheme was introduced back in 1969 the payments landscape was very different. Credit cards and automated payments were in their infancy and debit cards didn’t exist, so businesses would have relied on cheques and cash for their payments.
Over the past twenty years, cheque volumes have fallen rapidly: most recently, cheque acceptance has all but disappeared on the high street as the vast majority of retailers decided to stop accepting them. Alongside this trend, the average value of a cheque written by a consumer has risen and now stands at £268 – the maximum value limit allowed by the Scheme is £250, and 88% of cards only guarantee transactions up to £100. In addition, and more crucially for those businesses still accepting guaranteed cheques in any number, even before a decision was taken to withdraw the Scheme, a quarter of debit cards no longer carried the guarantee function.
Finding alternatives to the guaranteed cheque
Cheques will still be accepted after 30th June 2011. Recent industry-wide changes mean that a cheque now offers guaranteed funds after a set timescale: a certainty that wasn’t available when the Guarantee Scheme was first introduced. At the end of the sixth working day after paying in a cheque, you can be certain that cheque funds are yours and would only ever be reclaimed if you were a knowing party to a fraud. This was one of a number of changes to cheque clearing timescales, known as 2-4-6. Please visit www.chequechecker.co.uk for more information.
Accepting customer payments via debit or credit cards may provide the most suitable alternative – 92% of guarantee cards are primarily debit cards. Rather than waiting for a cheque to clear, card transactions, particularly debit cards, provide much faster access to funds. Chip and PIN cards are a very secure way to receive payments, providing built-in protection from fraud. Many businesses already receive card payments online via their websites as considerable time-savings can be made. If you don’t already accept cards, your bank or any other that provides acquiring services can provide further information on how to accept card payments.
Electronic transfers may also provide an attractive alternative. The existence of Faster Payments which was introduced in 2008 has made it possible to send and receive instantaneous online or phone payments, 24 hours a day and seven days a week, without the need for accepting cards or any unnecessary and often onerous administrative work. Unlike a cheque, you don’t have to wait several days to get your money and you can release your goods immediately.
Cash may also be a sensible alternative for certain payments.
What’s the future for cheques generally in the UK?
Whilst the removal of the Cheque Guarantee Card Scheme is inextricably linked to the ongoing and irreversible decline of the cheque, the Payments Council is independently and completely separately reviewing the long-term future of cheques in the UK.
The Payments Council has set a target date of 2018 to close the central cheque clearing, however this date is provisional and will only go ahead if acceptable alternatives are in place and being used by all those who currently rely on cheques. To find out more visit www.paymentscouncil.org.uk.
If you require more information on any of the alternatives mentioned above, please speak to your bank.