Cheque-ing out

The UK's Cheque Guarantee Card Scheme is being withdrawn on 30 June 2011. 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businesses no longer make use of this functionality when accepting cheques, those that do must be aware that it's being withdrawn from 30th June 2011.

Why was this decision taken?
Guaranteed cheque use has been in rapid decline over the past 20 years and it became clear that it wasn't a question of "if" we remove the Scheme but "when". Since peaking in 1990, when over one billion guaranteed cheques were written, numbers have dropped twelve-fold to just 88 million in 2009 – making up only seven per cent 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 showed that it would be better for all parties if the decline and demise of the guaranteed cheque was co-ordinated centrally.

Finding alternatives to the guaranteed cheque
Debit or credit cards are a potential alternative – 92 per cent 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. Businesses that don't already accept cards can speak to their bank or any other that provides acquiring services, as they will be able to provide further information on how to accept card payments.

Alternatively for some types of payments, particularly for goods purchased by phone or via a website, an online solution may be useful. Payments can be made direct to the business bank account via internet banking, or alternatively services such as PayPal offer specialist online facilities that allow customers to pay for goods and services. Where the customer is not physically present, card payments can also be made over the telephone or online, provided the business has arranged a card accepting facility with their bank or a card acquirer. All such online solutions allow businesses to track payments easily and to reconcile payments received to invoices issued.

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: whoever is paying you may
need to check their bank's value limits for sending Faster Payments though all the main banks and building societies offer up to £1,000. 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.

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