It’s old, it’s inefficient, but Canadian businesses just can’t give it up. The cheque has been with us for hundreds of years, and it isn’t dying out just yet. Why are North Americans still addicted to those small slips of paper, and will we ever move away from them?
“One of the challenges we have with the existing (payments) system is that people are still using a lot of cheques,” says Jan Pilbauer, executive director of modernization and CIO at Payments Canada. “They are not the most efficient payment method.”
Is it time for the cheque to go? It has been around in one form or another since Roman times, and in more modern, printed forms since the 17th century. In an age of electronic payments, paper seems somehow anachronistic.
A cheque is effectively an instruction to your bank to pay the recipient. When you deposit a cheque into your account, your bank sends it to the bank of the person who gave it to you. That bank attests that the cheque is legitimate, and that the issuer has the funds to cover the amount, and then forwards the funds to your bank.
This is a manual process, and takes a few days. Your bank doesn’t know the cheque is good until this process is complete. If it gives you the money to cover the cheque immediately, but it is effectively covering the payment until it gets the cash from the corresponding bank. That’s a risk your bank isn’t always prepared to take, and is why it sometimes place a hold on a cheque. Cheques for large amounts can take longer, and those from overseas can take longer than domestic ones to clear.
Some businesses insist on paying by cheque
because it gives the owner a sense of control
Canadian businesses may be using cheques, but consumers dislike them. Researching the changing Canadian landscape for retail payments in 2012, the Bank of Canada found a marked shift away from cash and cheques towards electronic payment. Cheques and stored-value cards accounted for less than four per cent of everyday purchases, barely registering on the Bank’s charts.
A survey of 1,500 Canadians by Payments Canada also found that people were ready to drop cheques altogether, along with cash.
Canadians write an average of three cheques each month, worth a total of $245. Two thirds of Canadians were ready to ditch cheques, and 27 per cent of them were so anti-cheque that they were prepared to pay extra to process a cheque-free transaction electronically. A staggering 48 per cent were willing to give up their privacy for more convenient methods.
If consumers want out, why do many Canadian businesses insist on using cheques? Inertia must play a part, but there are also practical considerations. Some still pay by cheque because it gives the owner a sense of control. Signing cheques personally means they know what funds are flowing out of the business.
Cheques also help companies document payments in ways other mechanisms don’t, Pilbauer says. “There is a memo field, in which you can write what the cheque is for,” he says. “It’s why we feel more businesses are still using cheques.” That memo field is something a forthcoming revamp to the Canadian payments system could mimic, effectively building in the ability to describe payments electronically.
Still, cheques aren’t without their problems. The most recent Statistics Canada figures, from 2008, found that cheque fraud accounted for 29 per cent of frauds against banks and eight per cent of retail fraud.
A typical fraud involves sending a counterfeit cheque with an overpayment for a product or service or even a fraudulent contest prize amount and then having the recipient reimburse the sender for the difference. By the time the cheque bounces and the fraud is discovered, the criminal has made off with the money. Toronto-based Leslie Milligan fell victim to just such a fraud, and struggled to get compensation from her bank.
Some have attempted to officially vanquish the cheque, but with little success. In 2009, the U.K.’s Payments Council voted to sunset the cheque in 2018. It had to backpeddle, though, after it “listened to what the government and others have said about the future of the cheque.” Cheques will continue for as long as is necessary, it decided.
Like the U.K., Canadian institutions seem more inclined to innovate around cheques rather than stamp them out. Mobile devices are increasingly playing a part. Most Canadian banks now let customers deposit a cheque by snapping a picture of it and uploading it via a mobile app. A report by communication services group Catalyst Canada on Canadian smartphone behaviour said that more than half of all Canadian smartphone users deposited cheques this way.
Ayaaz Pira, senior vice-president for digital retail and business banking at CIBC, says that the numbers prove cheques still have a place.
“They’re still a valid source of money movement at this point. It will change for sure. But for the time being, they’ll still have a role to play in the financial system,” he says. “If they didn’t, I don’t think the banks would have developed the ability to deposit cheques using mobile. That’s a significant undertaking.”
Revamps to the Canadian payments system could help to make electronic payments processes more intuitive, reducing paper’s vice-like grip on Canadian business. For now, though, many businesses will have to trust each other when told that the cheque really is in the mail.