The penny. Phone booths. Door-to-door mail delivery. Video rental stores. What were once indispensable components of everyday life have all been pushed into retirement by the relentless march of technology and economics. Next up on the chopping block: cheques.
Dating back to 13th-century Venice, the cheque has played a crucial role in facilitating trade and commerce by eliminating the need to settle bills in cash. But what was once done with paper and pen can now be done electronically, and with much greater efficiency. According to a new report from the C.D. Howe Institute, the paper cheque is now long past due.
John Chant, author of the study and economics professor emeritus at Simon Fraser University, points out cheques are expensive, cumbersome and time-consuming. The cost to business of preparing a single cheque can be as high as $25, once all the labour spent printing, authorizing, co-signing and mailing is considered. The financial industry has to live with a complicated and costly national system of cheque reconciliation. Anyone with a cheque in hand has to trek down to the bank to cash it, and then wait several days to actually get their money. Plus there’s the risk a cheque will be returned not-sufficient-funds. “It’s an antiquated system,” Chant says. It’s hard to disagree.
Online banking and direct deposit have gradually chipped away at cheque usage—many younger Canadians have never even owned a chequebook—but they remain popular, with nearly 800 million changing hands each year. Other countries, the Netherlands for example, have fully switched to electronic payment systems, while Kenya and Tanzania use cellphones to move their money around. Chant conservatively estimates Canadian businesses could save between $1.6 billion and $4.4 billion a year if they cut by half the number of cheques they write. The benefit to the economy as a whole from eliminating cheques once and for all could be as high as one per cent of GDP. He advocates a system in which payers would send instructions directly to their bank, much like online bill payment, simplifying reconciliation, improving security and eliminating the possibility of dishonoured cheques. Quicker, cheaper, more secure: going chequeless has much to recommend it.
Yet many Canadians will likely resist trading in the familiarity of cheques for the mysteries of cyberspace. When Britain’s Payments Council announced without warning in 2009 that it would cease processing cheques by 2018, the hue and cry from seniors groups and small businesses led to a government inquiry and an eventual humiliating climb down, with the council promising “cheques will continue for as long as customers need them.”
To improve the odds of successfully modernizing Canada’s payment system, Chant draws a lesson from the highly successful phase-out of the penny in 2013. “That went very smoothly,” he notes, largely because it’d been thoroughly debated before the ﬁnal decision, was accompanied by an effective communications strategy and—most important—Canadians had already accepted the idea that the little copper-coloured coins were a burden they’d be well rid of.
Since the greatest benefits of modernizing Canada’s payments system will fall to the financial sector and business community, it should be up to them to convince the rest of us that it’s in our own best interest to abandon cheques. Unlike the experience with the penny, however, quite often this sort of technological change ends up pushing more work and bother onto consumers. We now print our own boarding passes at the airport, scan and bag our own groceries and make our own hotel arrangements. For all the benefits provided by AirBnB, we’ve become our own travel agents with all the complications and headaches this entails. The logic and efficiency of moving to a paperless payment system may be clear, but the advantages need to be broadly distributed.
For the early trend in this regard, consider the current availability in Canada of electronic transfer via email and mobile phones through the Interac system—what might be considered a precursor to a world without cheques. While this process offers users access to speedy and reliable digital transactions, most banks still charge $1 or $1.50 per e-transfer. That’s no different than the cost of writing a cheque, even though it involves a lot less effort on the part of banks. Consumers, in other words, end up doing a greater share of the work moving their own money around but get no break on the price. It’s not a particularly convincing argument.
If getting rid of cheques is in everyone’s best interests, whatever replaces it ought to be cheaper and easier for all. Free sounds good to us.