The commuting of the death sentence on cheques made by the Payments Council annouced early in July is both disappointing and a strategic mistake.
The original decision to set a target date for the end of cheques in 2018, with a final decision to be taken in 2016 to confirm or deny this, was taken in 2006 giving more than enough notice for the industry to prepare and come up with an alternative solution. By removing a date by which the cheque will finally stop the Payments Council has significantly relieved the pressure on the banks to find an alternative means of making Person-to-Person (P2P) and Person-to-Charity payments, the primary source of cheques today. In the long term this is not going to be to the advantage of either charities or small businesses.
Whilst currently personal customers who write cheques don't explicitly pay a charge for the cost of the processing of their cheques due to so-called 'free banking', with the increasing pressure that consumer groups, politicians and the Independent Commission on Banking are putting on the banks for greater transparency in charging, then it is almost inevitable that 'free banking' will end and customers will start being charged for the services they use. With the volume of cheques in the UK declining by 11% per year then inevitably the cost of processing cheques will inevitably rise, since the infrastructure required to process cheques is still going to be required despite the drop in volume. This will result in less of the donation to a charity actually going to good causes. For small businesses it will mean that they will either have to try and pass on the costs to the customer or, more likely, they will have to absorb the costs as their competitors stop accepting cheques. Either way this is not good news.
The consumer groups, the Federation of Small Businesses and the charities, rather than lobbying for the extension of cheques and Canute-like denying the inevitability of the demise of the cheque, should have been applying maximum pressure to the banks to come up with a viable, cost-effective alternative, rather than, as they have, letting the banks off the hook. In the short-term this is a seen as a populist move - in the long term it will be seen as a grave mistake.