Cheques Are Checking Out

As Sainsbury's, Argos and London Underground join the long list of retailers which refuse to accept cheques, what does the future hold?

Sainsbury's, the UK's third-biggest supermarket chain, has announced that it will soon ban payment by cheque: from 1 August, there'll be no cheques at the checkout at all 769 Sainsbury's stores. The retail giant argues that few of its customers pay by cheque, and handling them is both expensive and time-consuming. Sainsbury's also claims that there's still a fair degree of forgery and fraud involving cheques, giving it another excuse to ditch them.

Sainsbury's joins a lengthy list of retailers which have axed cheques, including ASDA, Boots, Morrisons, Shell and WHSmith. What's more, Argos is set to follow suit, as it plans to stop taking cheques at the end of this month. In addition, Londoners and visitors to our capital should note that Transport for London ceased to accept cheques on the London Underground from Sunday, 15 July. The popularity of the Oyster prepaid card means that only one in a hundred (1%) Tube tickets is paid for by cheque these days.

Cheques are far more awkward to handle than electronic point-of-sale transactions, such as payments by debit or credit card. This is largely because, like cash, cheques need to be physically moved around between retailers and banks. In addition, cheque instructions need to be keyed by hand, which also bumps up their processing cost.

Clearly, as more and more retailers refuse to accept payment by cheque, the faster cheque usage goes into decline. At present, Tesco is running a pilot scheme of cheque-free stores and if the supermarket leviathan were to follow the lead of Sainsbury's, then this would be a major nail in the cheque's coffin.

In fact, cheques have been under the cosh for decades, mainly thanks to one British bank: Barclays. It was responsible for introducing the UK's first cash cards (the first 'hole in the wall' machine was unveiled in 1967), credit cards (introduced by Barclaycard in 1966) and debit cards (launched in 1987). Thanks to these and other hi-tech innovations such as Chip and PIN, cheque use has been in steady decline.

Indeed, according to payments group APACS, having peaked at 3.7 billion in 1990, cheque usage more than halved over the next sixteen years, falling to 1.8 billion transactions in 2006. Nowadays, less than a twentieth (5%) of retail spending is paid for by cheque. Conversely, plastic-card use is booming: total payments by plastic card have nearly quadrupled over ten years, from £87 billion in 1996 to £321 billion in 2006.

Even though cheques are dying out, some shoppers still like to use them. A survey earlier this year by consumer group Which? found that six in ten people found it useful to be able to pay by cheque. Personally, I haven't written a cheque for at least four years, simply because I prefer to rely on easier methods of payment, such as credit and debit cards, direct debit and standing orders, and automated payments via banking system BACS -- and good old cash, of course!

To me, there are several good reasons why I prefer plastic cards to paper payments. I use my debit card only for cash withdrawals and put all of my spending on my credit card. This is because I can earn cashback as I spend, see all of my spending on one statement, take advantage of an interest-free period lasting up to 59 days, and enjoy the extra legal protection that Section 75 of the Consumer Credit Act provides for safer shopping.

Finally, I can see one group continuing to use cheques: small businesses. Although cheque use by businesses peaked in 1997, many small firms are forced to accept and make payments by cheque. Indeed, although my own private company prefers automated debits and credits, this is not always possible -- assuming that a payment ever arrives at all, that is!

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