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Cheque Issuance Outsourcing

Effectively Managing a Necessary Evil!

Tarek Elyafi, Director, Corporate Products, Transaction Banking, Standard Chartered Bank

Executive Summary

Over the last 5 years, extensive efforts have been made to encourage electronic payment methods over cheques. Improvements in channels coverage; such as Mobile Money or Near-field communication, and cost; such as Automated clearing house for bulk clearing, had seen the cost of electronic transacting reduce significantly. Though reductions in Consumer-to-Consumer (C2C) and Consumer-to-Business cheque usage have been encouraging, the Business-to-Business and Business-to-Consumer space is still heavily dependent on the issuance of cheques for a variety of reasons.

This article suggests ways that businesses can manage the cost of cheque processing and mitigate fraud risk.

Exaggerated demise of cheques

Over the last 5 years, the payment industry has increasingly embraced paperless and automated solutions. As a result, the relative importance of cheques has decreased in many countries, prompting experts and authorities in some countries to predict and act to accelerate the demise of cheque payments. However, cheques continue to be extensively used.

[1] Statistics on payment and settlement systems in the CPSS countries - Figures for 2009, Bank for International Settlements (BIS), March 2011

Data collated by the Bank of International settlement shows a significant reduction in cheque usage. But the increase in value suggests that the issued value of each cheque continues to be high, which can be attributed to consumers adopting electronic payment methods.

This indicates a large residual user base such as businesses that are still reliant on cheques for payments and collections. There are many reasons for the continued use of cheques. With advances in electronic payment methods, these reasons will become less and less relevant. But until then, reasons for their usage continue to be compelling.

Cheque payments landscape:

Chart 1. Reasons for not switching to electronic payment methods for different payment flows

Treasurers face high costs of switching from cheques to electronic payment methods. The various legacy systems and processes require intensive investment in technology and operations. In many cases, this investment will not be forthcoming for a variety of reasons including the current economic environment.

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