News analysis

Cheques hang in balance in Europe

Some cling to payment mode despite efforts to phase it out

It was, for centuries, one of the chief pillars of Europe's economies. For a while, it even replaced cash as the main method of payment.

Yet the hand-written cheque, issued by ordinary customers to pay for goods, services or utility bills, is now on its way out, replaced by credit and debit cards or electronic payment transfers.

Still, as European governments and financial regulators are now discovering, getting rid of cheques is easier said than done. The strange survival of the cheque is a reminder of how the march of technology can still be stopped by long-established social habits.

Governments used to love cheques because they are easily traceable, reducing the scope for tax evasion. Customers used to like them too, since cheques offered a safer form of payment than cash.

Cheques are also a traditional excuse for delaying payments: "The cheque is in the post" is still one of the better-known expressions in the English language.

But the mountains of paperwork that cheques generate impose a huge financial burden on banks. And the hassle of writing cheques is no longer justifiable, since credit and debit cards are widely available.

So, when the association of British banks announced its intention several years ago to phase out cheques by 2018, it did not expect much of a reaction. Cheques now account for only 2 per cent of all UK financial transactions.

But the backlash was fierce. For the measure to abolish cheques hits the most vulnerable part of society. Over half of those who still issue cheques in Britain are aged 55 or older, despite the fact that this group represents only a third of the United Kingdom's total population.

Age Concern and Age UK, the country's leading advocacy organisations in this field, have warned that "without cheques, older people might respond by preferring to keep more cash at home, leaving them vulnerable to theft and financial abuse".

British charities are also dead set against the abolition of cheques, which still account for about 70 per cent of all their postal donations. For psychological reasons which are yet unexplained, people feel more comfortable writing cheques for tiny sums of money than authorising card payments for similar amounts.

Already battered by a poor public image, Britain's banks beat a hasty retreat. "Cheques will continue for as long as customers need them," their association conceded.

Undaunted, France, where no less than a quarter of all transactions are made by cheque - the highest such figure in Europe - has now picked up the same battle. "Cheques imply a multitude of burdens on both companies and individuals," claims a policy paper released last week by the Finance Ministry in Paris, citing a study which puts the price of processing cheque payments at €5 billion (S$7.8 billion) for the French economy.

The French authorities are proposing to lift the legal requirement on all traders to accept cheques. France promises that "by the end of 2016, the government will establish a new system of online payment transfers".

France also hopes to get some help from new European Union regulations which enter into force in December, ordering EU banks to charge a commission of not more than 0.3 per cent on credit card payments, and not more than 0.2 per cent on debit cards. And Finance Minister Michel Sapin vows that he will "personally supervise" the charges imposed by French banks on electronic transactions.

In short, a very French solution: government-led and imposed from above. Yet all the indications are that it's unlikely to fare any better than Britain's efforts. Changing deeply ingrained payment habits is not something that can be achieved quickly. Apart perhaps from Germany, which already issues the smallest number of cheques in Europe - one per person per year, as opposed to 37 cheques issued by the average Frenchman.

But then, as the British and French would no doubt mischievously point out, the Germans have always been famous for their reluctance to part with their money.

A version of this article appeared in the print edition of The Straits Times on October 24, 2015, with the headline 'Cheques hang in balance in Europe'. Print Edition | Subscribe