For the past forty years, businesses have had the option of accepting a cheque with a guarantee (up to a specified limit) if it was accompanied by a customer’s card carrying the Shakespeare logo. Although many businesses no longer make use of this functionality when accepting cheques, if yours does, you should be aware that it’s being withdrawn from the 30th June 2011. You may want to know what alternatives exist and why the decision was taken – even though after this date you can still accept cheques – just not guaranteed with a card.
Why was this decision taken?
Guaranteed cheque use has been in rapid decline over the past 20 years and it became clear that it wasn’t a question of “if” we remove the Scheme but “when”. Since peaking in 1990, when over 1 billion guaranteed cheques were written, numbers have dropped twelve-fold to just 88 million in 2009 – making up only 7% of cheques written.
Interestingly, banks also report that a large percentage of guaranteed cheques are actually written in situations where the guarantee can’t be applied: for instance where the customer has posted the cheque rather than presenting it in person – a Scheme requirement.
In light of their falling usage, the Payments Council – which sets strategy for payments in the UK – decided to review whether it would be in customers’ best interests to let the Scheme wither on the vine, or to set an end date. The real risk of the ‘do nothing’ approach was that individual banks would withdraw the Scheme separately at their own timescales, resulting in confusion.
Before taking a decision the Payments Council consulted widely with business and consumer representatives who still use guaranteed cheques, supplemented by market research. The results supported the conclusion that it would be better for all parties if the decline and demise of the guaranteed cheque was co-ordinated centrally.
How our use of payments has changed
When the Cheque Guarantee Card Scheme was introduced back in 1969 the payments landscape was very different. Credit cards and automated payments were in their infancy and debit cards didn’t exist, so businesses would have relied on cheques and cash for their payments.
Back then, no one left home without their cheque book and businesses and organisations frequently made use of the guarantee facility available on a cheque, and continued to do so in growing numbers until 1990 when cheque use in the UK began its steep ongoing decline.
Over the past twenty years, cheque volumes have fallen rapidly: most recently, cheque acceptance has all but disappeared on the high street as the vast majority of retailers decided to stop accepting them. Alongside this trend, the average value of a cheque written by a consumer has risen and now stands at £268 – the maximum value limit allowed by the Scheme is £250 and 88% of cards only guarantee transactions up to £100.
In addition, and more crucially for those businesses still accepting guaranteed cheques in any number, even before a decision was taken to withdraw the Scheme, a quarter of debit cards no longer carried the guarantee function. No wonder there’s been confusion about where the guarantee can and can’t be used.
All these factors contributed to the decision to withdraw the Scheme from 30th June 2011, so if you haven’t already, now’s the time to prepare. You may decide to continue to accept cheques just without the guarantee or you might want to consider your alternatives. Here we set out your options.
Finding alternatives to the guaranteed cheque
Small businesses have been identified in our research as recipients of guaranteed cheques, particularly in situations where payments are received for services provided to customers in their homes. Depending on your circumstances you might want to consider the following:
Some businesses may decide to continue to accept cheques after 30th June 2011 as recent industry-wide changes mean that a cheque offers guaranteed funds after a set timescale: a certainty that wasn’t available when the Guarantee Scheme was first introduced. This change was introduced in 2007, and means that at the end of the sixth working day after paying in a cheque, you can be certain that cheque funds are yours and would only ever be reclaimed if you were a knowing party to a fraud.
This was one of a number of changes to cheque clearing timescales, known as 2-4-6. Please visit www.chequechecker.co.uk for more information.
Debit or credit cards are another potential alternative – 92% of guarantee cards are primarily debit cards. Rather than waiting for a cheque to clear, card transactions, particularly debit cards, provide much faster access to funds. Chip and PIN cards are a very secure way to receive payments, providing built-in protection from fraud.
Many businesses already receive card payments online via their websites as considerable time-savings can be made. If you don’t already accept cards, your bank or any other that provides acquiring services will be able to provide further information on how to accept card payments.
Many small businesses may find that for some types of payments, particularly for goods purchased by phone or via a website, an online solution may be useful. Payments can be made direct to the business bank account via internet banking, or alternatively services such as PayPal offer specialist online facilities that allow customers to pay for goods and services.
Where the customer is not physically present, card payments can also be made over the telephone or online, provided the business has arranged card accepting facility with their bank or a card acquirer. All such online solutions allow businesses to track payments easily and to reconcile payments received to invoices issued.
Electronic transfers may also provide an attractive alternative. The existence of Faster Payments which was introduced in 2008 has made it possible to send and receive instantaneous online or phone payments, 24 hours a day and seven days a week, without the need for accepting cards or any unnecessary and often onerous administrative work.
Unlike a cheque, you don’t have to wait several days to get your money and you can release your goods immediately: whoever is paying you may need to check their bank’s value limits for sending Faster Payments though all the main banks and building societies offer up to £1,000.
Cash may also be a sensible alternative for certain payments.
What’s the future for cheques generally in the UK?
Whilst the removal of the Cheque Guarantee Card Scheme is inextricably linked to the ongoing and irreversible decline of the cheque, the Payments Council is independently and completely separately reviewing the long-term future of cheques in the UK.
The Payments Council has set a target date of 2018 to close the central cheque clearing, however this date is provisional and will only go ahead if acceptable alternatives are in place and being used by all those who currently rely on cheques. To find out more visit: www.paymentscouncil.org.uk.