Strategic Review of Innovation in the Payments System: Summary of Consultation – February 2012 3. ‘Legacy’ Payment Systems

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The consultation paper observed declining use of both cheques and cash.

There was a reasonable degree of accord across submissions on the implications of declining cheque use, with many arguing that this is an issue that can be handled by the industry (APCA has been undertaking its own consultation on the future of cheques). There were few submissions that argued in favour of ending cheque clearing in the short to medium term. A number of submissions argued that there are some attributes of cheques that would need to be replicated in electronic payment instruments before cheques could be removed as a payment option, with some of these attributes being particularly important for certain categories of consumers, including those less familiar with relevant technologies or poorly served by telecommunications infrastructure.

The consultation paper asked for views on whether a new pricing model for cheques should be considered, given that cheques are inexpensive for those writing them, but costly to process for both the payee and the receiving financial institution. A few participants saw a role for pricing that better reflects costs. More generally, though, submissions suggested that public relations concerns would make parties reluctant to address cheque use through pricing. Submissions did not suggest a role for the PSB in determining cheque pricing.

A large number of submissions supported investments to make cheque processing more efficient and, therefore, more viable as volumes continue to decline. In particular, there was support for capturing and exchanging cheque data, and eliminating the current practice of transporting and exchanging physical cheques between banks.

A number of parties also supported a concerted effort to reduce the use of cheques by the public sector. This could include both the issuance and acceptance of cheques. Government agencies are understood to be eager to reduce their use of cheques, but are often constrained by resistance from some groups of cheque recipients, and in some cases by a lack of good alternatives to cheques.

The consultation paper briefly discussed trends in cash use. While cash use is declining in favour of card transactions, that decline is at a very early stage relative to cheque use. Nonetheless, there is some prospect that the introduction of contactless card (and now mobile) transactions, in addition to cheaper card acceptance technology (e.g. devices that allow mobile phones to process transactions), may accelerate the decline.

The paper asked whether there are any impediments to cash replacement. Those that commented on the topic generally indicated that they saw no case for public intervention in this field. One submission argued that large denomination banknotes were being used as a store of value outside the banking system (which was costly) and argued that such notes should no longer be issued. Another submission suggested that greater efficiencies may come from eliminating smaller denomination coins. One submission suggested that it be made more explicit that the use of cash can be surcharged by merchants.