February 16, 2019 made it 360 years since the cheque book was officially launched as a financial instrument in the world. Unfortunately, its usage is gradually but steadily dwindling with each passing day.
The National Bureau of Statistics (NBS) on Monday, 18 February, released the Selected Banking Sector Data which showed that volume of cheque transactions declined consistently in the last three months of 2018. The total volume for the fourth quarter was at 2.2 million transactions compared with a total of 2.6 million in the same period of 2017.
Value of cheque transactions dropped by N424 billion in October, N415 billion in November, and N418 billion in December 2018. The volume for the months of October, November and December were 778,007, 723,227, and 706,844 respectively.
The drop is significant when compared with the last three months in 2017; volumes for October, November and December were 951,364, 919,590 and 808,746 respectively.
The last time cheque transactions witnessed growth near impressive in Nigeria was in 2014 when it reached a peak of 22 per cent. Before the decline period came, cheques were an integral part of Nigeria’s payment landscape. Over the years, businesses in the country developed a sense of trust and comfort with writing cheques.
The Central Bank of Nigeria (CBN) altered the positive trajectory when it released its policy on Cheque transaction in the same 2014. The policy placed a ban on payment of value above N10 million through cheques and directed that such payment should be made through the electronic payment channels.
Many analysts believe that the CBN cheque policy marked the end of cheque transactions’ dominance in Nigeria and precipitated the rise of electronic payment in the country. The following year, after the release of the policy, cheque transactions recorded a sharp decline of 13 per cent.
Following declines in two subsequent years, the Nigeria Inter-Bank Settlement System (NIBSS) was compelled to predict in a 2016 report that;
“We might witness the end of the Cheque book by the year 2050.”
NIBSS prediction as it turned out was very modest and on the side of caution because in January 2018, Australian-based comparison site finder.com.au forecasted that should current usage trends continue, the cheque book will disappear entirely by 2019.
In fairness, Finder had based its forecast on the declining cheque book volume in Australia. The number of customer cheques processed in Australia each month dropped from 45,900 in January 2012 to just 6549 in October 2017.
To be sure, in Netherlands, the cheque is no longer in use at all. Its use is also rare in Belgium, Germany, Switzerland and Sweden. Companies like Next, Currys, PC World, WH Smith and Asda are also starting to react negatively towards cheques.
The cheque is believed to have had its origins in ancient banking system, in which bankers would issue orders at the request of their customers, to pay money to identified payees. Such an order was known as a bill of exchange. In England, cheques evolved from letters to goldsmith bankers, allowing customers to make payments to a third party without withdrawing money themselves.
A major challenge with cheque books is the cost of printing them. According to NACHA, it costs on average $1.22 to process a paper cheque, which accounts for manpower and various other costs. Another report Bill.com estimates that paper cheques cost businesses up to $24,250 annually in terms of employee labour, materials, bank fees and postage.
This perhaps informed the policy of the CBN and has also ensured that the demography of cheque users were majorly older people. The NIBSS report of 2016 noted that people between the ages of 45 years and above represents the highest users of cheques in Nigeria.
Another problem with cheques is the time customers spend writing them and waiting for them to clear, making a potential late payment even later and increasing cash flow issues for businesses. In most cases the cheque bounce leaving the person waiting on it to go through the arduous task of tracking down the customer that issued it to resolve the problem, constituting to more time wasted.
The CBN had moved to mitigate the rate of decline in cheque transactions in 2016 asking banks to make cheque payments into customers’ savings account. Prior to the development, bank customers could only make cheque deposits into their current account. The daily deposit was limited to only N2 million per customer in a day. Later in 2018 the CBN came out with another guideline, Nigerian Bankers’ Clearing System, setting a 5-year timeline for banks to keep physical cheque presented to them by customers after which it may be disposed.
It is no surprise therefore that a large demography of young people has shunned it over the years and expressed preference for electronic payment. Compared with the speed and convenience experienced with cards and mobile transfers, cheques have become ancient story. Since the decline in cheque transaction began in Nigeria, Instant payment (IP) platforms have witnessed remarkable growth usage as well.
The report released by NBS on Tuesday showed the various electronic payment systems experienced significant growth in the months of October, November and December of 2018. It may be an indication that dwindling fortunes of cheques is permanent and irreversible.
But cheques are still considered safer than cards and digital platforms. For instance, while digital payment platforms and cards hold the risk of cyber-attacks, cheques do not given that they are paper and are handed over to their recipient often directly.
Cheques also leave better audit trails than e-payments. This is important particularly in the event of litigation.
To revive cheque books for customers some companies are giving the option of ordering the cheque books online thereby guaranteeing convenience and speed of delivery.
But that may not fix the changing heart problem facing cheques.
