In November 2020, the South African Reserve Bank (SARB) announced that cheques would be discontinued from 1 January 2021. But what guided this decision?
We have a look at what the pitfalls have been of using cheques, and the consequences of removing them from the payment system.
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Cancelling cheques will improve the national payment system
According to Kenneth Matlhole, business product head at FNB, cheques are one of the world’s oldest payment instruments.
“Historically, cheques were seen as the primary means of transacting. However, due to advancements in technology and innovation in the banking and payments industry, customers have been opting for more efficient, cost-effective, and convenient payment alternatives,” says Matlhole.
He explains that this includes debit and credit cards, electronic funds transfer (EFT), and wallet payments – such as the FNB eWallet or Nedbank MobiMoney.
Every year, the use of cheques has declined by 30%, and during lockdown level 5 in early 2020, this statistic jumped to roughly 80%.
Matlhole believes that the discontinuation of cheques also enables financial inclusion. Cheques are often cashed and spent by those without bank accounts, delaying the switch to electronic transacting.
“Embracing electronic mechanisms will allow for access to savings, credit, and insurance services, as customers can build a financial history for themselves,” says Matlhole.
“The acceptance of cheques has also decreased significantly, due to possible fraud or the processing time, which impacts a merchant’s cashflow,” he explains.
“Globally, there are a number of countries such as the United Kingdom, Australia, and Singapore that are also experiencing a decline in cheque usage. Closer to home, Namibia discontinued cheques in June 2019,” says Matlhole.
He cautions that cheques increase vulnerabilities to fraud, delay access to funds, and are expensive compared to electronic payment methods.
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What will happen to customers who prefer to use cheques?
Matlhole says that FNB has worked closely with their cheque-preferring customers over a period of years, and they have sought to provide alternatives. These include wallet payments to unbanked recipients and making card payments when purchasing goods.
“Given that the deposit of cheques and cash withdrawals, called the encashment of cheques, takes place at branches, staff at our branches have been trained to provide support to educate customers on using alternative payment methods,” says Matlhole.
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“For those without internet access, our branches have digital zones. This infrastructure and support helps our clients make payments through our digital platform,” he explains.
Matlhole points out that the result of discontinuing cheques will mean that the 0.1% of customers and merchants who were previously using cheques will now consider more widely accepted, cost-effective, safer, and more efficient payment solutions that provide less delays in accessing their funds.
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