There will come a day when paper cheques are no longer used in Canada. But that moment is still a long way off.
Even as electronic payments proliferate, from debit and credit cards to Internet money transfers and PayPal, an estimated two million paper cheques are still written each day in Canada, pushing their way resiliently through the banking system.
The cheques come from small business owners, governments and consumers. And to the person on the receiving end of that transaction the money is welcome, but the hassle of cashing the cheque is often an unwelcome headache.
“Consider your typical small business owner who is mobile in terms of the nature of their business,” says Steven Nogalo, vice-president of global payments at NCR, a Waterloo, Ont., company that designs technology for banks.
Small business owners such as contractors, painters and landscapers often get cheques as payment but are too busy to run to the bank or automated teller machine to cash them, he says. And few employ an administrative staff to do the work for them, so the cheques tend to pile up.
In the near future, most likely this summer or early this fall, all of that will change. Canadian banks will begin offering photo cheque cashing and the days of running to the bank with a paper cheque will be through.
That same landscaper will simply take out a smartphone, use the camera to snap a picture of each side of the cheque, then e-mail it directly to the bank, Mr. Nogalo says. Within minutes, the cash will be deposited securely into their account – no waiting in line at a branch, no hunting for a parking spot close to an ATM.
“It allows them to really deposit the cheque while they are at the job site, or while they are still at work, without having to put a ‘back in 10 minutes’ sign on their door to go and make a deposit to their bank,” Mr. Nogalo says.
NCR will be providing much of the hardware and software behind the shift in Canada. Behind the scenes, NCR’s technology will verify the cheque’s key components, such as the number and the amount, and help clean up the image for transmission. Bank databases will track the deposits to make sure cheques aren’t being cashed multiple times.
While the funds still need the regular amount of time to clear a cheque-writer’s account, usually overnight in the Canadian banking system, the person cashing the payment can have access to the cash almost instantaneously. The new system will also allow people to scan cheques on their home computer and send them to the bank for cashing without leaving the house.
“As a consumer, that’s where the clearing time [improvement]will happen,” Mr. Nogalo says. “I won’t have those cheques sitting on my fridge. … People can deposit cheques 24 hours a day from wherever they are, never mind bank branches or nearby ATMs.”
Sources inside the banking sector say several large banks are prepared to introduce the technology soon after financial authorities sign off on a new set of industry rules for cheque imaging. Similar regulations were introduced in 2004 in the United States where the sector has seen an explosion in the popularity of photo cheque cashing in recent years.
“That’s when the [U.S.]government decided that a cheque image could basically be exchanged just like a paper cheque,” said Stacey Zengel, general manager of Imaging Solutions for Profit Stars, a division of Jack Henry & Associates Inc., which provides computer systems for several banks in the United States. “That really revolutionized the market.”
Large institutions including JPMorgan Chase & Co., Citigroup Inc., Sun Trust and Bank of America have introduced the technology to reduce the cost of handling paper cheques, which can include storage, labour and transportation costs, to name a few.
At Chase Bank alone, more than $3-billion (U.S.) worth of cheques have been cashed using the technology in the past year and a half, a bank spokeswoman said. However, the bank did not give a figure on the estimated cost savings so far.
The technology has also sped up cheque clearing times in the United States since it has cut out transportation costs.
“Sometimes the cheque had had to be physically moved from one site to another in the good old days of paper,” Mr. Zengel said. “So your clearing has gone from three or four days at times to really the same day.”
It is an open question as to how long cheques will be around given the evolution of digital payments. For now, the usage of cheques is declining by about 6 per cent a year in Canada, and about 7 per cent a year in the United States.
“The electronic payment is growing and it’s replacing certain amounts of cheque volumes. So we do expect to see the overall number of cheques continue to decline,” Mr. Nogalo said. “But even as they do decline, I think it will be quite a ways off before they disappear fully. It’s a very strong consumer habit among a segment of the population that’s difficult to completely end.”
One of the biggest blows to the future of cheques in Canada came on April 11 when the federal government decided to phase out cheques for its payments. Ottawa, the biggest user of cheques in Canada, announced it would instead focus on direct deposit for outgoing funds starting in April of 2016.
It costs Ottawa about 82 cents to produce a cheque, while a direct deposit payment costs about 13 cents. The federal Department of Public Works believes the move away from paper cheques will save about $17.4-million a year. “Cheques will only be issued under exceptional circumstances,” the government said in a statement.
But it will take more than that to rid the world of cheques altogether. Even with the advent of electronic payments, Mr. Zengel also figures cheques will be around until the day governments formally decide to kill them through legislation, officially ending them as a form of payment among businesses and consumers.
“You’ve got credit cards, debit cards, all the different ways of making payments. So eventually cheques will go away, but they’re going to be here a good long time,” Mr. Zengel said. “Or until the federal government just says we can’t exchange cheques any more.”