New cheque standards: An innovation of dying habit
As an increasing number of banking public switches to digital payment platforms, GEOFF IYATSE writes that the implementation of the Central Bank of Nigeria’s (CBN) new cheque standard, which kicks off on January 1, is received with cold attitude.
From January to October this year, the Nigeria Inter-Bank Settlement System (NIBSS) processed a total of 3.94 million cheques. The volume is equivalent to 60 per cent of the 6.56 million it treated in the same period last year.
The reduction in the volume of cheque transactions this year is understandable. Most of the decisions taken this year were largely influenced by the COVID-19 outbreak, which, among other cautions, called for a reduction in physical contacts. So, it suffices to say that most businesses would opt for transfer rather than the signing of cheques. But the new normal has only reinforced a growing new payment culture.
For instance, a monthly average of 900,000 cheques was cleared in 2017. That decelerated to 751,000 in 2018 and down to 651,000 last year. This year’s monthly average stood at 394,000 as of October, which is a mere 44 per cent of the volume recorded less than five years ago.
The number, indeed, dropped to an all-time low in April when it fell to 14,480, reflecting the agonizing impacts of COVID-19 on business activities, including payments. Yet, the year-on-year reduction in the volume shows that cheque transaction is but a dying culture after all.
As the cheque-signing ritual continues to lose its traditional hold, the value paid out through the mode is also shrinking despite an increase in business activities. Between 2016 and this year, new payment modes have almost halved the value of money that exchanges hands through the ancient business settlement process yearly.
The payment system, like other aspects of business, is going digital, whose volume and value are disproportionately larger than cheque transactions. For instance, the total 810.8 billion cheque payments made in Q3 2020 was only 0.25 per cent of the N319.995 trillion that changed hands electronically in 2.8 billion transactions in the same period.
The changing payment process is global. And it is incredibly faster than earlier projected. Reports suggest that the number of people with a preference for electronic payments will increase in multiple terms in the post-COVID-19 era. Nigeria, compared to Kenya and a few other African countries, is in a catch-up race in electronic payment.
Yet, the mode has trumped the traditional payment systems, putting intense regulatory pressure on the CBN and other supervisory institutions. The innovative payment has birthed an entirely new industry, which the CBN seeks to regulate for a “seamless growth” and secured transactions.
Experts say the emerging culture breeds a generation of customers who do not have the benefit of seeing cheques or withdrawal booklets – which are but relics of the ancient banking system.
The redundancy of cheque transactions raises a question about the priority and relevance of the new cheque standards.
The new standards are justified by the new digit on the Magnetic Ink Character Recognition, (MICR) code line and expiry dates, which are expected to enhance its security and reduce fraud.
While the Central Bank says it will embark on full enforcement of the new cheque standards on April 1, 2021, the commercial banks, in their notification emails, have given their customers December 30 and 31 as the deadline for accepting the old cheques.
“Following the directive of the CBN to fully implement the revised cheque standard before December 31, 2020, please be informed that we have redesigned and introduced new security features in our cheque leaflets,” one commercial bank says in an email.
Interestingly, the recipient of the email says he has operated the (current) account for three years without processing and obtaining a cheque book, wondering if he will ever “need the document in my lifetime.”
A banker says responses to the new directive, which will see applicants incur extra cost, are extremely low and indifferent as customers do not see cheques as important bank operation documents anymore. He adds that he is not surprised about the cold attitude to the policy as he has never signed a cheque even though he has three different current accounts and was given cheque books at some points.
“The truth is that cheques are not fashionable. They are common among corporate organisations who use them for business-to-business (B2B) transactions. But a lot of them have been migrating to digital payment as well. They automate their payment cycle effect pay once a transaction is due.
There is a generation of customers that make huge transactions but do not even know what a cheque looks like,” he notes.
Cash, they say, is king. But convenience and speed offered by the digital evolution is taking the old saying to task. Also, the global business is evolving into paperless transactions, which de-emphasizes the traditional brick-and-mortar transactions. Governments across the world are rolling out ambitious programmes to eliminate papers from transactions and serve as the global economy approaches full digitisation.
Yet, some financial experts say cheque payment culture may not be phased out completely any time soon, hence the need to continue to enhance the security of the mode. For one, Managing Director, Financial Nigeria International Limited, Jide Akintunde, admits a decreasing number of cheques will be cleared in the coming years. He, however, says this does not mean that “cheques transactions will be eliminated.”
“If they will be in use, it also means the security features will require occasional overhaul in line with changing technology and financial systems,” he insists.
Also, Ken Ife, a professor of economics, recalls that over 40 per cent of Nigerian adults do not have bank accounts. He argues that ‘newcomers’ would need to be worked through the different stages of bank evolutions to appreciate future innovation. In addition, he says, many people still prefer to make payment via cheques for security purposes.
“Cheques also need to reflect the changing technology. We may need to add one or two security features to complement the secured clearing process,” Ife, who admits he has not paid via a cheque in the last one year, stresses. He notes that the surge in the digital space requires that people take electronic payment with a pinch of salt.
While the professor may be right on the continued relevance of cheque as historical events have proved that new technology does not render the old ones useless, the banking habits of the new generation does not suggest that the unbanked necessarily want to walk from the past to the present when they embrace financial services. At least, most of the new bank customers rarely care about withdrawal documents as they initiate and complete most of their transactions on the go via mobile devices. Even market women have embraced the short code transfer innovation.
Godwin Owoh, a professor of applied economics (banking and finance), admits the traditional cheque books will continue to maintain their relevance, notwithstanding digital breakthrough. He said cheque transactions are easier to trace after several years of payments – a reason corporate organisations will not give up the mode.
He, however, does not see the value the new standards will add to the security of the cheque clearing process.
According to him, the old books contain the relevant security codes – cheque number, electronic identification and account number – that are required for a secured transaction. He stresses that the new cheque design is part of the mechanical central banking that has become the order in recent years.
“Nobody is talking about the serious issues. The CBN should provide general guides and leave the details of cheque book design and replacement to commercial banks and concentrate on core operational intervention,” he suggests.
The new cheque books will add to the already-high cost of banking services. As customers will be compelled to jettison their old cheque books for new, unsolicited ones, there is a moral question on whether they should be charged for a replacement.