Back to the future for cheques

The UK is in the midst of a tech-led banking revolution as Brits move from branches in favour of their mobile phones. We have now downloaded more than 12.4 million banking apps, while the number of transactions made using them has nearly doubled in a year, hitting 18.6 million a week during 2013.

The Royal Bank of Scotland app has clocked up more than a billion log-ins since its launch, while the average Barclays customer uses its app 24 times a month. Meanwhile, customers signed up to receive more than 450 million text messages such as balance alerts from their banks in 2013. Two thirds of texts alerts received by HSBC customers were used to flag a low balance.

Elsewhere internet banking is also still making big strides – RBS now claims 5.6 million online banking users, while HSBC says that 72% of all its interactions with customers are now carried over the phone or through the internet.

And then there’s the other huge growth area of contactless payments, underpinned by 28.4 million debit and credit cards offering tap and pay technology. RBS Group contactless cards made 14 million payments last year, a figure expected to treble to 44 million this year and hit 250 million by 2023.

Amid the relentless drive towards electronic transactions, Barclays has also now opted to develop an instant cheque processing app allowing consumers to make on-the-hoof bank account deposits by simply submitting scans from their smartphones.

Barclays is currently pressing ahead with the project, which is still hamstrung by legislation and at present is a service it can only offer to its own customers paying in Barclays’ cheques.

But the technology is not new and has been widely available in the US for nearly a decade following Congressional approval of the Check 21 Act in October 2003. It allows the recipient of the original paper cheque to create a digital version of the document – a process known as ‘truncation’ – eliminating the need for further handling of the cheque and depositing it remotely. The other early adopters were Canada, France and New Zealand, which has been at it since 1995.

In the UK, the Treasury is now overseeing an industry-wide inquiry into the pros and cons of a similar scheme. If all goes to plan, it is anticipated the legislation will complete its passage through Parliament sometime next year, resulting in ‘truncation’ of scanned cheques from the point of receipt – rather than being cleared to the drawers’ bank. Until then only Barclays customers’ cheques will continue to be enabled. 

The process is a win-win for consumers, SMEs and business alike with faster deposits, fewer trips to the branch, lower operational costs and easier credit management. Firms handling high-volumes of cheques will be obliged to invest in cheque readers, but the creation of virtual back-offices will be well worth it.

The optical technology behind readers hinges on the device’s ability to interpret cheques’ machine readable zone – the so-called MRZ – and accurately analyse and retain the all-important deposit numbers. From there the customer’s bank account is identified with the underlying data released to their bank.  The technology is also adaptable and flexible enough to be applied to other more traditional paper-based instruments including travellers’ cheques, warrants and payable orders.

On the face of it, the process is cost-effective, fast, seamless, relatively secure and friction free. So far only the debate around the thorny issue of liability really stands in the way of mass-adoption. Irrespective of the issue’s complexity, broad opinion favours liability for imaging the cheque and initiating clearing, resting exclusively with the collecting bank.  But the collecting bank has no way of independently validating the cheque signature, so any fraud liability must remain with the clearing parties. The principle for agency arrangements is likely to see liability shared.

Clearly the payments industry as a whole can protect itself and consumers further with increased investment in fraud detection and verification systems. There’s no doubt the consumer appetite for mobile cheque scanning is there, thanks to the mass-adoption of other banking apps and mobile innovations like Barclays Pingit and the new-to-market Paym system. It’s now up to the industry to work with all parties to ensure back-office processes are uniformly fit for purpose by the latter half of 2015.