Saturday, December 22, 2012

How to replace cheque payments

78 million cheques are cleared through the banking system in Singapore a year. This works out to an average of 18 cheques per person. This number must be higher than most other countries in the world.

With the availability of electronic payments, there is no need for so many cheques to be used. It is time consuming and costly, considering the time spent to write and mail the cheque, for the receiving party to receive and bank in the cheque, and for the bank to enter the transactions for clearing.

While there are several ways to make electronic payments, e.g. GIRO, internet banking, AXS and SAM, these channels are used mainly for regular payments to large organizations. They are not suitable for once-off payments to small businesses, which now use cheques to make and receive most of their payments.

I suggest that our banks in Singapore make the following changes to allow more people to make payments using their ATM or internet banking facilities:

a) allow the payer to make an electronic payment to a bank account number and view the name of the receiving party
b) allow the payer to enter a number, e.g. the invoice number or customer number,to identify the payment
c) allow the receiving party to download details of these payments, and view the name of the payer

These changes may require some of the existing regulations of the Monetary Authority of Singapore (MAS) to be changed, e.g. to disclose the name of the other party in the transaction. 

Most banks should be able to implement these changes  to their existing systems quite easily and at a low cost. If the changes are made, most people would prefer to use the electronic payments, instead of cheques. This change can be accelerated if banks are allowed to levy a fee for the use of cheques, which is more costly for them to process.

The United Kingdom have set a target to eliminate the use of cheques by 2018. I urge our MAS to take the lead, so that Singapore can largely, if not entirely dispense with the use of cheques at an earlier date.

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