Saturday, July 03, 2010

Cheques

Printed in Straits Times Forum page on 3 July (with some editing)

I wrote my first cheque 40 years ago. The rules were to write the amount in figures and words, to write the date and spell the name of the payee correctly. Any alteration to the cheque has to be signed. This was at a time when computers were not widely used.

This archaic rules remain the practice today. It has always been tedious to write a cheque and to avoid making any spelling or other mistake mistake. If the payor makes any small mistake, regardless of how minor or inconsequential, the bank will return the cheque for correction. The bank staff is not prepared to exercise any discretion and common sense.

Recently, I was asked my my lawyer to write a cheque in favor of "The Hongkong and Shanghai Bank account No 1234567 in the name of XYZ development company". There was insufficient space on the cheque to write the payee’s name.

Many countries have done away with cheques. My friend told me that cheques are hardly used in China.

In many countries, the payor can make a payment by a direct transfer through the internet or a bank counter. The payor only needs to write down the account number of the payee and the amount in figures (i.e. no need to be in words).

Singapore continues the archaic practice of making most payments by using cheques, instead of a simpler mode of payment. While payment can now be made through internet banking, it requires a troublesome process of registering and authenticating the recipient’s bank account and is not suitable for once-off payments.

I hope that the Monetary Authority of Singapore to take the lead in this change to introduce a simple system of direct banking transfer. It will save the tedious process of processing cheques through the banking system. The private sector cannot take the lead in making this change, as they do not have the regulatory powers.

Tan Kin Lian

20 comments:

Anonymous said...

rex comments as follows,

re. your 2nd last paragraph,
quote.. and is not suitable for once-off payments..unquote

Actually the electronic system in Singpaore is so primitive that even for many regular payments Singapore system cannot handle. For example, routine management fees payable to condominmium or building management services, CANNOT be done by electronic means. Giro services are very inflexible and used for a fixed pre-defined list of accepting organisations usually goverhmnet related companies.

I really don't understand why it is still necessary to write cheques every three months to certain organisations which i am obliged to pay. i had to beg the other party not to apply late payment charges once when i plain forgot to send the cheque. i wanted to giro the process but it was impossible. Yes it is very inefficient and some authority should take charge of this and get it right.

rex

JSLEE said...

I have used dbs ibanking & there's an option to make an e-cheque, Payeasy. Just type in the information & they'll mail the cheque. No need acct check,just the payee name & address.

Anonymous said...

I live in a HDB flat so don't have the GIRO problems that Rex mentioned. In fact every month there are 6 types of GIRO deduction through my bank account. Even income tax can be paid by interest free GIRO installments.

So I hardly use cheques, except for big ticket items >$1000 or money transfers to other accounts >$10000.

Even my company, except for salary, use cheques for >$100 payments to staff on miscellaneous things.

Anonymous said...

REX commnts as follows,
I just checked out the DBS Payeasy service that "jslee" mentioned above. It is still quite crude, you key in the postal address, and the system will send a paper cheque by post to the payee from your bank account deduction on internet. I think what is necessary is that the payee quote the bank account number and we key in all the details so that there is no need to use physical paper cheque. Better still a giro'ed version must be available, that is the whole purpose to cut down on routine stuffs, not once-off stuffs.

Right now it is possible to do this last method but only to individuals with bank account number. i tried once to tell my management coproation to give me their account no. so i transfer money direct to them, but they said it was impossible.

Now regarding anon 9.17's post, in fact there must be hundreds of condomimiums in singapore and tens of thousands of owner units, just imagine without giro system, every three months, how much useless paperwork is generated by the residents sending physical paper cheques to the management offices?

It is laughable that in modern singapore this simple request is not met for so long and nobody addressed the issue!

rex

Anonymous said...

Cheques are also in use in the US.

The Banking Act is the core of all this and governs financial relationships between bank and depositor or account holder.
It has much legal implications concerning payments and transfer of monies.

The bank is obliged to look after the depositor's funds. A duty that seems to be lost in this present era.

Our greed for speed and convinience has blurred this obligation and the banks along with regulators claim that they are merely responding to the business enviroment.

This is a wrong persepctive.

Banking, with all its "archaic" ways is the bedrock of financial activities. This principle of protecting the funds of its depositors is key to its intergrity, and its absence will cause problems: a la finacial crisis.

I still use cheques to pay Government bills.. taxes to fines.
It serves a very usefull purpose:
Absolute proof of payment on a specific date from a specific account by a specific bank and recieved by a specific account.

Indisputable... all the way to the High Court.

Anonymous said...

Regarding Giro for condo MCs, the ball is in their courts, and not the banks. Someone in the condo with authority and/or common sense needs to say "OK, We shall allow Giro payments" and simply apply with the necessary banks. Some condo MCs are payable by Giro for quite a few years already.

It's really a case of whether the MC admin people want to take on the challenge or not. Right now they are happy to follow traditional methods to keep manual accounting and records of payments by condo owners. If allow Giro and worse, internet or ATM transfers, then lagi headache for them to keep track of multiple modes of payments. They will argue need to increase admin costs, and what if condo owners suka suka this quarter pay by cheque, next 3 quarters by Giro, then next year change mind and pay by internet transfer...

Regarding the need to register & authenticate payee accounts in internet banking -- this is basically the focus on security. A couple of years ago, you could very easily internet transfer funds to 3rd parties without need for authentication, just like at ATMs. People initially thought the frontend password/PIN was enuf already. But there was at least 1 high profile case in Singapore where a PRC man hacked into 2 or 3 internet banking accounts and transferred money to himself, before he disappeared within a couple of days.

A compromise may be to allow 3rd party transfer w/o authentication if the amount is small, say $300 (but can be changed by you). This can cater to those one-off cases.

Besides, now MAS requires internet banking systems to notify you by mobile and/or email whenever there is activities in your internet banking account e.g. creation of payee, funds transfer, bill payment etc.

Regarding the old traditional cheques, when I stayed for a while in England in the mid-1990s, it was common for people to write cheques for payments at all sorts of establishments, even supermarkets and petrol stations! People told me it's normal and also common in US. Not sure now though. Try doing that the next time you're checking out your groceries at Fairprice!

Vincent Sear said...

Internet (or even ATM) 3rd party transfer payments have been around more than a decade. All you need is the payee's bank account number. The problem is not with the banks or MAS, but with people who're concerned about giving away account numbers. It turns the table on the issues security and privacy risks, from where cheque issuers are the ones revealing their acccount numbers (printed on their cheques).

Anonymous said...

Rex comments on anon 1.15pm post.

Thanks very much for the informative comments. I wish that the condo MCSTs are able to do the giro stuffs. Actually it will save them much more work. Can you imagine how much time is wasted organising the receipt of hundreds of cheques from each condo unit every quarter, and then copying manually the cheque date, unit number, etc (for record purpose) then post it to their bank for clearing? I think condo's MCST would save more time and money to encourage giro!! In fact they should charge a fee if the units don't pay by giro!!!

By the way, i went to DBS website to look again at the current drop down list of giro friendly organisations -there are just about 120.. mostly hdb town councils, insurance cos, credit card cos, education institutions, private clubs.. and believe it or not, even a Church... but not a single condo MCST Office.

rex

chnrxn said...

The fact is that general ad-hoc payments between any person or company/entity is still 'best' done by sending cheques.

If I can pay a person/company by writing their name on a cheque together with the amount and a signature, why can't I do the same thing electronically, with equivalent measures of security and accountability in place?

Concerns about security of online payments, I feel, are quite adequately addressed by the use of two-factor authentication.

The fear about revealing account numbers for online payment, while irrational, can also be addressed by using some form of unique textual identifier (like an email address, just for example). Since cheques only have a recipient name, they are also subject to ambiguity.

Vincent Sear made a very valid point - that companies/entities who issue cheques already reveal their account numbers which are printed on the cheques!!!

The e-cheque system is just a wrapper around the same archaic, inefficient system that still sends paper cheques around. The fundamental issue doesn't get solved. Even some internet banking payments ultimately send a paper cheque on your bahalf! This defeats the whole purpose of having electronic payments in the first place.

Clearing cheques between banks do take time. There is a delay before getting your money, not to mention you have to physically visit the deposit box in the first place. Furthermore, you are also subject to the delay introduced by the postal system, which means you will never know whether your "last-minute" payment will arrive on-time.

More payment modes => higher costs? Not necessarily because electronic payment doesn't incur any work/cost beyond the initial setup.

In fact, a convenient electronic payment system is already upon us. Think PayPal, but integrated into our local banking system.

Legal eagle said...

The obstacle is case law.

What if your e-payment did not go through?
Who is responsible? You, the bank or the internet?

Read the T & C when you next log on to your bank's website. You may understand why the good old cheque is the best way... legally speaking.

No one in the regulatory dept or the banks want to venture into amending something that may have huge implications.
Cheques have a rich history in case law and it serves as a well tested mode of money transfer.

It will remain for another 100 years.. I betcha

Anonymous said...

rex comments as follows

Re. Legaleagle@3.05pm

i don't think there is anything to worry about "what if the epayment didnt go through". All epayments come with the option to keep the transaction number record, this is provided as part of the banking transaction. The transaction number details serves exactly the same purpose as a photocopy of a cheque you send to the recipient. So i don'k think there is any legal issue. In the event of dispute, the two records (epayment transaction number details or photocopy of cheque sent) serve exactly the same purpose, and the issuing bank should be deemed to be responsible, and the recipient is deemed to have received the funds.

Having said that, i would agree that cheques cannot be dispensed with totally for the simple reason that when the amount transacted is very high, e.g. $50,000 or even $500,000... no one would ever want to use e-payment.
But most of the time transactions are a couple of hundred or thousand dollars, all these should be able to be done electronically. As noted in today's singapore there is an anomaly which results in some organisations (condo MCST offices) refusing to accept anything other than a cheque. I still don;t know why the condos don't want to make the job easier by accepting epyaments and giro'ed automatically from the residents bank accounts. If hdb Town councils have this service, it is really strange why condo MCST's don't..

rex

Anonymous said...

It really depends. I had seen some people stil having problems using the ATM machines. Not everyone are so technically sophisticated.

Anonymous said...

REX comments on JSLee's post (2nd from to) as follows

It seems that the eCheque service "PayEasy" recommended by JSLee, is only available on DBS. I would have thought that OCBC would have something similar. But can't find it!! This is really troublesome, funds has to be transfered electorincally (Takes two days) from OCBC to DBS using internet banking of ocbc system. Thereafter wait two days, then log to DBS Payeasy to send the eCheque out!!
Are you sure singapore is 1st Class Financial Centre, top in everything high tech?

5 days has passed, no one from the MAS had replied to Tan Kin Lian's letter in the press. I guess they are busy figuring out what to do with the massive outage of dbs systems..

rex

Anonymous said...

REX comments as follows,

In my previous post, i mentioned that the PayEasy service proposed by JSLEE, is only specific to DBS not available from other banks.

So i continue to try to investigate electronic means to pay condo maitenance fees instead of cheque method.

i went to "Funds Transfer" module of ocbc website, I think all bank webstites have this module.

Unforunately, OCBC website allows only 9 digit field for identifying the payer name to the payee. (POSB allows 12) But, the Invoice Number is already 16 digit long, not including the date. It is quite risky to send a few hundred dollars to the payee bank account without an identifier code. How are they supposed to know who you are? Human error in tallying cross referencing the payments to the payee.. can occur if you send separately an attachment email with the invoice account number. Besides it is very primitive to isolate the invoice number from the payment data and state the invoice number in a completely separate email!

I think "Funds Transfer" module in bank websites, is designed more for casual money transfer between friends, not for business use. (frineds name usually don't exceed 9 character field, unlike a Invoice number and date).

So it's back to square one. Singapore banks are still very primitive as observed by KinLian.

I am still waiting for MAS reply to TKL's letter. And I'll bet MAS will say "We note the frustration of TKL, however,blah blah blah". I dont need to be Octopus to predict how MAS will react :L

rex

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