Au Cheques on the Way Out: How It Could Affect Your SME

Over the past decade, Australian’s use of cheques has slumped almost 90%. That’s due to the popularity and increasing ease of using newer digital products and services as we move from in-person to online payment forms.

The Federal Government is considering submissions on its recent public consultation on the phaseout. In its submission, the Insurance Council of Australia (ICA), wrote that the transition will make these difficult:

• Processing claims management
• Policy cancellation payments
• Early payment to customers in urgent financial need
• Remediation payments for incorrect charges or bank errors because insurers might not have up-to-date contact details of impacted customers.

The ICA says customers are becoming wary of updating their details due to scams, and cyber and fraud issues. For example, customers are unlikely to click on a link in an email or give personal details over the phone to update their policies.

As well, other issues are preventing some people from engaging with digital payment systems. They include reduced digital ability, language barriers, unreliable internet connectivity, and poor access to electronic devices, says the ICA. Rural customers also tend to rely on cheques for their claims due to limited access to online banking.

Commercial use of cheques

Despite the issues, cheques are still commonly used for payments for property, real estate, agriculture, financial, and business services.

For instance, if a recipient’s bank details aren’t known, a cheque, often for a large denomination, allows that payment can be made. Cheques are handy, too, where two signatures are needed to authorise a transaction, giving more financial control. Similar options are now available for many digital alternatives, though.

Legislated or regulation still mandates some use of cheques, particularly for property transactions and gambling payouts. For the latter, that’s where the amount exceeds a cash threshold or where an individual requests all the proceeds as a cheque.

Meanwhile, businesses continue to use cheques to fulfil certain obligations. For example, institutions must use cheques to disburse funds left after their customers have closed their bank accounts. Insurers may also use cheques for payments or refunds. This makes sense as they don’t need to obtain nor necessarily have access to a customer’s current payment details.

Lawyers traditionally issue cheques to handle a trust account or deceased estate services. As well, some corporate dividends are paid by cheque, if a company’s directors so choose. Some 98% of cheques come from government authorities such as for health, aged care, Services Australia, and tax.

What made cheques so slow and expensive?

Each cheque costs more than $5 to process, with banks having to absorb those costs. Here’s what’s involved, according to ABC News:

• At the end of each day, each bank branch collects the cheques presented and sorts them into a bag for each originating bank
• After dark, bank officers would move the bags to a city location to swap bags. The cheques go back to the original bank for signature checking.
• Each bank determines what it owes the other bank, then makes net payments.
• Those funds would leave the cheque-writer’s account within five days.

Cheque alternatives 

Alternatives to cheques are flourishing. Here are the options for receiving or making business payments:

• Card payments (debit or credit) with a PIN or CVV security
• Direct debit from bank accounts
• Online banking, such as international money transfers
• PayID® via a mobile phone number or email address
• Telephone banking for transfers
• EFTPOS
• Contactless card payments
• BPAY biller, or
• Less popular, Bitcoin.

Australia has followed a few other countries, including New Zealand, in announcing a cheque phaseout. Federal Treasurer Jim Chalmers has said the transition from cheques will be gradual, coordinated, and inclusive.

We’re here to help you stay updated with changes that could impact your business.

Article Supplied by OneAffiniti