Electronic Cheques should be easy to implement in an online banking infrastructure.
The debitor logs in and creates a new cheque. Amount, "pay to the order of", "for" and expiry-date are filled out as well as an e-mail address for the creditor. Perhaps also a password.
The bank emails the creditor saying that there's a cheque for him, tells him to click the link. He's prompted for the password, and asked to provide the account for the money to be transferred into. Once he confirms, a regular bank transfer is set up, and at the same time the recipient gets a confirmation that there is coverage for the cheque.
The final check could be that the debitor bank queries the creditor bank to confirm that the account is in the name of the creditor.
This procedure allows you to "cut a check" in advance for a business meeting. The e-mail arriving is like putting the money in escrow. When you sign the contract, you give the creditor the password, and that completes the transaction. If not, just wait for the expiry-date and the money is out of escrow.
That sounds extremely complicated. I don't see the need to emulate checks electronically, when there are good solutions today.
Scandinavian business and personal users have no problems with transferring money using online banks. You can even get the invoice electronically and just click a button to pay it, and the amount will be automatically transferred at the due date. I have heard rumors that checks are sometimes used in B2B, but I expect it to be in a very limited set of cases.
I remember some old people who used checks in the stores when I was a kid (many, many years ago), but I doubt the stores would even know what to do with a check if they were given one.
Edit: I did a search and found an article from 2006. The newspaper suggested that people should have a check book in case of problems with the electronic system (many don't carry much in cash). They interviewed the CEO of a major bank, and he wasn't even sure that the bank gave out check books at all :-)
Large sum transactions with low level of pre-established trust still don't have a replacement for a check. I bought a used car from a small dealership. The dealer didn't have the resources to check my credit, and I didn't trust him enough to just wire money to him ahead of time. Also, there's no way I'm going anywhere, especially not in the kind of neighbourhoods that have small used car dealerships, with enough cash to buy a car on me.
So I went to my bank and got them to make a check in my name for a ridiculous fee, and brought that, and figured, "why can't I just do that online"?
Another purpose would be quick settlements of bills. If I transfer the money it takes up to three working days for the amount to appear in the creditors account -- sometimes that's not practical if I need someone to ship something to me today -- this electronic check would solve that problem, because the creditor would be informed immediately by a trusted party that the money is there and on the way.
I'm from the US, never really liked checks, and then moved to Holland (where they simply do not exist) and was amazed.
You have 4 ways to pay for things:
* Transfer from your online banking. You need the other party's account number, their name, and city. It's free for both parties; instantaneous (money is no longer available to your account, and is immediately available to the other party); can't be done if you don't have a high enough balance (no bounced checks); and can be set to be recurring. It makes the US checks/fees/delays look like a joke, but doesn't provide 10 different revenue streams for the banks.
* You can use your debit card (called pinnen or 'PIN-ing') at any stores that have a scanner. There are no fees, you have to enter your pin. Most places (supermarkets, restaurants) will let you PIN, but don't take credit cards. Like transferring money, charges are immediate, done in the order they are received, and don't go through if there's not enough money.
* All debit cards have a little smart chip on them, which can be used to 'ChipKnip'. You load small amounts of money directly onto your chip, and you can now use your card to pay for small things (parking meters, printers at a university, etc). It's insecure (no PIN required) and if you loose your card the money's gone. It also (I think...) doesn't require a live connection to the ATM network, so transactions can be run later
* Giro. Giro is the opposite of a check (it's a credit-transfer instead of a debt-transfer). Sometimes bills are sent with a GIRO slip, which the payer fills out and eventually makes it way to the payer's bank, where a transfer is initiated to the recipient. I've never used a GIRO in the 2+ years I've been here.
I moved to the US in 2006. When I was opening an account with WaMu the teller was very excited about the "online" bill pay service they had just launched. I became very confused when he was demonstrating it, because there was no field for the recipient's account number or sort code. I was even more confused when he setup a payment to me. It turned out that the system just printed out a paper check and mailed it.
It's hard to believe that business checks are going to be phased out in a world where Morgan Stanley takes $9Bn in funding in the form of a paper check.
For small businesses, it's also hard to see how you replace the value of being able to fedex a check to a new vendor. Online payment works in places where both companies are established and have a relationship, and less well elsewhere.
I know this is UK and not US, but is there something I'm missing about how business works in the UK?
> For small businesses, it's also hard to see how you replace the value of being able to fedex a check to a new vendor.
How do you figure? Here in Belgium cheques have been phased out decennia ago, to the point that I have never had a cheque-book. To pay a vendor, new or old, I just transfer money onto their account. What's the benefit of the cheque?
The only cheques I see are the royalties I get from some US publishers that refuse to do bank transfers. They cost like $30 to cash, because after I receive them in the mail and bring them to my bank, the bank uses a secure courier to fly them back to the US, where their sister bank cashes them, and wires the money to Europe. Madness.
The US is extremely far behind in banking. It's a whole other world. Also there seems to be a culture/tradition of paying bills by cheque.
The UK enjoys free banking for people - free transfers, direct debits, automated payments, etc. Transfers show up in a couple of hours to most other bank accounts. Even businesses get most of that, including free banking for a year or 2.
Most 'bills' - water/gas/electric/cable/mortgages etc are all setup and automated electronic transfers - direct debits. (free of course)
Giving out your bank details to allow someone to pay you is fine and secure.
The need for cheques in the UK is incredibly small now.
Also, sure - people will probably still use cheques "for show". On things like charity TV programs we'll still see the big oversized cheques showing how much they raised. But it's just for show. The money is all sent electronically.
The UK enjoys free banking for people - free transfers, direct debits, automated payments, etc.
Possibly not for much longer, it was all possible because of overdraft fees etc that people are trying to weasel out of paying. In most of the rest of the world, you pay a monthly charge for even having an account and getting an overdraft is a much bigger deal.
Thankfully they ruled that if you go over your agreed overdraft limit, the bank can charge you what they like.
I also do not buy the 'that's why bank accounts were free'. Consumer banking has always been free in the UK. Before consumer overdrafts/charges were common.
I believe it's more than covered by the cost of business banking.
I think it's a much better system - consumer banking free, business banking paid for. The original freemium business model.
"Consumer banking has always been free in the UK."
No, it hasn't. Charges for writing cheques, withdrawals, etc were common at one point. I remember the switch to free banking in the UK when I was a child - not having to pay anything to use your bank account normally without going overdrawn was a big deal at the time.
The US is about the only place where people are scared to give out bank account details and that is because in theory you could initiate an ACH bank transfer from the other parties account. What many people don't understand is that that same information is on a check.
In most of mainland Europe everyone pays everyone through online banking. In Denmark people put their account details on their web sites and letterheads.
There is really reason why you couldn't do the same here even with first time vendors. Except that some banks make it really hard to do.
My old bank Wellsfargo had me sign up for something called I think DirectPay where you could do it easily. But my new bank CitiBank make it just as easy as in Europe from both my personal and business accounts to send money.
This love afair of checks that American business has is all about float and frankly I am incredibly annoyed that all my clients insist on paying me by check.
So the website needs to contain the company registration number, the way it's incorporated and a bunch of other stuff, but not the bank account number afaics.
Though the bank account number does need to be displayed on invoices.
We don't bother with the fedexing in the uk :) couriers are expensive.
Seriously though, wire transfers have become very efficient, simple and effective, and- i predict by 2018 - free. the FPS (faster payments service) can make transfers between accounts of different banks happen within 5 to 10 minutes or less. Whilst you and I know that it really only takes a few seconds to do a SELECT, UPDATE and an INSERT, the complexity of settling transactions takes longer, so having it all done within a few minutes is a boon.
The one disadvantage about the removal of cheques is that it'll be basically impossible to delay payment now... whereas you used to be able to say "The cheque's in the post", now you can't really pull that off.
You right. I dont think we have as much use of cheques as you guys do - but small businesses MUCH prefer them (lower charges: most banks don't charge you for small/medium numbers of cheques cashed).
My parent business is small and almost all their clients (Schools and institutions) pay by cheque. It's the easiest way for the schools to pay, if they have to do it online I doubt my parents will see the money for weeks :(
I'm over 30 and I have never owned a checkbook. Checks are backwards, insecure and prone to abuse with no real guarantee for whoever gets one that he will actually get money, which makes them even more worthless.
If I were a bank I would do everything in my power to get rid of checks pronto.