The biggest banks of the second largest economy on the African continent, South Africa, have come out with a surprise announcement: They are phasing out all forms of cheques as payment.
FNB began the downfall, with ABSA, Standard Bank and now most recently Nedbank all following suit.
The consequential announcements come after the Reserve Bank of the country adjusted regulation stating that the maximum amount that cheques can be used for payment will be reduced from R500,000 (USD $30,000) to R50,000 ($3,000). According to the latest data, it costs a South African bank approximately R200 ($12) to process a single cheque, and when taking into consideration the delayed process of clearing the payment, R50,000 just makes the process unfeasible.
Bongiwe Gangeni, deputy chief executive of retail and business banking at ABSA, said in recent comments to the Mail & Guardian that “cheque usage has been declining over the past decade, with volumes dropping roughly 80% compared to 10 years ago,” he is quoted as saying. “They have become uneconomical and commercially unviable. Ageing industry infrastructure is also approaching the end of its life cycle.”
Each of the big four banks have stated that they will phase out the use of the payment method by early 2021.
Jan Ludik, CEO of FinTech software designers Traderoot, says that while the romanticism of writing a cheque will be remembered with nostalgia, it is a natural progression of society’s advance.
“We all loved writing a cheque,” Ludik says, “especially with a good pen. But the reality is, from a reconciliation perspective, they are archaic. They’re like using a manual credit card swiper with carbon paper. They require physical reconciliation, and in a digital world that just doesn’t make sense.”
There is a lot more to the nostalgic romanticism of putting pen to paper however. Cheques actually hold a very significant part of money’s history.
“Cheques are actually the first form of paper money,” Ludik tells us, “they were first used by traders from the East traveling to Rome in the 9th century. Instead of dangerously carrying large sums of gold and silver on their long journeys, they invented an IOU system with merchant banks of Rome known as a Sakk.”
This Sakk is where the word “Cheque” derives, and became a most pervasive form of trade between the East and West. It was only until the 15th century however that Europe truly cottoned onto the idea of an “IOU” form of money, and by the 17th century the Sakk (by now commonly referred to as a “Cheque” by Europeans) reached the United States – its final frontier.
The USA is ironically now one of the final countries among a handful to use the payment method in such widespread utility. Reason being: The world’s leading economy is actually still lagging behind with an extremely outdated banking system. In a media statement declaring a desire to bring America’s banking into the future, the country’s Federal Reserve Bank acknowledged its antiquated systems:
“U.S. consumers can’t make a near-real-time payment in a convenient and cost effective way between bank accounts,” the Fed’s 13-page paper noted. “Numerous other countries have moved to ubiquitous near-real-time retail payment systems, while the U.S. payment system does not have this capability.”
That’s a pretty momentous admission by the country’s central bank. The paper, entitled “Payment System Improvement” outlines quite a grand vision of improving the bank systems of the U.S., but many international thought leaders in the industry believe it will take huge resolve for the Federal Reserve to action the vision.
Whatever the outcome of the U.S.’s Federal Reserve vision, the fact remains that Africa’s second largest economy will join the likes of Poland, Denmark, Finland and the Netherlands in becoming a “cheque free” jurisdiction from 2021.
The Traderoot CEO emphasises this is simply a sign of the times:
“Payments and the transfer of value have evolved,” he says, “and with private banks and central banks alike – some of whom are our long time customers – looking to reduce their overheads and improve efficiency, cheques just don’t make sense any longer.”
In a world where immediate value transfer is now a very real feature for most tech savvy consumers, the end of an era marks the exciting dawn of a new one.