Kiwibank goes cheque-free from 2020
When Kiwibank CEO Steve Jurkovich visited his in-her-70s mum Elaine Hogan on Mother’s Day last weekend, he had an unusual question: Would you mind if my bank got rid of cheques?
It wasn’t a theoretical enquiry. Kiwibank today announced it will go cheque-free on February 28, 2020, making it the first mainstream New Zealand bank to do so. It won’t issue cheque or deposit books after September this year and will stop accepting or providing cheques in March next year.
“Cheque use has fallen off a cliff and that’s accelerating,” Jurkovich says. “You face the decision about whether you should invest millions of dollars in a sunset technology.” Actually, it’s more than $10 million over the next five-seven years, Jurkovich says, as cheque-processing technology comes to the end of its useful life and licences and service agreements need to be renewed.
And that’s when just 1 percent of Kiwibank transactions are done by cheque, and only 5400 of his bank’s one million or so customers write more than one cheque a month. That’s only 0.5 percent.
Digital banking options are “easier, faster and cheaper” for customers, Jurkovich says, and people are voting with their feet. While New Zealanders made 18 transactions by cheque per person in 2010, by 2018 that number was less than four.
However, put it the other way and that’s still a lot of cheques in circulation. Kiwibank is likely to face a backlash, particularly from groups representing older consumers, who make up 60 percent of people using cheques regularly.
"What are they going to do - give them their eftpos card? Or are they going to have to hold cash at home?"
Seniors Minister Tracey Martin is concerned and says she has written to Jurkovich asking him to clarify what Kiwibank is doing to help older people make the transition away from cheques.
“I think Kiwibank thinks that by entering into a contract with [community-based digital training provider] Digital Inclusion they have done their bit. But last year there were 18 million cheques signed in New Zealand.”
She says there’s nothing she can do to stop Kiwibank making the move. The bank may be state-owned - 51 percent by NZ Post and 49 percent by ACC and the NZ Superfund - but it’s at arm’s length from government.
But that doesn’t stop Martin worrying about older, often housebound people who use cheques to give to someone else to do their shopping, for example.
“What are they going to do - give them their eftpos card? Banks aren’t going to like that. Or are they going to have to hold cash at home? We know what will happen there.
“I would like to be confident Kiwibank has thought this through and they have contacted those customers and asked them ‘What is the best way we can help you get through transitioning away from the service - a service they signed up to’.”
Jurkovich argues the bank has those bases covered. He says Kiwibank will be offering in-branch “tech tea” sessions - a cup of tea and internet banking training for customers.
And the bank has developed an e-banking module for Digital Inclusion Alliance Aotearoa’s Stepping UP programme - a community-based digital skills initiative.
“We’ll be getting in touch with all customers that do write cheques,” he says.
He says he's not concerned about a backlash - either from customers or politicians. New Zealand First ministers Shane Jones or Winston Peters, for example.
"We operate in an environment where we need to make right decisions for the long term. There is overwhelming evidence from customers there are smarter ways of making payments than cheques."
Low volume, high transaction cost
It’s not just customers that write cheques who will be impacted. A far greater number of New Zealanders receive them. Birthday money from grandparents, dividend certificates on shares.
Charities, schools and tradespeople all still get cheques. More than 300,000 Aucklanders getting their power via Vector get an annual dividend from Entrust, and often that’s via a cheque.
Jurkovich says Kiwibank is working with high volume cheque-issuing organisations, including government departments, to wean them away from paper.
And over the last 12 months he says the bank has already stopped accepting foreign currency cheques, which he says are expensive to process and slow for customers.
Steve Wiggins is chief executive of Payments NZ, the organisation which manages New Zealand’s payment clearing systems.
Wiggins says he’s not surprised at Kiwibank’s decision. With the number of cheques in the system going from 53 million in 2013 to 18 million last year, there’s a lot of excess capacity - and that’s expensive for banks, he says. He compares it with the problems faced by NZ Post.
“It’s one of those systems where volumes are low and the cost of transactions are high and cross-subsidisation happens. Banks should be looking at how to move to the digital space.”
Still, getting rid of cheques isn’t going to be simple in all cases, he says.
“There are some situations when having a dual signatory is useful. And it’s not uncommon in rural areas, for example, for a farmer turn up with a blank cheque to his accountant to sort out all his payments."
Then there’s the situation with people receiving overseas dividend cheque payments. “A lot of them come from North America, where their system is antiquated and cheque usage is still very high.”
That’s a problem and Kiwibank needs to make sure it helps customers find alternatives, Wiggins says.
Jurkovich says while Kiwibank is the first of the main New Zealand banks to make the move, newer arrivals into the country - the China Construction Bank and the Bank of China, for example - never had cheques in the first place.
And cheques are gradually being phased out in some other countries, particularly in Europe.
Dutch banks haven’t accepted personal cheques since 2001 and in Finland they haven’t been used since 1993.
He's punting his New Zealand banking competitors will follow Kiwibank's lead.
"My view is that over the next three-five years we'll end up like Holland and Scandinavia with cheques disappearing from the system because there are much better ways to do it."
And Jurkovich’s mum? What did she think about her son’s decision? Actually, Elaine Hogan couldn’t remember when she’d last written a cheque, the Kiwibank CEO says. And somehow she didn’t get around to digging out her cheque book to get the answer.
A short history of cheques
Cheques are really old. There’s evidence of cheque-like notes being given to bankers in India around 200BCE; the Romans had a similar thing a century later.
In the third century CE, Persian banks began issuing letters of credit called čak, used by travelling traders as a more secure way of moving money around. It would be good to think čak was the origin of the modern word, though čak was later changed to sakk, so probably it wasn’t.
By the ninth century, a merchant in one country in the Persian empire could cash a sakk drawn on his bank in another country.
Bills of exchange reached Europe around the 13th century, and gradually they started being used for domestic payments too.
In 1717, the Bank of England produced the first pre-printed cheque. Daily clearing started around 1770, when clerks from each bank would meet at the Five Bells tavern in London to exchange their cheques and settle the balances in cash.
In 1959, the first standard for machine-readable characters was developed in the US, paving the way for the automated cheque clearance. Volumes grew, peaking in the early 1990s before being gradually displaced by cheaper, quicker and easier electronic payments.
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