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The Monetary Authority of Singapore (MAS) is consulting on a proposal to eliminate corporate cheques by 2025 as processing costs soar, with the aim of also migrating remaining consumer users to alternative payment methods.
In a consultation paper released last week (November 2), the MAS is seeking public input on nine questions relating to the phasing out of cheques and encouraging individual users to switch to alternative payment methods.
The proposal is part of Singapore’s Smart Nation vision and it aims to accelerate the country’s transition to more efficient and secure e-payment methods. It builds on the findings of a 2016 report that concluded that reliance on cash and cheques, both by corporates and individuals, led to “sub-optimal business processes” and contributed to the “relatively high cost of payments”.
The document finds that all but one use case of corporate cheques could be met by alternative e-payment solutions, including the instant payments service Fast and Secure Transfers (FAST), inter-bank GIRO, e-wallets, debit and credit cards, and QR codes.
The costs of cheque clearing
As in many parts of the world, Singapore has seen a strong and continuous decline in cheque usage over recent years.
The number of cheque transactions has fallen from 61m in 2016 by almost two-thirds to less than 24m in 2021, the MAS said.
Equally, the total number of cheques, as a proportion of total interbank payments (i.e., combined FAST, GIRO and cheques) has also fallen sharply from 32 percent in 2016 to only 7 percent in 2021.
Provided that this trend continues, the MAS believes that the costs of central cheque clearing will significantly increase as the costs involved in operating the system are primarily fixed.
According to the MAS estimates, clearing costs per cheque could quintuple by 2025 to a price ranging between SGD2 ($1.4) and SGD6 ($4.3) or even higher if users fully switch to alternative payment methods for low-value transactions but continue to use cheques for high-value payments.
This has been the case previously in the Netherlands, according to the MAS, where the cost of cheque usage rose to an eye watering €38 ($37) in 2017. Meanwhile, in Norway, cheque usage costs rose to NOK43.25 ($4.2).
Central cheque clearing was eventually terminated in the Netherlands in 2021, while other payment methods have significantly reduced the use of cheques in Norway.
In using these countries as case studies, as well as Denmark, where central cheque clearing is set to close in 2026, the MAS has concluded that the phasing out of cheques requires the public sector to take a leading role, a coordinated push by the industry and the availability of alternative payment options for consumers.
Particularly, the regulator’s fact-finding exercise found that post-dated cheques are occasionally used as a form of “promissory note” in some transactions and act as a refundable deposit.
As a result, it urges the industry to build a new deferred e-payment solution that can address such use cases.
Transition from cheques
The regulator is first focusing on phasing out cheques for corporate use, which makes up a substantial portion of cheque usage at present. At the same time, it notes that there may be consumers who find it difficult to switch to alternative digital payments.
As a result, the MAS proposes to close the central clearing system for SGD cheques for corporate users by 2025, but will keep it operational beyond 2025 for individuals. The plan is to close completely as the MAS lays out initiatives to migrate remaining users to alternative methods.
One such initiative requires financial institutions to educate, assist and encourage individual users to migrate to alternative payment methods, while another initiative would allow banks to charge higher fees that reflect their cheque processing costs.
At the same time, the MAS is also proposing to end the US dollar cheque clearing system in 2025.
Interested parties can submit comments on the proposal until December 13, 2022.
