Banks told to cut down on cheque issuance

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KUALA LUMPUR: Banks have been told to achieve a considerable reduction in cheque issuance, say bankers, adding that the central bank may impose a 10% reduction target in cheque issuance early next year.

“The regulators are considering imposing this and may even impose a penalty fee of up to 10 sen per cheque, on all cheques in excess of the reduction target,” a bank’s head of group strategy told The Edge Financial Daily.

This is part of the central bank’s efforts to promote electronic payments (e-payments), said another banker.

“Yes,  we expect it [the target reduction and penalty] to be [imposed] early next year. We’ve been working on this (cutting down the issuance of cheques) for the past three years,” another bank’s chief executive officer said.

According to Bank Negara Malaysia (BNM) data, almost 200 million pieces of cheques were issued last year.

Last year, BNM announced new pricing strategies to encourage the use of electronic banking and to reduce the cost and inefficiencies associated with the use of cheques.

The pricing strategies were aimed at aligning the price of payment instruments with the actual costs of production and processing.

The objective of its pricing reform framework, noted BNM in its Financial Stability and Payment Systems Report 2013, is to incentivise the adoption of e-payments over paper-based payment instruments.

The pricing reform framework is divided into three phases.

The central bank noted in March this year that since the commencement of the new pricing strategy, there has been encouraging progress.
“Cheque issuance had also declined at a faster pace of -3.3% or 6.7 million cheques in 2013, compared to only -0.5% or one million cheques in 2012,” BNM had said.

In BNM’s Financial Stability and Payment Systems Report 2013, the banking regulator noted that cheque usage as a proportion of total non-cash payments, also saw a marked decline in terms of volume and value to 9% and 11% respectively, compared with 18% and 21% in 2007.

“Nevertheless, the total number of cheques issued remains high, at almost 200 million pieces or 6.6 pieces per capita.

“In order to achieve the target of only 100 million cheques by 2020, usage needs to decline at a much faster pace of 9.2% per year, over the next seven years, which has also been observed in other countries,” the report said. 

“Based on the World Payments Report 2013, cheque usage in mature Asia-Pacific countries such as Japan, Singapore, Australia and South Korea, declined at an average annual rate of 10%, between 2010 and 2012,” it added.

Cheque payments will incur a 50 sen fee with effect from Jan 02, 2015. This was initially scheduled for implementation from  April 01 this year, but was postponed to Jan 02.

The cheque processing fee of 50 sen on the issuer, is on top of the existing stamp duty of 15 sen per cheque leaf. BNM had said that the charge for cheques will be progressively increased to reflect its production cost, currently RM3.

According to the Association of Banks in Malaysia, the fee is to be charged to the drawer or issuer of the cheque and generally, the drawer/issuer’s account will be debited.

The association said in its website that the cheque processing fee will be charged, when a cheque is received by the drawer/issuer’s bank for processing.

“This would apply in the case of encashment of a cheque over the counter, or when the cheque is deposited into an account,” it noted.

According to BNM’s Financial Stability and Payment Systems Report 2013, the volume of e-payment transactions continued to grow at a rate of 18.8% to a total of 1.9 billion transactions, valued at RM16.2 trillion, last year.

“The increase in the number of transactions was mainly due to the higher usage of payment cards, e-money and Internet banking services. On a per capita basis, the number of e-payment transactions increased correspondingly, from 55 transactions in 2012 to 65 transactions in 2013, with ongoing initiatives expected to further advance e-payment adoption towards the target of 200 transactions per capita in 2020,” the report noted.

Central bank data also showed that the use of electronic channels (e-channels) have expanded with over 350 million financial transactions worth RM3.6 trillion in 2013, compared with 290 million transactions worth RM3.1 trillion in 2012.

This article first appeared in The Edge Financial Daily, on Sept 02, 2014.