Good riddance to cheques, but don’t ditch cash just yet

The email was irate as well as incredulous: “I was shocked to receive a letter from my bank telling me the federal government are phasing out cheques. For years, I have used cheques for donations to charities and sending family members a gift of money.

“Sending cash in the mail is not secure, and I have always found cheques to be a reliable and safe way to send money. How can I send a surprise gift of cash to family and friends once the cheque option is no longer available?”

Cheques are an antiquated and inefficient form of payment.Credit: Getty Images

I must confess it caught me by surprise. It’s been years since I’ve sent or received a cheque, and I have never given much thought to them. They are one of the most inefficient methods of payment around.

To send someone a cheque you have to write it out in legible handwriting, find their address and write that on an envelope – also legibly – add a postage stamp and then take the letter to a post box.

If you receive a cheque, you’ve got the hassle of finding a bank branch that’s still open, making out a deposit form, standing in line for the teller, and then waiting a week for the funds to be cleared.

I spoke to the Reserve Bank, who told me that cheque use has declined drastically in recent decades. At its peak in the 1980s, cheque payments accounted for 85 per cent of all non-cash payments; today, cheques are used for just .01 per cent of total payments.

One of the main reasons is how easy the system is to defraud. The bank tells me that common cheque frauds include: counterfeit cheques (false copies of cheques previously issued); materially altered cheques (the payee or amount has been altered); and lost or stolen cheques (sometimes a whole cheque-book has been stolen).

The government has a timetable for phasing out cheques. Next year will see the end of bank cheques, 2026 will be the end of commercial and government cheques, and by 2027 there will be no more personal cheques. By the end of 2030, the entire cheque system should be done.

The reality is that there are now much better methods of payment available. For domestic transfers I love Osko, which appears on many transfers I make through St George Bank. Once you press the confirm button a message comes up that the payment has been successfully received by the payee. It’s instantaneous.

A more contentious issue is the phasing out of cash. The main functions of cash are as a means of exchange (to buy things), and as a store of value (you can safely tuck away a few $100 notes knowing that they will retain value into the future as legal tender).

It makes little sense to retain a high-risk transaction method like cheques, when it is now so little used.

The Reserve Bank’s sixth triennial Consumer Payments Survey found that most in-person payments are now made by tapping cards or mobile devices, even for small purchases. This means the share of in-person transactions made with cash halved – from 32 per cent to 16 per cent – over the three years to 2022.

The demographic groups that traditionally used cash more frequently for payments, including the elderly, people on lower incomes, and regional residents, had the largest declines in cash use. Cash usage has generally been replaced with card payments.

While Australians are aware of and use a range of other newer payment methods, such as digital wallets and buy now pay later services, they still make up a small share of payments.

When things get risky, like during the pandemic, people tuck $100 notes away as a risk management strategy. So people now use cash less often as a means of exchange, but still value it highly as a store of value. And the numbers are big. It’s estimated there are now $60 billion worth of banknotes and circulation – that’s about $2600 per person.

My only answer to my correspondent’s indignant plea is that future gifts may have to be made by bank transfer, with a preceding card announcing the surprise, or risk enclosing cash from time to time. It makes little sense to retain a high-risk transaction method like cheques, when it is now so little used. It’s like insisting on real gold coins over allegedly valueless paper money.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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