Written evidence submitted by Age UK
INTRODUCTION
1. Age UK strongly welcomes the Committee's decision
to reopen its inquiry on the future of cheques. Research we have
carried out since the Committee's previous Inquiry in 2010 has
confirmed that cheques remain an important payment mechanism for
older people and that at present there is no complete substitute
either in existence or, to our knowledge, in development. Research
findings in this submission are drawn from this research unless
otherwise stated.i
CURRENT USE
OF CHEQUES
AND FUTURE
TRENDS
2. Cheque use is still significant. Research
commissioned by Age UK among adults aged 18+ found that 13% 'often'
write cheques, and 23% "sometimes". While there is an
age divide in the use of cheques, with half of people aged 65
and over (51%) using them sometimes or often, compared to around
one-fifth (19%) of those aged 18 to 24, cheque use is still significant
in the middle age groups, with 32% of people aged 35 to 44 using
them at least sometimes.
3. We agree that cheque use has fallen, however
it is not clear that the decline is terminal, or that it is merely
a cohort effect. Estimates of future trends should take into account
the following:
— Many
people have already migrated to other payment methods where a
suitable alternative exists. Among people who write cheques, the
percentage of people who say they would have problems if they
were no longer able to do so has remained fairly stable over the
last four years,ii and actually rose between 2009 and
2010. It follows that people who are still using cheques may have
good reason to do so, and will find it more difficult to switch
to alternative methods.
— Much
of the decline in cheque usage is likely to have been driven by
the decision of supermarkets to stop accepting cheques. Further
change will depend on the actions of smaller traders, many of
whom believe cheques to be important to their businessiii
and who are less likely to be in a position to force customers
to switch payment method.
— Even
in those countries where cheques are no longer used, such as Germany
and Belgium, paper-based alternatives are available and are commonly
used to pay bills. There also appears to be heavy reliance on
cash.
— Although
it is often argued that cheque use is a cohort effect, an ageing
population will still require suitable methods of payment. Mobility,
dexterity and other impairments that can affect the suitability
of alternative payment methods all increase with age.
THE IMPACT
OF ABOLITION
4. The loss of cheques might have advantages
if it were to drive development of payment mechanisms that better
suit the needs of the population as a whole. It is difficult to
estimate the benefits as no concrete proposals for alternatives
are yet available. Without such proposals, older people cannot
be reassured that any cost savings will be re-invested in alternative
payment mechanisms that meet their needs. Instead the risk is
that individuals who may already be quite disadvantaged could
face extra costs.
5. Letters we have received from older people
show that they have very rational reasons for relying on cheques.
It is not just stubbornness or tradition:
Although I am 90 I have a PC and use bank transfer
facilities to pay off credit accounts and also one-off bills to
firms which give the necessary details. I use credit cards for
convenience and I sometimes use a debit card and cash back facility
at a supermarket. None of this, however, alters the fact that
there are still many transactions where a cheque is the only really
convenient method of payment.
[My mother] uses cheques for: Window cleaner (no
card facility available), Newspaper Shop (no card facility available)
Paying for Care Services (cleaning) (no card facility available),
Gardener (no card facility available) Gifts to Grandchildren in
birthday cards. The withdrawal of cheques would put extra pressure
on me, as the main carer, having to visit ATMs for cash frequently.
Additionally we do not want our mother having sums of money in
the house. Besides this, it helps Mum to feel more independent
and more in charge of her finances when she can write cheques.
6. We have identified the following impacts of
abolition.
7. Less control over spending—cheques
provide a clear audit trail. For example, currently 10% of the
population still posts a cheque to pay household bills, and this
is just as common among those aged 35 to 44 (11%) as people 65-plus
(12%). People on low incomes are reluctant to use direct debit,
in spite of the cost savings, because of fears of overdrawing.
The average cost saving from paying energy bills by direct debit
is around £80 a year,iv compared to a potential
cost of £85 for an unplanned overdraft of £100 for two
weeks once a year.v
8. Increased use of cash. Many people
will switch to cash rather than new payment mechanisms, particularly
people in low-income groups who need to control spending. Across
the whole population, 44% of people usually use cash to pay for
grocery shopping, compared to 61% for a debit or credit card,
but among people who told us they were on an income below £13,500
the percentages were reversed (61% cash and 42% cards). Cash is
not a cost-free option. 12% of people who draw money using a cash
card always or sometimes pay a fee to use an ATM. 6% of older
people (c.600,000) leave their house once a week or less, and
we often hear of older people who have to take a taxi to draw
cash. At a very modest cost of £10 for one trip a month,
this would add £120 to someone's annual expenditure. Holding
large amounts of cash at home also increases the risk of theft.
There were 7,655 distraction burglaries recorded in 2009-10vi
and older people are often targeted.vii
9. Problems paying for services at home such
as home maintenance or personal care. Cheques are often used to
pay for services at home: 27% of people aged 65-plus use a bank
cheque in these circumstances and 5% use a building society cheque.
457,383 people received home care in 2008.viii Few
of the traders who provide home services have facilities to accept
card payments, and handheld card readers also depend on local
internet connectivity.
10. Increased risk of abuse 40% of people
who say they find it inconvenient to access cash rely on others
to do so for them—almost one-fifth of people aged 65-plus
and almost one-third of people with disabilities. Currently, cheques
can be used to reimburse people who help with drawing cash or
doing shopping. Formal systems such as giving someone a power
of attorney are often not appropriate for someone who has mental
capacity but who simply needs a bit of help or who relies on a
range of family, friends and carers. Instead, our research found
that disclosing a PIN is common, with 16% telling a partner and
8% telling another family member. This can lead to abuse; 2.6%
of those over 66 living in private households reported some mistreatment,
with financial abuse being the second most common form. Family
were the most common perpetrators.ix
11. Damage to small traders, clubs and societies
Many older people rely on small local traders, clubs and societies.
These often depend on cheques as a cost effective payment system
with a clear audit trail. Many older people are also involved
in running clubs and societies and so solutions must be operable
for by both older payees and payors.
12. Cost shifting It should be recognised
explicitly that cost savings to banks will often represent cost
shifting to consumers and small traders. For example, transport
to increasingly distant branches, purchase of a computer and internet
access.
THE DEVELOPMENT
OF ALTERNATIVES
13. We do not think that there has been sufficient
progress in the development of alternatives to allow for an orderly
transition and consequently the target date of 2018 should be
put back. Even if specific alternatives are agreed within the
next year, we are doubtful that there will be time for full development
and familiarisation. So far, we see the most development in the
areas below, none of which is likely to be a complete replacement
for cheques.
14. Internet banking. While banking online
would help with some of the payment problems of older people such
as paying for shopping, it does not obviate the need for cash
or the difficulty of getting cash, and its use to pay for services
in the home relies on its acceptability to small traders. Currently
internet banking is used only by a small proportion of older people.
Although household internet take-up is now at the UK average for
people aged 55-64 (74%), those aged 65+ are still considerably
below average (35%)x Among people who do use the internet
at home, its use for banking and paying bills online is 58% across
all age groups, but only 32% for people aged 65-plus, and 19%
for people aged 75-plus.xi
15. Mobile banking. Although the Payments
Council working in this area, they are "taking care to wait
until there is a clear case for industry collaboration"xii
and in the meantime developments appear to be using proprietary
and competing systems. For example, Verifone arrives in the UK
this month but we understand this it is available only on Apple
products. Although mobile phone usage among people over 75 has
risen, only 56% personally use a mobile phone.xiii
However, ownership does not necessarily equate to usage and there
are also design and useability problems with mobile phone technology
and handsets.
16. Prepaid cards 14% of people aged 18-plus
said they would use plastic gift cards to make a gift, and this
may increase takeup of prepaid cards in general. However, most
prepaid cards for everyday spending can only be loaded over the
counter or online. They share many of the drawbacks of cash, plus
extra problems such as redeeming small unused balances, and can
be expensive. In 2010, it was reported that some benefit recipients
were asking to have benefits paid on to a card that cost £10
to buy, with a £7.50 annual management fee and a charge of
between £1.25 and £2.50 each time a payment was loaded.xiv
17. Contactless technology for example
Oyster Cards in London. While a "wave and pay" card
is simple to use, there may be concerns about security and controlling
spend. Their initial takeup has largely been in the context of
commuter travel, so retired people are unlikely to be early adopters.
MEETING THE
NEEDS OF
OLDER PEOPLE
18. The Payments Council has suggested that paper-based
alternatives, based on either the direct debit system or faster
payments, could be developed. To date we have seen no concrete
proposals and as a result think it is unlikely that they could
be developed, introduced and taken up by 2018. We also question
whether such a solution would be sustainable longer-term as niche
solutions tend to be more expensive and difficult to get to the
consumers who need them. For example, CHIP and signature cards,
cheque templates and other aids already available from many banks
often fail to reach those who need them.
19. There is unlikely to be one magic bullet
solution: most people will need a range of payment methods. However
the Payments Council should seek to minimise the need for niche
solutions through inclusive design, so that the broadest possible
range of consumers can use mainstream methods. In particular,
all payment methods, even those for which older people are unlikely
to be early adopters—such as mobile payments and contactless
cards—should be designed inclusively. This will help ensure
sustainability, for both banks and consumers. If our hearing,
sight or mobility deteriorates, it is impractical to assume that
we can or should switch to new payment methods.
20. We summarise below the criteria that we believe
payment methods should meet:
— Easy
to use.
— Accessible,
without the need for special equipment.
— Operable
from home.
— Accepted
by retailers, including small traders, clubs and societies.
— Allows
payments to individuals.
— Controllable
(so that people can budget).
— Secure,
and perceived to be secure.
— Protected.
— Difficult
to abuse.
— Easily
available.
— Suitable
for people on low incomes.
21. There is also much that could be done to
make existing payment methods more useable by older people, such
as offering a second debit card with its own PIN that can be used
by helpers without the account needing to be in joint names, or
making telephone banking easier to use. We are disappointed that
nothing appears to be happening in this area.
THE DECISION
TO CLOSE
THE CHEQUE
GUARANTEE SCHEME
22. We have three concerns about the decision
to close the cheque guarantee scheme; the message it sends about
the eventual abolition of cheques; the impact on traders' willingness
to accept cheques; and how the closure is handled by banks and
their staff.
23. We are not in a position to judge how traders
will react. However, we have had reports of people being given
the impression by bank staff that cheques are being withdrawn
sooner than 2018, and of people having to request new cheque books
when formerly these were sent automatically. In one case we were
told about someone who had to cut spending on food because they
did not receive a replacement cheque book as expected. Those people
who are most reliant on cheques are also likely to be those who
find it hardest to get to a branch or telephone the bank. It is
essential that Payments Council members hold by their commitment
to maintain cheques until the system is ended, including providing
new cheque books, and training staff properly.
THE ROLE
OF THE
PAYMENTS COUNCIL
24. The Payments Council has been open and collaborative
and has made good progress in identifying what older people need
from payment systems. However, we are disappointed that in spite
of this positive engagement there are still no concrete alternatives
to cheques on the table. We were also far from reassured by the
ten commitments published by the Payments Council in December
2010. Most of the commitments relate to process, not outcome,
and the commitment not to withdraw cheques until there are "available,
acceptable and widely adopted alternatives in place" is qualified
by "or the closure of the cheque clearing itself". There
is no commitment to provide alternatives, merely a commitment
that "where there are gaps in the current range of payment
options, we will look to foster innovation and investigate the
feasibility of providing a paper-based method of payment".
25. There is a tension between fostering competition
and ensuring common standards and platforms in this essential
utility service. As an industry-led strategic body, rightly concerned
not to breach the requirements of competition law, the Payments
Council is not the right body to take the decision over whether
cheques should be withdrawn. It is ultimately driven by its members,
the payments industry. It is in a poor position to lead change
and may not be the most efficient way to raise standards and ensure
effective competition.
26. The importance of payment systems has been
recognised by the Independent Commission on Banking, which states
that "There may be a case for the Financial Conduct Authority
(FCA) to play a leading role in monitoring the payments system,
in particular in relation to innovation and competition, with
oversight of both the Payments Council and the individual UK retail
payment schemes."xv
27. However, competition in this area needs to
work hand in hand with a requirement to ensure that all citizens
can safely receive, store and transfer money at reasonable cost.
In relation to cheques, we believe that:
— the
decision over whether to withdraw cheques should be taken by a
truly independent body, acting in the public interest and
— there
must be consensus on the criteria for making the decision. The
Payments Council plans to set thresholds for the awareness and
acceptability criteria in 2014. However, any decision based on
purely numerical thresholds risks excluding the most vulnerable.
Older consumers must be able to trust that the criteria
have been set in the public interest, and that if they have not
been met the closure of the cheque clearing system will not go
ahead.
May 2011
REFERENCES
i Quantitative
research was carried out for Age UK by Ipsos MORI with a representative
sample of 1255 adults aged 18+ in the UK, boosted for age so that
469 respondents were aged 65 or over. Face to face fieldwork took
place in February 2011 and the data was weighted back to be representative
of the UK.
ii Consumer
Cheque Market Research 2010, Cheque and Credit Clearing Company,
October 2010.
iii Federation
of Small Business Weekly brief, 15 April 2011.
iv Update on probe
monitoring: tariff differentials and consumer switching, Figure
2.2, Ofgem, June 2010.
v Age UK calculations:
assuming daily fee of £6 for 14 days.
vi Crime in
England and Wales 200910, Home Office Statistical Bulletin,
July 2010.
vii
http://www.crimestoppers-uk.org/media-centre/news-releases/
2010/most-wanted-distraction-burglars-target-the-elderly
.
viii Based on:
Home Care Services Scotland 2008
Statistics Release, Scottish Government, 2008; Social Services
Statistics Wales 2007-08, Local Government Data Unit—Wales,
2009; and Adult Community Statistics 1 April 2007-31 March 2008,
Northern Ireland Department of Health, Social Services and Public
Safety, 2008.
ix King's College
2007.
x Ofcom 11th Annual Media Literacy report.
xi Ofcom Digital Participation Consortium Tech Tracker Q1 2010.
xii Updating the National Payments Plan, Payments Council, 2011.
xiii The Consumer Experience 2010-Ofcom.
xiv
http://news.bbc.co.uk/1/hi/business/8475335.stm
xv Interim
report, Independent Commission on Banking, April 2011.
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