New cheque standards: An innovation of dying habit

New cheque book

By Geoff Iyatse

As an increasing number of banking public switches to digital payment platforms, GEOFF IYATSE writes that the implementation of the Central Bank of Nigeria’s (CBN) new cheque standard, which kicks off on January 1, is received with cold attitude.

From January to October this year, the Nigeria Inter-Bank Settlement System (NIBSS) processed a total of 3.94 million cheques. The volume is equivalent to 60 per cent of the 6.56 million it treated in the same period last year.

The reduction in the volume of cheque transactions this year is understandable. Most of the decisions taken this year were largely influenced by the COVID-19 outbreak, which, among other cautions, called for a reduction in physical contacts. So, it suffices to say that most businesses would opt for transfer rather than the signing of cheques. But the new normal has only reinforced a growing new payment culture.

For instance, a monthly average of 900,000 cheques was cleared in 2017. That decelerated to 751,000 in 2018 and down to 651,000 last year. This year’s monthly average stood at 394,000 as of October, which is a mere 44 per cent of the volume recorded less than five years ago.

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The number, indeed, dropped to an all-time low in April when it fell to 14,480, reflecting the agonizing impacts of COVID-19 on business activities, including payments. Yet, the year-on-year reduction in the volume shows that cheque transaction is but a dying culture after all.

As the cheque-signing ritual continues to lose its traditional hold, the value paid out through the mode is also shrinking despite an increase in business activities. Between 2016 and this year, new payment modes have almost halved the value of money that exchanges hands through the ancient business settlement process yearly.

The payment system, like other aspects of business, is going digital, whose volume and value are disproportionately larger than cheque transactions. For instance, the total 810.8 billion cheque payments made in Q3 2020 was only 0.25 per cent of the N319.995 trillion that changed hands electronically in 2.8 billion transactions in the same period.

The changing payment process is global. And it is incredibly faster than earlier projected. Reports suggest that the number of people with a preference for electronic payments will increase in multiple terms in the post-COVID-19 era. Nigeria, compared to Kenya and a few other African countries, is in a catch-up race in electronic payment.

Yet, the mode has trumped the traditional payment systems, putting intense regulatory pressure on the CBN and other supervisory institutions. The innovative payment has birthed an entirely new industry, which the CBN seeks to regulate for a “seamless growth” and secured transactions.