Bitesize Payments
Payments are one of things that we do every day - they just happen, really they are just like magic!!!! But we don't wake up and think today I want to make a payment - we just want to pay a bill or buy a coffee but payments make them happen.
Paradoxically we both know more about them than we think and yet at the same time very little about what they are and how they work.
I have spent a lot of time in our industry doing education and training sessions on Payments and I kinda thought it would be useful to record it. So, here we go.... In Bitesize Payments I try and explain the History of Payments, how they work and who does what. Also who get paid for what....that might surprise you!
Anyway hopefully in less than 20 mins, week after week you can become a payment experts....... or at the very least someone who can ask the tough questions :-)
Please let me have your feedback, input or question at bitesizepayments@gmail.com
Thanks for listening.......
Bitesize Payments
Cheque or checks? – writing letters to the bank
Welcome Dear listener to Bitesize Payments where we talk about their history how they work and who does what.
In this episode we are going back in time to 1659, we are going to talk about a method of payments that goes back literally centuries, we still use them today and in some countries are really popular and more efficient than you might think.
Yes, today we are going to discuss Cheques or Checks depending on where you are in the world.
Cheques were there first payments instrument that were not money (fiat money that is, if you have been paying attention ). They were first used in 1659 in a London tavern and so starting the fintech revolution. But we have been using them since then..
Today I am so please to be joined today by Dougie Belmore, Head of Payments @ Pay.uk.
It’s a bit like writing a letter to the bank….. so get your pens out were doing writing!!!!
Buckle up here we go….
Payments Industry Insights
History of Payments
Payment System Explained
Corporate Payments Strategy
Payment Regulations Impact
ISO20022 Standard
Digital Payments Evolution
CBDC Advancements
Cryptocurrency in Payments
Financial Technology Education
Welcome back, dear listeners, to Bite Size Payments, where we talk about their history, how they work, and of course, who does what. In this episode, we're going to go back in time to 1659. In this episode, we're going to talk about the method of payment that literally goes back centuries. We still use them today, and in some countries, they're really popular and much more efficient than you might think. Yesterday, we're going to discuss cheques, or cheques, depending upon where you are in the world. Checks, well, they really were the first payment industry that wasn't money. That's fiat money, if you've been paying attention. They were first used in 1659 in a London tavern, and so started the fintech revolution. Hmm, maybe that wasn't such a good thing. Or maybe it was. Anyway, we've been using them since then. Today, I'm so pleased to be joined by Dougie Belmore, head of payments at Pay.UK. It's a bit like writing a letter to the bank. So... Get your pens out. We're doing writing. Oh, do you know where your checkbook is? Hmm, I'm not sure I do, actually. Anyway, buckle up. Here we go. Checks were the first payment instrument that were not money, and that is fiat money in today's language, because we started to use fiat as a message. But originally, it was created in a tavern in 1659, and so started the fintech culture that we see around us right now. But we've been using these checks, or checks depending whether in America or in the UK, ever since then. Today, I'm very pleased to be joined by Dougie Belmore from Pay.UK. Welcome, Dougie. Thanks, Paul. Delighted to be here. Very pleased that you are here too, Dougie. Dougie, you know what? I can remember my first checkbook many years ago, even before I went to university, and I was thinking, I'm an adult now, and I had my own account in this checkbook to pay for things. I didn't have so much money, mind you, but hey, you have to start somewhere. But I can also remember that rather embarrassing moment when the first time I that one of my checks bounced. Yes, that wasn't quite so much fun. But, you know, to some listeners, they may never have written a check. So let's start at the very beginning. What are they?
SPEAKER_00:Yeah, very good question. And one which is deep rooted in a whole load of the dark caps of banking law. But in a simple context, a check is a written, dated and signed instrument. that directs and instructs a bank to pay a specified sum of money to a specified person or entity that is named on the cheque. The cheque's drawn on the account of the person who writes it, and that's sometimes referred to as either the payer or the drawer of the cheque. And when it's presented to the bank, the funds are then transferred from the writer's account to the recipient's account, often referred to as the payee. Checks most commonly were used for personal transactions and mainly business transactions. Today is where we see most of the surviving check usage. And it serves as a method of payment, which a number of these entities find is more secure, more verifiable than cash, and certainly more convenient than a cash alternative. The beauty of the check is there's no maximum value. It can be used to move very large sums of money. the largest being 2.474 billion sterling, a US equivalent of 3.97 in American money. But that was from GlaxoPLC to the Wellcome Trust nominees back in 1995. There is nothing to stop a cheque being for more or for less. It all boils down to how much you have in your account and whether you can cover that. But, yeah, certainly far easier to write that sort of value as a cheque than to move it about as coin or paper. And just to give the converse of that, the smallest cheque written was back in 2017 for 0.002 rupees. Quite a contrast there between the maximums and the minimums that we've seen through the industry.
SPEAKER_01:Yeah, well, I know which one I'd prefer, that's for sure.
SPEAKER_02:I
SPEAKER_01:doubt
SPEAKER_02:it.
SPEAKER_01:But there are different types of checks. We have crossed checks that started in the late 19th century that had two parallel lines drawn across its face, usually diagonal from one corner to the other. And these lines served as a restriction of how the check can be used and cashed. A cross check cannot be cashed at a bank teller, but can be deposited, for instance, into a bank account. And these restrictions add an extra layer of security to the check and helps prevent fraud or unauthorized use. The term crossed refers to the lines drawn on the check. And therefore, sometimes it's also referred to a cross check or an account payee check or bank check. But, you know, we have a whole bunch of other things that seem to the outsider to be very, very similar. We have Gyros, I can remember those being a big thing when I was a kid. Money orders, bankers' drafts.
SPEAKER_00:What's all that about? Yeah, a number of different variations on a theme to a certain extent, but all with quite distinct and different fundamentals that underpin their use. Still at the heart of it is that transfer of value. It's the movement of a payment or of funds from one entity to another. But if we look at a gyro, it's a term that's used in several countries. Sometimes it's indicating it refers to a particular payment system. Historically, in the UK, we've had the gyro bank at one point in history. But other countries use it more as a reference to a type of financial transaction and, say, that mechanism for moving the funds. A lot of countries will use it in that way, and it really refers to the system in which the money transfers are made between the various bank accounts using a network of clearinghouses rather than the physical paper check system. being the carrier of the value and physically moving that from entity to entity. If we look then at a bank draft, sometimes called a banker's draft, but it is just a type of cheque guaranteed by the issuing bank and invariably it is drawn on the bank itself rather than drawn on the individual who has requested that. But it does give that security, it gives that comfort that the person writing the cheque has sufficient funds in the account, the cheque will always be honoured. The value is always there to cover the cheque when it's presented for payment. Blank drafts are often used in large transactions and we've traditionally seen that in the purchase of houses, mortgage settlement, that type of piece. Offer payment of a significant bill, maybe buying a car, something of that nature, where there's a tangible asset The seller wants to know they have the value, it is guaranteed, and that you're not absconding with their house or their vehicle, and you have left them with a dodgy piece of paper. And it's that provision of a guarantee, it's that sort of underpin that the bank has often had them paid for in advance and is prepared to stand behind the instrument that then gives them that certainty. Looking at the third of the aspects that you mentioned there, Paul, a money order is a type of payment very similar to a cheque. It's a paper document. It allows the payer to transfer the specific amounts of money to another party. But the main difference between the money order and a cheque is that money orders are always prepaid, tend to be lower in value, tend to be more manageable day-to-day sums. But it does mean that you go in, you buy the money order, and then you send it to the beneficiary. The UK tended to have postal orders, which were a very similar concept that the post office ran, where you buy a postal order, you could send it to somebody as a birthday gift, for example, and they could go to the post office and cash that and then get the value. And that was a very recognised way of making transactions back in the late 70s. But it's that guarantee again, that the payment is secure, it has been paid for up front, and no chance, as you referenced earlier, of them bouncing due to insufficient funds in the bank account. The other aspect of a money order, there's no real detail on it as to who has purchased it. It's drawn on the entity. that is issuing the money order and therefore it wouldn't carry the name of you or I in any personal detail. So there's an element of anonymity to that, which is probably why we see them less often nowadays, because with regulation and the need to be more prescriptive in security methods, it's not always great to have anonymity within a financial infrastructure. But still, a number of institutions today will sell money orders and allow them to be used for that transfer of value. So while they're all different in their construct, they are all very similar in terms of being a form of payment, very similar in the way that they go from the payer to the payee and transfer that value so that the one with the debt can extinguish it and can make payment to the other.
SPEAKER_01:Wow. You know, I'm betting there's a lot of listeners going... I remember some of those terms. And it's funny, you know, in trying to prepare for this, you sort of go, I remember these terms, but I don't actually know what the difference is because they're not round so much anymore. But, you know, we've had, what, 360 years of checks. And really, until wires, it was the only way other than cash to move money round. So that's a hell of a ride for us to have had checks, right?
SPEAKER_00:Yeah, certainly a long time in both the creation and their stability within the payments infrastructure.
SPEAKER_01:Okay, so that was a little of their history and the various types of checks and money orders and what have you. Let's now turn our attention to how they work. But check writing is very different in different countries. I have a French bank account, and every time I write a check in France, literally I have to look up how to write it. And I lived in the US for a while, and it was a different methodology. But while each of these countries have very specific things that you need to have or how you write to them, the principles, though, of how they work and how they process is pretty much the same around the world.
SPEAKER_00:Yeah, you're right. There's various nuances and geographical similarities and differences in both sides of that. But yeah, fundamentally at the heart of it, it's the same concept that runs right the way through. We have a deposit. The cheque is paid into the bank account of the payee. The cheque is then routed and that routing takes it from the bank where it was lodged to the bank where it was drawn, to the drawee's bank. We then go through the verification process where the drawee bank verifies the cheque against its records, makes sure it's valid, makes sure it's not being stopped, cancelled, reported as lost, and ensures that sufficient funds within the drawer's account to honour that value. That takes us to the credit part of the process. So if the cheque's been verified and the drawy bank then credits the payee's account with the amount of the cheque, the funds are there and the funds transfer has been enacted. The last part of the process is when the funds aren't available and there isn't money to honour the cheque. If the cheque has not been verified, the drawy bank will return that cheque to the depositing bank and that will allow that transaction to be reversed and the check returned to the party who lodged it and allowed them to then go looking for redress in other ways and other means to get their value. But for a long time, and probably the biggest significant change in the process was around about 2019, when in the UK we introduced the image clearing system. And that took it from what was effectively a five-day process at best traditionally based on the time it took a fast horse to get to London because even the days before the mail train, checks were put in bagel bags and off they went on their merry journey because the clearing was all done centrally in London. That changed over the years and clearing became more localised and more regionalised, but still we had a five-day clearing cycle. Slowly came down to somewhere in the region of three or four days, but image clearing and the digital platforms allowed us to get to that stage. where nowadays it's a very different world and is a much quicker and more effective and more efficient process for the customers.
SPEAKER_01:You know, that's one of my favourite, my favourite facts that it was all about a fast horse getting to London. But anyway, but things, you know, as you say, things have changed. It's like easy to think that the same process from the 360 years ago is still implemented today. But in fact, it's not. We've now got various scanning methodologies, as you've talked about briefly we have magnetic ink things have changed really quite a lot and while we think about checks as being old-fashioned in fact they can be quite slick
SPEAKER_00:excuse me yeah i mean very much so i you know the digital imaging the the ability to scan a check you know if you still go to a bank branch and speak to a teller behind a counter even if you hand over the piece of paper they take that image, that scan of it and read the magnetic ink and it's a digital process from there. Most banks nowadays will provide image functionality through the mobile banking applications on your phone and you simply just take the photograph and that photograph is what is used then to enact the transaction. That gives all the information required and allows exactly that same process of deposit, of routing, of verification and of credit. But all through a completely digital platform and digital means. And it takes that clearing cycle down to the point where, depending on the value and the processes at play with individual institutions, you may find that you'll get immediate credit and immediate value rather than a five-day clearing cycle. But certainly it should be no longer than next business day. So it's certainly a huge change there for the consumer community. and able to get the funds and get the money that they're looking for and allow them to transact in a more effective and more efficient manner.
SPEAKER_01:Yeah, well, it's certainly, you know, it's amazing how that has changed. But look, I can remember in the 80s and 90s, whether it was game shows or footballers or things like that, we had these very large checks. What was all that about? Were
SPEAKER_00:they real? Actually, yes, they were. And the bizarre piece is as much as they were really for show, they were there as a publicity stunt and as a way of drawing attention to, you know, whoever had won the lottery or won the pools. And the bigger the check, the more important, the bigger the value, the more pizzazz that went with it. But technically, if they carried all the requisite pieces of information, they had the details of the bank that it was drawn on and the details of the customer and the right format of account numbers and sort codes and the amount in value both in words and numbers and were properly signed you could go in with your three-foot check and slide it over a bank counter and they would be obliged to take that there is a famous story about a check being written to settle the debt between two farmers and they wrote it on the side of a cow and delivered the cow to the farmer. It was just a disputed transaction, but the cow was deemed to be a legal check on the basis that it carried all the constituent parts of a check on the side of its body. Quite how they actually got that to the bank and got the funds transferred, I'm not quite sure, but I have seen a photograph of the said cow with the bank details inscribed on its side. It probably just gives you a bit of a feel there that what we recognise today is something small and foldable that you kept in your pocket. You could have them any size, any shape, but mainly those big checks that you referred to, Paul, were there for publicity. They were there to make things look bigger, bolder, and to bring a bit more of attention to it. Marketing for companies and businesses was always a great angle on that. And actually many businesses who still to this day use checks as part of their payment process will have their company name, their logo, their branding and their images on their own checkbooks and they can get those specially and professionally printed to make sure they're still compliant for the system. but they carry a little bit more personalization for the companies that want to use them.
SPEAKER_01:That's amazing. I've never heard that about the cow. That's really got me thinking. So, Dougie, while I've been slightly lighthearted about checks, they've been around a long time. And yes, they are in decline. But for some countries, they are still a powerhouse for mostly corporates, but they are a powerhouse.
SPEAKER_00:Yeah, you're right. It's amazing how you go to different geographies and there's still a very strong method of payment and strong means of payment. France is somewhere in the region of 1.2 to 1.4 billion checks every year. And in the States, I think the last figures I saw were somewhere in the region of 14 billion. Now, on an annual basis, that's a significant amount of paper checks in the system. But if you look at the American stats, that's down over the last 20 years from a peak of about$43 billion. So the quantum is moving, albeit it's still a vast amount of use of the check process. So I think it's fair to say it's not going to go away anytime soon in the U.K., We certainly have still a large demand from a number of corners of the population, both personal and corporate. And we are here to provide that service for as long as the consumer wishes to write checks and use them as a means of payment. From a corporate point of view, a lot of the streamlining of the processes and the way they operate has made it so much easier. No longer is somebody sitting with a fountain pen and writing out 100 checks. They're all printed via computers. They're all digitally signed. And even though you still might get a piece of paper, it's done in a way that makes it more efficient for the company using it. And the specialist printers, the magnetic ink, the processes that have developed and evolved over the last certainly 10 to 20 years have driven that on in leaps and bounds.
SPEAKER_01:And, you know, I mean, you know, some of those stats you just mentioned are mind blowing. But I guess, you know, checks are in decline because we've just got used to more efficient ways of making payments right now.
SPEAKER_00:Yeah, without a doubt. And I think if you're a consumer, the choice out there nowadays as to how to pay something is phenomenal. Some of the payment methods like the check have been around for hundreds of years. Others are the newer kids on the block and are coming in and starting to make a difference to how we transact on a daily basis. I mean, if you'd gone back even five years and the thought of not needing to take your wallet anywhere and just tapping with your phone, it would have been an alien concept. We would never have gone anywhere without at least two or three means of payments and the opportunities. But from the cheque's point of view, whilst it's still loved by many, it can be seen as time-consuming, both to produce, to process, and then you've got to have that part of depositing it, allowing it to go through the process. And for some people, they would rather just get the money immediately and straight into their bank account, and that way they don't need to do anything about it. Checks can be easily lost or stolen, particularly if it's gone in the post. From my own banking experience, we quite often would see customers coming in who had found a cheque in a jacket pocket that they had long since forgotten about, and could they still get it? Or the best one was when it had been through the washing machine, and was it still fit to enter the system? So, yeah, you don't have that problem with an electronic or a digital payment, and that way it makes it a lot easier for the consumers and the corporates to transact. But, no, there are cheques... They have a real strong place, and there's been a number of developments over the years, but not always viewed as being as secure as electronic payments because of the aspects we've just touched on. Electronic payments come with encryption. They come with transmission over secure networks. They come with more immediacy in terms of the transfer of value. And people like that. They like the security. They like the speed. They like the efficiency. And that, unfortunately, at times is to the detriment of the check.
SPEAKER_01:Yeah, but you know, I mean, it's really interesting, isn't it? The UK, you know, led with this first check at a London tavern, I believe. And, you know, so we brought that up, you know, we, the country, brought that to the industry. But Pay.UK is at the heart of bringing change. I mean, you know, real-time payments, faster payments, some of these changes, you're really driving them.
SPEAKER_00:Yeah, and faster payments has been around for about 15 years now. And again, it's almost hard to think of a time where you couldn't just tap a few keys and push a button and the payment went immediately. The old days, you were waiting for money to come into your account and you phoned your bank and it wasn't in. The answer was check again tomorrow. Whereas now we refresh the screen almost in a 30-second cycle until such times as we see the value in our account. So the world has moved on. The consumer is looking for more instant gratification. They're looking for more immediacy in their payment methods. And at Pay.UK, we're driving hard to make sure that we maintain the standards, we maintain the systems and the schemes that underpin the payments infrastructure in the U.K., And that we do so on a basis of making sure that there's the right level of choice for different consumers with different needs and who wish to transact in different ways and particularly ways that work best and suit them. Complementing the check, we've got the BACS payment scheme and BACS has been around for about 55 years or so. And most people know that from paying their direct debits and forgetting their salaries and their pensions paid direct into their bank account. And it does very much what it says on the tin. And Faster Payments gives us that immediate concept where you can tap your phone, tap your keyboard, and money will instantly move between accounts, either yours or between you and somebody else. So lots of different ways, lots of evolution still underway as we look to take the industry into the next chapter of digital payments, embracing concepts like open banking and much more cloud-based computing where it's driving greater efficiencies and different ways of working.
SPEAKER_01:It's amazing, isn't it? The story of cheques is quite an amazing one. Are there any other points you'd like to make, Dougie? Because it's a heck of a story, really.
SPEAKER_00:Yeah, I think probably to sort of champion the cheque for a moment, it's been part of our economy and the way we pay since the 1600s. and is still heavily relied upon, as we've touched on through the conversation today, Paul. Large sections of the community still see the cheque as something which is the cornerstone of their business or their personal way of paying. So it's important that we maintain that and it's important that we manage that, but utilise the benefits you get from today's industry, society and particularly technology to make sure that we can enable that in an efficient way and make sure it's got the right levels of security and is risk-free for the customers to use. There's a number of alternatives out there, as we've touched on, and customers who don't want that electronic or digital means still ultimately revert back to what they know best and where they feel safest and securest. And for that reason, the cheque will always have a place at this stage within the payments industry. Some countries are moving away. It's not something that's currently happening within the UK. But, you know, never say never, I suppose, is one of these things. We've seen the decline over the years, but it's still very much a loved payment method and one which we at Pay.UK are proud to keep processing and keep managing on behalf of the UK economy.
SPEAKER_01:Well, Dougie, thank you so very much. Some fantastic little facts in there. You know, five days, fast horse, that's my favorite one. Thank you so very much indeed for that. But really, thank you very much for your insight and all your comments. It's great to have you here today.
SPEAKER_00:Ideal. No, thanks, Paul. And as you say, I assume the check's in the post. Thank you, Dougie. Thanks a
SPEAKER_01:lot. Well, there you go. Checks. Or Czechs, as I said. Very popular still. Yes, they're in decline, but they really are the powerhouse in some countries. They've been going a long time, as we said, from 1659. They have some crazy history. How you write a Czech and the specifics of how you write a Czech are enshrined in various laws around the world. But least we forget, 360 years is a long time. to be able to write on the side of a cam or the side of a napkin. Anyway, I hope you've enjoyed that episode. Really big thank you to Diggy. And as ever, thank you for all your emails. If you would like to get in touch, please do so at bitesizepayments at gmail.com. And if I could ask you a favor, that would be to recommend this podcast to a friend. Thanks so very much. Take care. Cheers.