Analysis: A paper-based replacement for cheques

David Ainsworth looks at whether a giro system with a tick-box for Gift Aid is a viable alternative

Cheques are to be abolished
Cheques are to be abolished

Richard North, the chairman of the Payments Council, told a Treasury select committee last week that the abolition of cheques would not go ahead unless a "paper-based alternative" was in place.

Charities might think this sounds like a lot of effort for little reward. What benefit could there be in scrapping one paper-based system and replacing it with another?

However, the abolition of cheques is inevitable. They use the complex and costly clearing system, which banks have said they will not continue to fund. Once that funding goes, cheques will become prohibitively expensive to use.

Sandra Quinn, director of communications at the Payments Council, says there is potential for a new paper system that is cheaper and easier to use, and also has measurable, definable benefits for both donors and charities.

"Cheque payment is quite a long-winded process, involving a lot of people," she says. "One possibility is to replace it with a system that is much more like an electronic bank transfer."

Many European countries, she says, use a credit system. You fill out a form and send it to your bank, identifying who you want to pay. The recipient's bank receives the money and sends a slip informing the person or organisation of the payment. Recipients are no longer involved and the role of their bank is much reduced.

European alternatives

A similar system is already used instead of cheques by 150 million people in eight northern European countries. Confusingly, it is known as a giro, although it is a completely separate instrument from the girocheque used to make benefit payments in the UK.

Quinn is at pains to stress this is only one possible alternative. However, it is clear the Payments Council sees major advantages in it.

One disadvantage, from the point of view of charities, is that the person making the payment would need to know the bank details of the payee, which makes spontaneous donations more difficult. Another is that it reduces the personal connection between donor and charity.

Quinn, however, thinks there is an opportunity for charities that will outweigh these concerns: the possibility of building Gift Aid into the system. "We're designing a new system," she says, "so charities can get in at the ground floor to help us work out how to maximise Gift Aid payments.

Pre-approved Gift Aid

"Perhaps charities could print their own giros, with their own information already filled in and with a Gift Aid box, which they could send out. Perhaps donors could request that their banks send them special giros that are pre-approved for Gift Aid."

A spokeswoman for the Charity Finance Directors' Group says there is still a need for caution but giros present "exciting opportunities for charities", particularly on Gift Aid. "We would like to see something like a declaration tick-box included on each slip," she says. "This is a step in the right direction."

Catherine Deakin, policy and public affairs officer for Help the Hospices, says the key element with any alternative is proper education for donors. "Any alternative would need to be well-communicated and would have to emphasise charitable giving," she says.

Deakin says cheques currently constitute an important means of building a personal relationship between hospices and donors. "We'd want to make sure that any new system could retain that personal element," she says.

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