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Mobile Payments – A way of replacing cheques?

To encourage people to move away from using cheques, it's not enough to duplicate the characteristics of the existing payment methods, but we have use technology to add convenience and feedback to the new payment experience so they'll pay to use it.


Roland Tritsch in his Innolocity Blog post on mobile-payments, ask some reasonable questions regarding a couple of key characteristics of cheques that Mobile Payments will have solve, given that cash, cards cheques “work” and in order to replace them people will want the same capabilities from their new payment methods.

What mobile products could replace the cheque, given:

  1. Cheques can be given to people with no bank account
  2. Cheques enable you the payer to make a payment to the payee knowing only their name – “anonymous” payment.

The “unbanked” are a key target for the new payment methods, but there is a degree of conflict with the increased level of financial crime controls being imposed by goverments. So cheque have changed, in the UK anyway, as they are are now all “crossed” meaning they should/can only be paid into an account with the same name as the payee, so “Cash” can no longer be used as a payee.This requirement of tracability of funds transfer means that anonymous funds transfer will be inceasingly difficult, if not impossible. Eventually everyone will need to have an “account” in some form, even though it may not be a traditional bank account, and could be a PrePaid card number or a mobile number?.

Also, these days if you know a persons name then today you can find out their email address or mobile telephone number, and increasingly people are very reluctant to change them, and hand them out as fequenctly as their name. It is possible to imagine it the not so distant future where name, email and number are interchangable, and knowing one will let you find the other items. The mobile number is almost unique, operationally most readily managed and useful for mobile payments. But the relationship of the mobile number to the persons banking details will need to be standardised and managed at a national, then international level, by their bank. or similarly trusted body.

However, Cheque have other properties that are less obvious and harder to address:
  • They are a form of IOU. So a cheque may be written so it may only be presented some time in the future or could be returned.
  • They can be passed between individuals until the reach the named payee. For example, you may give your children a cheque made payable to their school.
How important are these, when balanced against the downsides:
  • Uncertainty of payment. When used for payments above that guaranteed by the accompanying debit card (usually £100-£250), the payee has no certaintly the amount will be transfered. This also requires the debit card details to be written on the back of the card.
  • Delayed access to funds. Typically the payee will have to wait up to 3 days for their bank to clear the cheque and the amount to appear in their account, unless you bank with LTSB who pay interest and credit it imediately for amount under £1000.
  • Effort to process. Cheque have to physically taken to the bank, this is inconvient for an individual, and expensive for a company (reconciliations, security, accounting, delayed payments, bounces, bank charges). It is also a sizeable cost over head for the banks.
So may be duplicating the payment methods of the past is not the way to go, better to look to the strengths provided by the new technology and social business models and what people today really value.
So what are the biggest value/business case drivers to Mobile Payments:
  1. Cost of convenience. There is a value in being able to make a payment, where ever you are to someone easily.
  2. Speed of transfer. Real time irrovocable transfers, as good as handing the payee cash. Funds direct to the payees account, available for use within seconds.
  3. Feedback loop of payments. Providing real-time payments information to all parties. The taxi driver knows he has the fare before you leave the cab.
  4. Security of funds. The funds safely transfered, no chance of being mugged or loosing the cheque.

The appeal of mobile payments, in the UK anyway, is limited by:

  • Established cards useage
  • Excellent PoS infrastructure (Debit, PrePaid, SpeedPay) and innovations
  • Spread of the internet to mobile devices blurring the boundaries of mobile payments

The goal will be devise customer payment product that blends valuable capabilities into a widely useable customer experience, before we see a dramatic reduction in the usage of cheques.

Posted in Banking, Payments
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6 comments to “Mobile Payments – A way of replacing cheques?”

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  2. […] Eventually everyone will need to have an “account” in some form, even though it may not be a traditional bank account, and could be a PrePaid card number or a mobile number?. Also, these days if you know a persons name then today you …[Continue Reading] […]

  3. This site uses the ClockWorkBlogger theme on WordPress.

    Interesting article you have Reasons to use DD rather than checks. Getting all employers over to electronic settlement has had a big impact in reducing check volume. I believe this became a huge push in the US after 9/11 when all the flights were grounded for 3 days and a lot of people didn’t get paid due to the amount of checks that need to be transported.

  4. Shailesh, Very interesting read. Would it not be possible to replicate the other likeable properties of a cheque like delayed settlement (stop payment window), passing on the instrument through carriers (authorization code for execution of a particular payment), etc ?

  5. Prashanth,
    You’re right these elements can be replicated and like a cheque would require a new scheme to facilitate and/or a central infrastructure. This would have to be balanced against the real value of these features.
    – Delayed/Future dated payments – remove the certainly of payment element, and holding the funds in some sort of escrow wouldn’t be an option with PSD.
    – Adding a authorisation code is an interesting idea, as a pass through, but what of the fraud risks, and why not just pay them directly.
    I think an initial simple scheme is the way to go.

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