Cheque clearing - why are we waiting?

By Sarah Modlock

03 May 2006

The well-worn phrase 'the cheque's in the post' is heard less often these days. Probably because we use far less of these paper promises. There were just over six million cheques issued each day in 2004, compared to 11 million a day in the peak year for cheque volumes, 1990. By 2014, numbers are expected to drop to around half their current volume, according to UK payments association, Apacs.

But while electronic payments and online banking play a increasingly bigger role in our finances, many of us still rely on cheques either regularly or occasionally. And along with every cheque paid into our account comes a minimum three-day wait for it to clear. Until now.

In a refreshing move, Lloyds TSB has taken the initiative and started paying its personal current account customers interest on cheques worth up to £1,000 from the moment they are paid in. Crucially, they will also get instant access to the cash and customers who are overdrawn will be able to reduce the amount of interest they are paying as soon as the cheque is deposited. Again, this applies up to a limit of £1,000 a day.

'Customers feel cheated when they pay in a cheque and don't earn interest straight away,' says Lloyds TSB director of UK retail banking, Terri Dial. 'From today, our customers stand to earn over 150 days' more interest and we invite people who are losing interest in their bank to switch to us. Listening, understanding and responding to what our customers want is how we plan to run our business,' she says.

Last year, Lloyds TSB customers alone paid in over 55 million cheques worth £32 billion. In an effort to better understand what customers want they surveyed 8,000 people - half customers of their bank and half who banked with the other big four clearing banks. Nine out of 10 people said they felt angry about the cheque-clearing process. Of course, customers will still be liable for any charges incurred if the cheque bounces following the normal clearing process but Lloyds TSB says that it is prepared to take on this risk as only a tiny percentage of cheques failed to clear each year.

Waiting game

Barclays is the only other big bank to honour cheques straight away, though it will not pay interest on the value until they have completely cleared, four days later. The clearing cycles for Nationwide, HSBC and Halifax also stand at four days, while Abbey, NatWest and RBS cycles take three.

Muted responses from rival banks indicate they are unlikely to follow Lloyds move any time soon. Some made sniping remarks that cheques were dying out and so it wasn't an issue. Perhaps they should try telling that to anyone who wrote or received any of the six million cheques a day last year. Other banks will probably wait to see how it plays out in the media and whether they get more grief about it from their existing customers.

Stuart Glendinning, managing director of moneysupermarket.com, the comparison website, said he was impressed by the move. 'I'm inclined to give them the benefit of the doubt on this one,' he said. 'You could argue it's a bit gimmicky, given that cheques are dying out, and it probably won't cost them very much. 'But Lloyds, to some degree, has been setting the pace in the high street when it comes to the current account market. Its current account plus pays 4%. There are conditions, and there probably are better products out there. But when it comes to the big four, it has been at the head of the field. This is another move in the right direction, and puts pressure on the others to follow suit.'

Are we there yet?

Cheques are not the only type of payment to be delayed. Electronic payments are just as bad. Last December, banks finally agreed on a technological platform to support the transfer of funds electronically between accounts and allow money to be moved on the same day instead of taking three days to arrive. However, it will take them up to two years to integrate it with their own IT systems so don't expect changes any time soon.

The National Consumer Council welcomes the move, but believes it is long overdue. Chief executive Ed Mayo says: 'It should have happened when the OFT announced plans to speed up electronic payment clearing last May. At the moment, a donkey could deliver cheques faster than banks put money into customers' accounts.' Pressure group Which? has repeatedly called for cheque clearing to take no more than two days. Cheques clear the same day in many European countries, including Denmark , Spain , Greece and Belgium . Mike Naylor of Which? says: 'The question is not whether cheque clearance should be speeded up, but why it has not already happened.'

At the end of this month the Office of Fair Trading will publish a report into ways the banks can speed up the cheque-clearing system. Lloyds TSB's decision comes a year after Mervyn King, the Governor of the Bank of England, stepped up the pressure on the clearing banks over cheque-clearing by pointing out that slow money transmission times were making Britain uncompetitive compared to other European countries.

If the Lloyds changes are partly designed to attract new customers from their rivals then fair play to them. In a high street where most people feel let down and treated like a number, they have dared to be different. So the gauntlet has been thrown down. Now let's see else they can do.