Comment: Will 2012 be the time to check-out of cheques and postal orders?
The Payments Councils plan was to phase cheques out by 2018 but when they were given a stay of execution in July it was mixed news for retailers.
The mixed reaction was because although cheques and postal orders represent only a fraction of payments, the costs of processing them are high versus other payment methods.
They are used by just a small number of consumers who do not have access to credit (the under-banked). And it’s a similar story with postal orders, which are used by people who do not have bank accounts (the un-banked). What link the two are the onerous costs to merchants of processing them.
For starters, they require retailers to have some sort of back-office infrastructure to handle these types of payments and also to run call centre facilities for dealing with these orders and as well as handling queries. This is because such payments are invariably related to orders made by phone.
And then there is the processing of the cheques or postal orders when they finally arrive through the post. This delay between the order being placed and actual receipt of the physical cheque/postal order causes great complications within retailers’ stock management systems.
Unlike e-commerce transactions made using cards, which can be processed immediately and the goods despatched shortly after, it is much tougher to deal with stock positions for an order that will not be posted out to the customer for a week or two after the actual purchase has been made.
This delay also poses a problem with retailers’ fraud management tools because customers’ delivery addresses might be within areas that the merchant is unwilling to deliver to as a result of the high levels of fraud (including bouncing cheques) in that post code area.
Although cheques and postal orders represent relatively low volume methods of payment, there has in fact been some growth in the level of postal order usage as merchants seek to avoid waiting for clearance on cheques.
This has undoubtedly been driven by the increased levels of trading being experienced on sites such as eBay and TV shopping channels like QVC and Ideal Shopping Direct by the un-banked and under-banked socio groups.
However, a downside with accepting postal orders is in subsequently dealing with refunds. This requires the retailer to issue a new postal order to these customers, which is significantly more time-consuming and costly than simply undertaking an electronic bank transfer – as is possible to card-paying and also cheque-wielding shoppers.
We fully understand that displacing cheques and postal orders for other forms of cash-alternative payments for card-not-present transactions is not exactly top of the agenda at this time of the year when retailers are focusing on the key Christmas sales period.
But in a few weeks’ time when we move into 2012 the pressure will truly be on to add incremental customers as well as reduce the costs of processing both new and existing customers. Retailers will have to consider all avenues in reducing costs and running their businesses with increasing efficiency.
Seeking out a more a suitable solution to accepting cheques and postal orders, while also continuing to attract those customers who prefer to pay by cash when buying goods online, via the television shopping channels, and from catalogues, should become a matter of urgency.
The attraction to retailers of using alternative cash payment types are obvious - they let customers effectively pay by cash while also stripping out lots of the costs and issues associated with cheques and postal orders. And there is the major benefit of such solutions providing ‘guaranteed’ payment so the risk of charge-backs to merchants is irradiated.
It’s surely something for retailers to put on their New Years’ resolution lists for 2012.
David Hunter is chief executive officer at Ukash
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