The Monetary Authority of Singapore (MAS) today announced that all corporate cheques will be eliminated by end-2025 whilst individuals will still be able to use cheques for a period after 2025.
Due to the continued adoption of digital payment methods, cheque usage in Singapore has been falling steadily, with annual cheque transaction volume having declined by some 70% from 61 million in 2016 to less than 19 million in 2022.
"Our instant payments volume in Singapore has grown 22% year-on-year and we have seen a reduction in cheque usage here by 13%. We launched SPRING by Citi, allowing corporates to collect via cards, PayNow Corporate and dynamic QR collection capabilities, replacing traditional methods like cheques. Similarly, our corporate clients are able to effect payments via both FAST and PayNow," says a spokesman from Citi Singapore.
With the fixed cost incurred in cheque clearing, the average cost of clearing a cheque has quadrupled since 2016 to 40 cents in 2021. Most banks have to-date been subsidising the cost of cheque processing. But if cheque volumes fall by a further 70% by 2025, the cost of clearing a cheque is projected to increase to between $2 and $6 by 2025.
As such, banks will no longer be able to absorb these costs and will have to reflect the cost of cheque processing in their charges to their customers.
To help ensure a smooth transition post-2025, the Association of Banks in Singapore (ABS) will work with the Domestic Systematically Important Banks (D-SIBs) to build an electronic deferred payment (EDP) solution to allow users to make a deferred payment or issue a cashiers’ order, without the need for cheques and as an alternative to post-dated cheques.
Kanv Pandit, Group Managing Director APAC of banking solutions at FIS is in full support for the initiative.
"Driven by Singapore’s real-time payment scheme (FAST), account-to-account (A2A) payments in Singapore is projected to grow 53 percent to over US$1.5 billion ($1.9 billion) by 2026 – as shown by Worldpay from FIS’ 2023 Global Payments Report. Real-time payments replace a dated payments infrastructure, resulting in benefits to all ecosystem players. Real-time processing reduces operational risks, such as data entry errors that can increase costs and impair profitability. The move by MAS to phase out corporate cheques is a welcomed move amidst new payments innovation, and we look forward to the new EDP solution that is being developed," says Pandit.
The EDP solution will leverage existing payments solutions like PayNow and GIRO and will be ready by 2025.
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Banks will cease the issuance of new cheque books to all corporations in 2025, after the launch of the EDP solution.
At present, D-SIBs in Singapore have already begun commencing charges for SGD-denominated cheques issued by both corporates and individuals, due to be in complete effect by Nov 1, while other banks will do so by July 1, 2024.
A spokesperson from DBS Bank echoes the statement: "In line with these measures, DBS will implement charges for SGD-denominated and local USD-denominated cheques issued by individuals starting 1 November 2023. For SGD-denominated and local USD-denominated cheques issued and deposited by corporates, fees will apply on the same day. More details will be shared with customers, ahead of the commencement of the charges."
In the midst of the transition, the respective banks will be reaching out to their customers who have yet to convert to digital payments.
The central bank will also further study the way individuals use cheques and develop initiatives to assist such users to transition to alternative digital payment methods like PayNow, FAST, GIRO and MEPS+. MEPS refers to MAS's Electronic Payment System, the central bank’s real-time gross settlement system.
A second public consultation will be conducted in 2024 to set out the initiatives and timeline to eliminate cheques in the system.
Sunny Quek, OCBC's head of global consumer financial services, understands the oncoming change and looks forward to ensuring a smooth transition for the bank's customers.
“Even as cheques are being phased out, we have been heartened by digital adoption rates here, which have risen in tandem with Singapore's digitalisation push. In the first half of 2023, 97% of OCBC's consumer financial transactions were performed digitally. Meanwhile, the number of digital app users have almost doubled over the last five years. Many of our customers have already moved beyond cheques for their banking needs. Still, it is important to us that no one is left behind in our digitalisation journey. To that end, we are updating our OCBC Digital Silvers Programme curriculum to help elderly customers who use cheques prepare for the change," says Quek.
