Use Them Or Lose Them!

Around 300,000 HSBC customers find their cheque guarantee limit on their debit cards cut as a new measure to tackle cheque fraud and discourage heavy debts.

Customers could see a maximum cheque limit of £100 attached to their debit cards as opposed to the current £250 that most people have. However, debit card payments of up to £250 will still be guaranteed.

My mid-2011, all banks hope to have phased out cheque guarantees associated with banks.

In fact, most retailers no longer accept cheques as a form of payment for goods.

HSBC claims it has suffered from no particular problems of card misuse among its 10 million current account customers but says: “It is about reducing risk from a mechanism that allows a customer to continue to make purchases from their current account when they know they don’t have the funds or an approved overdraft.

“Customers can certainly still write cheques for more than £100, but the cheque guarantee only covers cheques up to that value.”

In the UK around 88% of all cheques already have a guarantee limit of £50 or £100.

Are Cheques Still Used Today?

The majority of HSBC customers whose cheque limit will be decreased are typically those who have asked for a larger guarantee limit in the past. Such people were warned last year that changes may be made when the banks moved debit cards from Maestro to Visa.

This changeover has been slowly taking place, in batched, since the beginning of the year.

The cheque saw its 350th anniversary since the day the first cheque was used. However, their use, by value, has been steadily falling since 1999.

They are still a popular method of paying bills to utility companies and paying tradesmen and such, but last year only £7.1 billion was spent using cheques in High Street shops and shopping online. This is just 3% of total spending.

On the other hand, the use of debit cards has increased greatly over the last few years.

One man says that guaranteed cheques are still useful however – “The problem is, I do very occasionally deal with a retailer or a restaurant which doesn’t take a credit of debit card.

“A restaurant along the coast that I use just takes cash or cheques – if I went in there with a family of four, £100 is not going to cover the bill.”

What Do You Think?

Are cheques outdated? Is the increase in the use of debit cards to do with financial safety since the introduction of Chip and Pin? We would love to know your thoughts and opinions. Please leave your comments here.

A report issued today by the finance industry has highlighted the further move away from traditional cheques, with credit cards and debit cards set to fight it out for the UK’s most popular form of non cash payment.  The recent decision by ASDA not to accept cheques as payment, for what they describe as “increased processing times” is perhaps another nail in the coffin of the traditional cheque payment system - a system often criticised for being too expensive and taking too long to complete.

The report showed that debit card spending was the most popular form of payment last year, showing an increase of some 14% to £195 billion.  Cheque payments were still in second place, but showed a 12% drop to £164 billion, as credit card payments stayed fairly constant at £126 billion.  Debit cards have enjoyed a real boost in popularity over the last couple of years, perhaps replacing the traditional cheque and reflecting the increase in “safe financial planning” by many looking to stay within their limits.

Even credit card debt has been falling, having hit a peak of some £58 billion in January 2006, before settling at £54 billion in May 2007.  Its seems that a growing number of consumers may well be forecasting payment difficulties if interest rates continue to rise, hence the substantial reduction in outstanding credit card debt.  The problem now is that those who cannot afford to pay off their balances in full will see substantial increases in their interest charges over the coming months.  The withdrawal of a number of credit card cut rate interest offers often indicates more interest rate rises to follow.

While it is encouraging to see debit cards increasing in popularity, thereby ensuring that consumers only spend funds which they have in the bank,  credit card debt is still at a very uncomfortable level.  When the crunch comes (as it surely will with interest rates set to rise higher) it is those with high rate outstanding debt who have the most to lose.