1. 4 reasons why businesses still love cheque books

4 reasons why businesses still love cheque books

The Finance Ministry has declined the rumour of cheque book ban for pushing digital transactions, saying that the government has no plans to scrap it. Here's why Indian businesses love their cheque books

By: | Published: November 24, 2017 3:45 PM
cheques case, banking cases, Cheque bounce cases in court, cheque bounce case, india, india news, financial express In August, there were cheque transactions worth Rs 6,224.34 billion, nearly three times more than debit card transactions and close to 10 times more than mobile wallet transactions. (Source: IE)

India is undergoing a massive digital push and a mere rumour of government withdrawing chequebooks created enough furore. And, why? Because businesses still love their chequebooks for transferring money. Sure, India is moving — slowly — towards cashless economy, but cheques continue to hold significance.

According to RBI data, in August, there were cheque transactions worth Rs 6,224.34 billion, nearly three times more than debit card transactions and close to 10 times more than mobile wallet transactions, despite digital transactions spiking in the post-Demonetisation era. Here’s why businesses still love chequebooks in the age of going digital:

Chargeless:

Whether it is digital transactions or other forms of the traditional financial instrument, there is a charge involved. Writing a cheque costs nothing.

Traditional:

Cheques have been an integral part of India’s payment landscape. Over the years businesses have developed a sense of trust and comfort with writing cheques. Moreover, options like securing payments due in future are available with post-dated cheques.

Secure:

Digital transactions do not come without the threat of Cyber risks. Cheques are safer, it is handed over someone and that someone gets the money in his account. It is natural for businesses to choose safer way especially when a large amount is involved.

Convenient:

Most importantly, in India, where a majority of the population is still struggling to adapt to the digital boom, especially in small cities and rural areas, writing a cheque is convenient than using a phone, entering the password, ensuring network strength, internet connection et al.

Though, cheques have their demerits too. While online transactions are quick, cheques may take 2-5 days to clear, but if it is safer, chargeless and convenient, why businesses would shift to another mode of payments, unless there is some incentive.

Pinky Khanna, Personal Tax expert at EY India, says, “Cybersecurity risks, protection against frauds and removing transaction charges from digital transactions are some of the most important steps that need to be taken before cheque books can be phased out…. Plus, educating the older generation and people in smaller cities remains key to make this a success.”

  1. Surendera M. Bhanot
    Nov 25, 2017 at 8:27 am
    The most IMPORTANT fact is that cheques can be issued POST DATED as well as the same can be withheld by simple instruction to bank, while digital transaction is instant and cannot be retracted once executed. This what the Business finds most convenient, without inviting Section 138A of the NIA
    Reply
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      pramkad
      Nov 24, 2017 at 9:00 pm
      another criminal idea of bjp ministers. What can you expect from the tughlaq ruling. Financials rapes on poor and middle class people after modi's govt. is right now happening in this country. Better to Withdraw the money in from the bank and close the accounts. Just little soft on financials raids and later you have more to expect after the elections. next time votes becomes fools, RSS will take over just to wait and watch.
      Reply
      1. R
        rohan
        Nov 24, 2017 at 8:46 pm
        cheque transactions worth Rs 6,224.34 billion, nearly three times more than debit card transactions ! Will any one believe in this statement of RBI ?
        Reply
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          bharti
          Nov 24, 2017 at 4:37 pm
          very useful and interesting.
          Reply
          1. C
            C P
            Nov 24, 2017 at 4:22 pm
            I do not know whether business loves cheque books or not but the author of the article loved them. Cheques can be stolen, misplaced and lost. Sometimes, you may write cheques and forget and when the payee presents it after a month your balance is less. It bounces. Cheques can be forged. They are not cheap. No one goes personally to collect cheques. You need to courier them.
            Reply
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              Anonymous
              Nov 24, 2017 at 7:22 pm
              I don't think you understand what all scenarios are simply not conducive to digital transactions (and let me tell you that I am a payments expert who has installed both RTGS by LogicaCMG and SFMS by TCS for NEFT at an MNC bank, so I know what I am talking about). Suppose I buy a flat for Rs. 1 crore, then should I send this amount by RTGS and then do the property registration? What happens if the seller does not turn up? Conversely will the seller accept registration and then payment of Rs. 1 crore? So this is a classic Delivery vs. Payment on the one hand and Payment vs. Delivery on the other. What I would do is to take a Demand Draft for Rs. 1 crore. If the seller does not turn up I get the DD reimbursed. At the same time, the seller can accept the DD knowing fully well it is 100 guaranteed. Currently this scenario is not available in digital domain - because this is a combination of a real-world contract and a payment for the contract. These need to be brought together
              Reply
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                Anonymous
                Nov 24, 2017 at 7:28 pm
                In continuation... we need a digital escrow account where the amount can be parked. If the contract fructifies, the escrow is released to seller. If the contract nullifies, then the escrow is closed and the buyer takes the money back. This is easily achievable via digital means, but the present architecture does not support digital contracts. They are simple payment mechanisms. This is just one scenario and there are many more. Ex. - I as a drawee would much rather put the burden on the payee to go and deposit the cheque with correct account number, etc. Why should I enter his IFSC, beneficiary account (or even his mobile number in case of IMPS / UPI), etc.? This is a big risk because there is no pre-payment validation of third party account - i.e. when I register a beneficiary, at that time itself the other bank should confirm that such an account exists (it is not difficult and has been done in many countries like Indonesia). As a business there are many more reasons...
                Reply
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                  Anonymous
                  Nov 24, 2017 at 7:36 pm
                  In summary, cheques cannot be done away with, especially for businesses, unless - (1) There is any easy way to enter beneficiary details (or beneficiary sends an authorised mechanism by which a payment can be made without entering laborious details like IFSC, account number etc.) (2) There is a way to validate beneficiary information with the third party bank BEFORE making the payment (3) There is a way to give post-dated transaction (easily supported by IT systems but for some reason not offered by banks) (4) There is a way to link digital contracts with digital payments so that end-to-end business cycle can be completed in one shot - example, this is already done for securities transactions (payment taken from bank A/C and shares credit to demat A/C) and international trade transactions (depending on the type, bills of lading etc. are given to bank and only then bank makes the payment)
                  Reply
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