Termination of corporate cheques by MAS might pose inconvenience to Malaysia’s business community

MALAYSIA: The Monetary Authority of Singapore (MAS) announced on 28 July this year that all corporate cheques will be eliminated by end-2025 while individuals will still be able to use cheques for a period after 2025.

This move will affect the Malaysian business community as Malaysian business owners are used to issuing cheques, especially small businesses, said Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) treasurer Datuk Koong Lin Loong.

Koong said using the electronic transfer (e-transfer) of money for a small amount or for staff salary is not a problem but it will be difficult when it involved larger amount.

“Cybersecurity is one of the concerns because electronic transfer is hard to control. You can pass a physical cheque to a person.

“But when it is paid via e-transfer, they do not know who will have access to the information. When I transfer I don’t know if it reaches the person I intend to send to,” Koong told Gutzy Asia.

He emphasised that hybrid payment methods should be maintained, both e-transfer and cheque payment.

“For instance, if a company wants to make a post-dated cheque to pay someone in a month’s time. They can pass a physical post-dated cheque as a promise.

“If only can pay via e-transfer, we have to do a lot of work for Electronic Deferred Payment (EDP) on the month we promise the payment.

“EDP is not commonly used by Malaysian businesses, it is one of the payment features,” said Koong who is also Malaysia’s Small and Medium Enterprises (SMEs) Committee chairman.

In the announcement, MAS noted that it would further study the use of cheques by individuals, and develop appropriate initiatives to assist remaining individual cheque users in their transition to alternative payment methods such as PayNow, FAST, GIRO, and MEPS+.

Koong said Malaysian businesses are not familiar with Singapore’s payment methods, but those who deal with Singapore businesses regularly.

“One of the challenges anticipated is, for company, this move will delay big-ticket transfer because of the bureaucracy involves.

“We hope MAS can create more awareness to facilitate the process for cheque users. For example, they can create a hotline that companies’ finance or accounting departments can call 24/7.

“Also, banker cheques should remain for certain types of transfer because not all payments are convenient for e-transfer,” he said.

The average cost of clearing a cheque was SG$0.40 in 2021. This is expected to increase to up to SG$6 by 2025 with lower cheque volumes.

Ian Yoong Kah Yi, a former investment banker and high-net-worth private investor, stated that MAS’s move benefits environmentally conscious companies.

“Digital payment is proven to have less of an impact on the environment than the traditional paper-based cheque payment option.”

“An example is sustainable payments, which are an excellent choice for businesses that want to align with their consumers to prioritise sustainability.“”

With cheque usage in Singapore falling steadily, the cost of processing each cheque has been rising.

“To recover these cheque processing costs, banks will therefore commence charging for Singapore Dollar-denominated cheques by 1 November 2023.”

“MAS is working closely with The Association of Banks in Singapore (ABS), the financial industry and government agencies on a series of initiatives aimed at transiting cheque users to e-payment solutions.

“This will include a specific e-payment solution that can serve as an alternative for post-dated cheques.  This will provide greater convenience to corporates and individuals,” MAS said in the statement.

Annual cheque transaction volume has declined by almost 70% from 61 million in 2016 to less than 19 million in 2022, alongside growing adoption of e-payments by both corporates and individuals.

With the fixed cost incurred in cheque clearing, the average cost of clearing a cheque has quadrupled since 2016 to $0.40 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 $2.00 and $6.00 by 2025.

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.

“In a consultation paper published on 2 November 2022  (704 KB), MAS and the Payments Council proposed a roadmap to terminate the cheque truncation system (CTS) and transit all users out of usage of cheques.

“The proposals received significant support as well as useful feedback from both the financial services sector and business communities.

“MAS will take this feedback into account and work with ABS on the following key measures to facilitate the transition to zero corporate cheques by end-2025,” it said.

ABS will work with the Domestic Systematically Important Banks (D-SIBs) to build an EDP solution to allow users to make a deferred payment or issue a cashiers’ order, without the need for cheques.

The EDP solution will leverage on existing payment solutions like PayNow and GIRO and be ready by 2025.

Banks will cease the issuance of new chequebooks to all corporates in 2025, after the launch of the EDP solution.

The D-SIBs in Singapore will commence charges for SGD-denominated cheques issued by both corporates and individuals by 1 November 2023, while other banks will do so by 1 July 2024. Charges for SGD-denominated cheques deposited by corporates and individuals will be implemented in phases . The charges will vary among banks**.**

Further details on the initiatives are set out in the response to the public consultation, which may be viewed at this link.

MAS addressed Singaporeans’ concerns on the said issue in an announcement today (21 Aug).

“We thank Mr Paul Chan Poh Hoi and Mr Hariharan Gangadharan for their letters (“Don’t penalise bank customers for cheques”, 11 August 2023 and “Banks should work towards cutting cost of clearance system”, 15 August 2023). Mr Chan and Mr Gangadharan have raised concerns regarding banks charging a fee to process cheques from 1 November 2023.

“Banks generally have not been charging customers the cost of clearing cheques. However, this is no longer tenable with the rising cost of cheque clearing on the back of a sharp decline in the volume of cheques in recent years.

“Cheque volumes have fallen by almost 70% between 2016 and 2022, as payment users shifted significantly towards digital payment channels. This shift away from cheques to digital payments will continue as more financial institutions and businesses offer secure and simple payment solutions to their customers through PayNow and eGIRO. By 2025, larger retail banks will also enable their customers to make deferred payments digitally,” it said.

It added, cheque clearing expenses comprise variable costs of issuing and clearing cheques, and fixed costs to run the central cheque clearing infrastructure. With falling cheque usage, the fixed costs are distributed among fewer cheque transactions.

“Each cheque becomes more costly for banks to clear, and cheque clearing will increasingly be an inefficient use of industry capital and resources over time.

“Charging for cheque usage that more accurately reflects processing costs enables customers to make informed choices as to how they transfer funds. Cheque users have the option of transitioning to cheaper and more efficient means of fund transfers like FAST and Inter-bank GIRO, as the industry prepares to retire the cheque truncation system in the future.

“We recognise that some businesses and customers may have difficulties and challenges in moving away from cheque usage. The Monetary Authority of Singapore is working with the banking industry to develop solutions for customers who are unable to adopt alternative payment methods,” it added.

The proposals for these solutions and the timeline for the termination of the cheque truncation system will be published in a consultation paper next year, it said.