The Bank of PNG (BPNG) has issued a deadline for the use of private sector cheques in the country. By 31 December 2023, all major banks regulated by BPNG will cease issuing or accepting private cheques1. This policy change is part of the National Payments Strategy Developments (NPSD) that aims to foster greater financial inclusion with safe and convenient digital payments1. However, this decision might create a bottleneck for the cash and cheque dependent economy and a policy gap for not adequately capturing and creating solutions for the challenges posed by this change.
Why discontinue private cheques?
According to BPNG, cheques are considered a higher risk for fraudulent use and cause longer processing times and inconvenience when dishonoured1. The BPNG has reduced the cheque dishonour period to three business days from the previous four days in 20162, but this is still longer than the same day electronic payments enabled by the Kina Automated Transfer System (KATS) that was launched in 20132. The BPNG is urging customers to use mobile and internet banking to leverage the convenience and efficiency of these technological innovations, as they eliminate the need for additional costs incurred when travelling to a bank or ATM to access cash or deposit cheques1.
What are the alternative solutions?
The BPNG has suggested some alternative solutions for customers who currently use private cheques for their transactions. These include:
- Business Internet banking
- Mobile banking
- Business Visa Debit Cards
- Corporate Visa Cards – where businesses can operate it more or less like a petty cash float with a limit on a monthly basis.
These solutions are expected to lower the cost of payments to customers and provide easier access to funds without cash handling or waiting for cheque clearance1.
What are the challenges and impacts?
However, not all customers might be ready or willing to adopt these alternative solutions. Some of the challenges and impacts that might arise from the discontinuation of private cheques are:
- Most businesses that deal with large cash based customers write pay cash cheques to their customers so they can go and cash the cheques themselves at the banks. The current alternative solutions do not address that fully. This will result in excess cash handling fees, large cash movements by businesses with high cash concentration risk.
- Some customers might not have access to reliable internet or mobile network coverage, especially in rural areas, which might limit their ability to use online or mobile banking services.
- Some customers might not have sufficient financial literacy or digital skills to use online or mobile banking services, which might require more education and support from the banks and the government.
- Some customers might have security or privacy concerns about using online or mobile banking services, which might require more assurance and protection from the banks and the government.
- Some customers might have a preference or habit of using cheques, which might require more incentives and persuasion from the banks and the government.
How does PNG compare with other countries?
The use of cheques has been declining in many countries around the world, especially in Europe, where some countries have implemented policies to discourage or abolish the use of cheques due to its considerable social costs and risks3. According to a survey conducted in 2018, consumers were most likely to write a cheque during purchases in the United States, where 56 percent of respondents had done so within one month. British respondents were least likely to write a cheque, with less than a third having written one in that time. In France, where over 1.58 billion cheques were written in 2019, the highest number in Europe, there has been a proposal to impose a fee on cheque usage to reduce its popularity.
What are the recommendations?
The discontinuation of private cheques by BPNG is a significant policy change that will affect many customers and businesses in PNG. While it has some potential benefits in terms of efficiency, security and inclusion, it also poses some challenges and impacts that need to be addressed. Therefore, some recommendations are:
- The BPNG and the government should consider the impact of this decision on the people and businesses who rely on cheques for their transactions and provide more support and education on the alternative payment options.
- The BPNG and the government should ensure that there is adequate infrastructure and regulation to enable online and mobile banking services across the country, especially in rural areas.
- The BPNG and the government should monitor and evaluate the implementation of this policy change and make adjustments as needed to ensure a smooth transition for all stakeholders.
- The BPNG and the government should communicate clearly and frequently with the public about this policy change and its rationale, benefits and challenges.
- BPNG should encourage development of informal financial services solutions and tech platforms.
References
1: BPNG to discontinue private sector cheques – Post Courier
2: Notice on Reduction of Cheque Dishonour Period Four (4) to Three (3) Days | Bank of Papua New Guinea (PNG) Port Moresby, Papua New Guinea
3: The Use of Cheques in the European Union: A Cross-Country Analysis | SpringerLink