Thursday, October 27, 2016

Fintech Disrupts the Personal Cheque Book

When was the last time you wrote out a cheque? I asked few of my friends and relatives around. Almost all of them had a difficult time to recall when they last wrote a cheque.

As digital wallets become mainstream, the first casualty is the personal cheque book. Currently about 75% of consumers are using smart phones, it will be short time when users will completely stop using cheque books. The current trend lines points that by 2020, the percentage of bank customers using cheques will fall to nearly 0%.

If handled properly, this disruption is essentially a good one for the banks. When almost any kind of payment can be done electronically, Banks will save costs by eliminating cheques.

Figure-1: Digital wallets along with online eBanking tools such as IMPS, NEFT, RTGS (in India) are clearly is on way to replace personal cheques.

However, I don't think cheques will never go entirely extinct - at least in India. While it is technically feasible to make all payments electronically, there will be a small & shrinking set of customers who will still prefer to write out cheques - mostly out of pure habit or due technological challenges or due to fear of hacking. (My parents for example, will never get on to eBanking)

Eventually, digital wallets will replace all credit cards, debit cards and personal cheques.

Benefits for Banks

If banks can leverage this new technology, Banks can lower operational costs by eliminating branch operations of handling cheques and paying out cash.

Essentially banks will have to partner with digital wallet service providers or technology providers, and start their digital transformation into a pure digital online banking operations. This will help banks to lower operational costs and help compete with newer financial service providers.

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