Use Of Corporate Cheques Will Be Available No More By 2025

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Jul 28, 2023

Use Of Corporate Cheques Will Be Available No More By 2025

The article was published on 17 Jan 2023 and was most recently updated on 28 July 2023

Latest Update on Issuing Charges of Individual and Corporate Cheques

Before the elimination of corporate cheque books by 2025, seven banks have introduced issuing fees to be charged for Singapore dollar-denominated cheques starting 1 November 2023. These banks include DBS, OCBC, UOB, Citibank, Maybank, Standard Chartered and HSBC while the other banks will follow the same procedure earliest by 1 July 2024. Note that these charges on individual and corporate cheques will be of different charges depending on banks. More details will be updated later.

Today on 28 July 2023, the above new rules were set by MAS, considering a public consultation on the elimination of cheques proposal and a rise in cheque-processing costs, while the numbers of cheque usage across Singapore have been on the declining side. The statistical data according to MAS indicated that the decline has been about 70% between 2016 and 2022; from 61 million to 19 million.

Impacts on Cost of Cheque-Processing and More

The average cost of clearing a cheque is expected to reach between S$2 and S$6 so that cheque users will further be much lessened by likely another 70% by 2025. From 2016 to 2021, the average cost of clearing a cheque was maximum at S$0.40. Now you can clearly see what MAS is trying to achieve since banks will no longer be able to absorb these costs and in order to compensate the cheque-processing cost by charging more. This annoucement has been made non-disclosure to the public and thus the banks will put out needed information (i.e. for such fees) to users accordingly.

Additionally, although there is no specific timeline for implementing same plan for charging of US dollar-denominated cheques, plans have been made in the meantime. All these publications have sparked some concerning voices from the public related to use of post-dated cheques. Therefore, Association of Banks in Singapore (ABS) will be collaborating with banks to work on electronic deferred payment (EDP) as a solution - enabling a cashiers' order without cheques being needed. This new solution is set to be ready by 2025 and it will essentially leverage exisiting payments like PayNow and GIRO for transactions.

Whatever the new rules being stated, individual cheque users will still be able to use cheques for some time beyond 2025. In the future, likely in next year, this will be tackled so that elimination of all cheques will be phased out completely.

Introduction

Digitalization is the future and we all have to agree with it at this moment. There has been the uptrend of electronic payments and almost everywhere in Singapore, digital payment infrastructures are of advantage for encouraging a cashless society.

There are many benefits of digitalisation, including convenience, safety and accessibility.

Transition From Cheques To E-Payment Methods

Singapore aims to become chequeless by 2025. This means that there will be no more use of corporate cheques. The government has already aimed that they will stop issuing cheques from 2025 onwards. Instead, they will encourage businesses to make payments digitally through company's bank accounts or credit cards.

The reason behind this move is to reduce the cost of printing and distributing cheques. It also helps to cut down on the amount of paper used. A great force of sustainable practices is going to play a vital role in the near future. In addition, cash withdrawals have declined by over 30 percentage since 2010.

Singapore Central Bank's plan to eliminate paper currency but not go cashless has been met with mixed reactions from the public; especially from a lot of citizens who still want to carry money as physical assets. This maybe true for individuals, however, business owners and SMEs have mostly adopted e-payment services for any kinds of business payments and activities along the e-payment value chain including salary issuance, inventory purchases, etc.

As the government and DBS Bank collaborated to shaping Singapore's Smart Nation and achieving digitalization of tax payouts and collections, businesses were encouraged more to go cheque-free since late 2019 with PayNow introduced.

Since the launch of 'PayNow' as one of the digital payment solutions (now it's an optional with other online payment methods/applications) for businesses resulting in a considerate (more than 20 percent) reduction in cheque volumes, that's not a surprise though. In Singapore, the acceptance of digital transactions among citizens is well-established. As SMEs account for 99% of all local firms, encouraging them to adopt digital payments is essential for Singapore's digital agenda to succeed.

With the drastic rise of cashless payment methods today, here we have alternative e-payment solutions such as GrabPay, AliPay, Shopee Pay, WeChat Pay and many more.

One of the most effective ways to promote this change is to collaborate with statutory bodies like IRAS, a smart move initiated by DBS Bank, which are paving the way by digitalizing channels for payments and collections throughout their range of services.

With the development of next phase by the two parties, DBS Direct Debit Authorisation (DDA) API is made available. For example, as an SME, when fulfilling tax obligations, the business can set up a GIRO account and; through IRAS' e-Stamping Portal, SMEs can perform their stamp duty payments and promptly receive a stamp certificate here. You may apply for DBS DDA here.

About PayNow In Digital Context

PayNow is a proxy addressing service which enables corporates and individuals to link a proxy to a bank account, or Virtual Proxy Address to an e-wallet. The proxies available for individuals are mobile number and national identity document number (NRIC number or FIN), and the proxy available for corporates is their Unique Entity Number. After a payer successfully looks up a payee’s account details on PayNow by entering a proxy, the payment will be sent through FAST or GIRO to complete the transaction.

Track of payee details, such as NRIC number, address, contact information, and bank account details can be viewed at the time of payment. It saves a lot of time when it's not cheque-related! And cash management is no more an issue when we go digital and electronic payment modes are within a grasp of a hand.

There Is A Downside But The Benefits Outweight The Costs

The downside of going cashless is that there will be less physical cash circulating in the economy. However, if we look at the bigger picture, the benefits outweigh the costs.

Cashless payments reduce the need for banks to hold large amounts of cash, which reduces the risk of theft and loss. They also help keep the financial system safe from cyber attacks.

In addition, cashless payments allow consumers to make purchases without having to carry around large sums of money. This helps people save time and energy.

As for businesses, they can use the same technology to automate payroll and bookkeeping processes. In terms of cost implications, while some companies have been slow to embrace new technologies, others have found that adopting these systems has reduced operating costs.

A New Form Of Digital Singapore Dollar: Purpose-Bound Money (PBM)

MAS has rolled out the very first out of four trials issuing "purpose-bound money" (PBM) in the form of commercial digital vouchers to be redeemed at participating merchants at the Singapore Fintech Festival in collaboration with public and private organizations. A total of 5,000 chosen participants will receive these digital vouchers with a programmed system which will be usable for specific purposes: online purchases from participating merchants as well as for government payouts according to implications made by MAS.

PBM recipients only would require their favorite wallet applications to complete the transactions.

Users will basically continue to utilize PBM in the same manner they currently use electronic payments. However, because their money is managed by smart contract, they can only be used when the prerequisites are met.

The adoption of PBM by merchants ensures that they can get paid right away as a transaction is completed.

As simple as it is for users, when a merchant now claims a voucher, they go through a process that includes making sure the amount they receive from the voucher issuer matches the number of vouchers they have received from customers.

Here you have to be mindful that cryptocurrencies like bitcoin and ethereum are different in ways that they operate outside of government regulatory structures on a global scale. PBM is initiated within government regulatory structure that's for sure.

Is your SME ready for Singapore's Smart Nation yet?

Read also: 2021 Edition: PayNow Corporate – A Complete Guide on What You Should Know
Read also: Five Reasons Why SMEs Should Use a Corporate Credit Card 2020
Read also: Corporate Income Tax Filing Season 2020: 6 Things SMEs Need To Know

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