3. THE CURRENT USE OF CHEQUES
• 960 million cheques are used to make payments in the
aggregate amount of $2,800 billion annually (2009 figures)
• Cheques are used in 4% of all payment transactions and
represent 16% of all payment values (2009 figures)
• 60% of all cheques are used by small‐ and mid‐sized
businesses, large corporates and governments
• Cheques are used to make 59% of all B2B payments in Canada
while the corresponding percentages are 84%, 44%, 15%, 9%
and 1% in Hong Kong, the US, Japan, the UK and Germany,
respectively (2010 figures)
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4. PROBLEMS ASSOCIATED WITH CHEQUES
• Settlement is subject to countermand, sufficiency of funds,
bankruptcy of the drawer and fraud
• Cheques involve settlement delays and potential delays in the
availability of the proceeds to the payee
• Cheques may be forged, altered, fraudulently endorsed,
mutilated, lost or stolen
• Above all else, cheques are inefficient: they involve manual
steps, keying in information, printing and mailing, physical
presentment and reconciliation of payments and invoices
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6. ELECTRONIC ALTERNATIVES TO CHEQUES
• Forms of payment cleared and settled by the Canadian
Payment Association:
– AFT Debits (pre‐authorized debits)
– EDI Payment Items
– LVTS Payment Messages
• Wire transfers through SWIFT or other electronic channels
• Credit and trade payment cards
• Emergence of the Immediate Fund Transfer (IFT)
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7. AFT DEBITS (PRE‐AUTHORIZED DEBITS)
• Payments initiated by the payor’s prior authorization that
result in a debit to the payor’s bank account and a
corresponding credit to the payee’s bank account
• AFT Debits are used to make 670 million payments in the
aggregate amount of $580 billion (2011 figures)
• Most frequently used for recurring C2B payments but can also
be used to make recurring and sporadic B2B payments
• Quicker settlement and better security than cheques but
payment remains subject to revocation by payor, sufficiency of
funds in payor’s account, bankruptcy of payor and
reconciliation of payments and invoices
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9. EDI PAYMENT ITEMS
• B2B credits carried out via electronic data interchange
• 2,5 million payments for an aggregate value of $160 billion
(2011)
• Quicker settlement and better security than cheques but
payment remains subject to revocation by payor, sufficiency of
funds in payor’s account and bankruptcy of payor
• EDI payments also involve investment in support computer
software and hardware and related operations expenses
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10. LVTS PAYMENT MESSAGES
• Irrevocable payment messages resulting in final and
immediately available credits to the payee’s bank account
• Mandatory for domestic payments in excess of $25 million
• Available only for payments greater than $50K
• 6,6 million payments for the aggregate value of $39 trillion
(2011)
• Better security than cheques but involve reconciliation of
payments and invoices
• LVTS payment messages also involve investment in support
computer software and hardware and related operations
expenses
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11. SWIFT FUND TRANSFERS
• Payment messages transiting through an encrypted electronic
messaging system
• Better security than cheques but SWIFT transfers are
revocable and involve settlement delays and potential delays
in the availability of the proceeds to the payee as well as the
reconciliation of payments and invoices
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12. CREDIT AND TRADE PAYMENT CARDS
• Branded credit cards and proprietary trade payment networks
• Payment subject to the availability of buyer credit, buyer credit
limits and chargebacks
• Payments also subject to fraud and involves the reconciliation
of payments and invoices
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14. TASK FORCE OBSERVATIONS
• 80% of small business payments are made by cheque because
there is no accessible, reasonably priced electronic payment
alternative
• Large businesses want the capacity to process invoices and
payments in real time but the existing infrastructure is unable
to provide this service
• «The Task Force is not proposing abandoning cheques
immediately or altogether. […] A reasonable goal is to
eliminate 80% of cheques by 2020.»
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15. TASK FORCE PROPOSALS
• Move to an electronic invoicing and payments system (EIP) to
replace paper‐based accounting systems and processes
• Establish a state‐of‐the‐art mobile payments system for
consumer
• Develop a robust digital identification and authentification
(DIA) regime to generate the trust necessary to embrace EIP
and mobile payments and alleviate concerns about fraud,
identity theft and system failures in online payments systems
• Create an inclusive, collaborative an flexible governance model
to protect the public interest
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16. THE EMERGENCE OF THE IFT
• The ability to make an immediate payment between bank
accounts does not exist today in the US – at least not a
convenient certain and low‐cost way
• The Federal Reserve Bank of Chicago is currently examining
the potential of IFT in the US with cooperation from industry
partners
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