The paper cheque has outlived its usefulness and it's time to get rid of it, says a report from the C.D. Howe Institute, a public policy think-tank.
Author John Chant, professor emeritus of economics at Simon Fraser University in B.C., said the Automated Clearing Settlement System, which clears all Canadian cheques, would be much more efficient if it moved to digital payment methods.
Businesses could save between $1.6 billion and $4.4 billion annually if they used electronic services that linked their payments directly to their accounting systems, he said.
"It could be a system very similar to what I do now when I pay my bills, but the system is electronically linked to give instructions to the payments system and at the other end, the payment would come as an electronic message but it could be linked directly to an accounting system," Chant said in an interview with CBC News.
It would be like online bill payment, but would accommodate higher amounts to cover business transactions, Chant said.
Scotiabank estimates it costs anywhere from $9 to $25 to issue a cheque, when counting costs such as the cost of the cheques, employee time, distribution and mail and the cost to reconcile with electronic accounting records.
Canadians still write about one billion cheques every year and 46 per cent of them are written by businesses, the report said.
But the number of cheques used in Canada has been declining by about three to five per cent a year as people move to online payments, mobile payments and tools such as PayPal and electronic funds transfer.
Modernization under way
Cheque use by Canadians will likely decline over the next decade as new electronic payment systems become more popular, but there is no plan in place to get rid of them, according to the Canadian Payments Association, which operates the Automated Clearing Settlement System.
The CPA is engaged in consultations now to modernize the system, according to spokesman Geoffroi Montpetit.
Innovations like electronic funds transfer and cheque imaging are already speeding up the payments process, he said. There also are plans to to make it easier to integrate payments electronically into company accounting systems.
""We are consulting payment system users on new payment message standards that would enhance the amount of information that accompanies electronic payments such as Automated Funds Transfers for example. The new message standards will also facilitate straight-through processing, meaning there will be less need for manual intervention of payments throughout the payment cycle," he added.
But he said the CPA believes small businesses, charities and other small users would be disadvantaged by a wholesale move away from cheques.
An all-electronic system would be simpler, Chant argued.
Resistance to change
He predicts there will be resistance to a change like this.
There would need to be a simple bill payment alternative developed for older people who are used to paying by cheque — perhaps a means of instructing their bank how much to pay for utilities or rent, Chant said.
"There would need to be a substantial educational effort to convince people that the new systems are better," he said.
What's to stop it being more expensive than cheques? Just competition, Chant said.
Chant argues that cheques are cumbersome for both households and businesses and must go through a "torturous path" to be cleared. The writers send them to the payee, who must send them through a financial institution, who sends them to another financial institution before the funds are transferred and finally deposited.
Chant said the whole process could be simplified by moving to a "payer-push" system in which the payer of a bill sends instructions directly to a financial institution to pay electronically.
The financial institutions might be dragging their feet on changing to an all-electronic system because of the cost of the changeover, he said.
"I think they eventually will want the advantage of a more efficient system," he said.