Central Bank seeking to eliminate all check cashing activities by Dec. 2024

Noting the rise in digital payments preferences in The Bahamas and the rest of the world, the Central Bank of The Bahamas (CBOB) yesterday announced that is moving toward the strategic elimination of Bahamian dollar checks by December 2024.

In a strategy paper published yesterday, the Central Bank stated that a universal cutoff date to eliminate all check cashing activities is slated for sometime at the end of 2022, at which time only check deposits would be allowed until the complete elimination.

“Intermediate dates will be established for end-2022 and end-2023 to terminate acceptance or issuance of instruments of decreasing intermediate face values, leaving lower-value payments as the last to be eliminated. In this regard, it is expected that there would be universal preparations for these values to be settled through wire transfers, including flexibility around the existing limits maintained in internet banking platforms,” stated the paper entitled “Cheque Elimination – Benchmarking and Proposed Strategy”.

“A firm universal date should also be set to eliminate all check cashing activities, with payments only accepted for deposits after such cutoff. This universal cutoff is anticipated to be end-2022. Financial institutions will be allowed flexibility within their 

operations to set firm dates no later than the beginning of 2024, the final year of transition, to cease reordering of printed checks.”

The CBOB noted that consultations with banks, credit unions and other payment services providers has already begun.

Acknowledging that the move toward eliminating checks raising issues of financial inclusion, the Central Bank stated that it intends to develop regulations to require financial institutions to establish a basic savings account product for low-value, low-transactions customers, attached to a threshold number or value of cost-free incoming and outgoing transfers.

“While existing no-fee accounts are commonly offered for pensioners and students, the Central Bank proposes that this eligibility against an annual or monthly number and value of transactions, also be tied to a uniformed and researched position around economic means in The Bahamas,” the Bank stated.

As for enterprises that still make payroll transfers by checks, the bank stated, “On the consumer side, indications are that a fraction of individuals still receive wages in checks or in cash. In this subset, the access to bank accounts to receive the electronic transfer format is not universal.

“Interventions must therefore provide accessible alternatives for remaining enterprises to transition away from checks and provide the access for all recipients of payments to receive funds through electronic channels.”

The move toward eliminating checks comes as the Central Bank has pushed a digital transformation agenda in recent years, beginning with the creation of the country’s first central bank digital currency, the Sand Dollar.

The Central Bank noted that already the clearing of checks by the Bahamas Automated Clearing House had been steadily declining over the past decade, with 2020 showing the most notable shift away from paper.

“Taking 2020 into account, both cleared volumes and values contracted notably, due to the pandemic. More specifically, the number and value of checks cleared fell visà-vis 2011 at an annual average rate of 7.5 percent and 2.3 percent, respectively, with the pandemic year drop-off at 35.9 percent and 36.3 percent to 1.4 million and $4.6 billion, respectively. Conversely, over the decade period, electronic transfers (direct debits and credits) in the NACHA format rose steadily in number and value, by an average annual 12.5 percent and 24.9 percent respectively, reaching 3.1 million instructions valued at $4.2 billion in 2020.”

The CBOB noted that the move away from checks for consumers, while for the most part is based on convenience and speed, it also stems from concerns about security.

“Alternatives to checks have increased in attractiveness, due to factors such as efficiency, speed and reduced risk of fraud. For example, the length of time it takes to settle transactions can create challenges for both business and consumers, particularly in instances where transactions are time sensitive. Check fraud is also a challenge,” the bank states in its strategy paper.

“These relate partly to criminal forgeries, publicly disclosed at $3.2 million in 2020 – more than double in value and representing 52 disclosed cases – but likely significantly underreported. Check acceptance risks also surface due to instances of insufficient funds that leave commercial payees in the involuntary position of creditors. Such risks have helped propel businesses and the Bahamian public sector to reduce or eliminate the privately drawn categories of checks accepted for payments.”

The Central Bank noted that its next step includes the creation of a working group with sector stakeholders to identify legal issues around further transformation of the payments and settlements system, particularly for direct debits and credits. The bank is also planning to establish a working group for a public education campaign.

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source https://thenassauguardian.com/central-bank-seeking-to-eliminate-all-check-cashing-activities-by-dec-2024/