Cheque values fall to four-year low as digital transactions rise

Cheque volumes and values have continued to fall, but banks continue to offer the service, arguing that many businesses still hold onto them since they provide a paper trail that is crucial for record keeping and auditing purposes.

Photo credit: File | Nation Media Group

The value of cheque transactions fell 15.1 percent to Sh182.25 billion in June, nearly matching the level last recorded in a similar month in 2020, as businesses and individuals switched to digital deals to lower the risks of contracting the Covid-19 virus through physical contact.

Data from the Central Bank of Kenya (CBK) shows that the decline  from Sh214.76 billion posted in May marks the second consecutive month that the value of cheque transactions has fallen amid continued growth in digital transactions.

Cheque volumes and values have continued to fall, but banks continue to offer the service, arguing that many businesses still hold onto them since they provide a paper trail that is crucial for record keeping and auditing purposes. They also offer flexibility in terms of post-dating payments and managing cash flow.

In the first six months of the year, the value of cheques stood at Sh1.263 trillion, down Sh5.68 billion from Sh1.268 trillion in the same period last year.

The value of cheques dropped below Sh3 trillion in 2010 when it declined by 45.7 percent to Sh1.81 trillion from Sh3.333 trillion in 2009. The figure then peaked at Sh2.64 trillion in 2015 before Covid-19 disruptions brought it down to below Sh2.6 trillion.

The falling allure of cheques has come on the back of digital transactions gaining popularity. In the half-year to June, mobile transactions grew by 18.4 percent or Sh689.8 billion to Sh4.43 trillion, further widening their gap with that of cheques.

Banks have moved to keep the cheques relevant by cutting the settlement times and even reducing the fees involved. This is part of the interventions to keep the product active amid the global decline that has seen some countries phase it out.

Kenya Bankers Association (KBA), for instance, last year announced an upgrade on the automated clearing house system, a platform used by banks for electronic fund transfers and cheques. 

The upgrade cut the cheques processing time across different banks to just one day, down from the previous average of three days.

In 2013, lenders cut the clearing time for cheques within the same bank to one day from the previous two days in a bid to reduce the cost of doing business and also fend off growing competition from mobile phone-based payment systems.

CBK had said in the 2022-2025 national payment strategy that the paper-based payment channel needed reforms to align the automated clearing house with an emerging global practice that is marking a shift away from cheques.

In Africa, the CBK cited the example of Namibia and South Africa, abandoned cheques in favour of electronic payment methods in 2019 and 2021 respectively.

The South African Reserve Bank cited reasons such as lengthy processing periods, restricted acceptance, fraud and limited education and protection for the consumer when it phased out cheques. 

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.