Cheque

• 1. Introduction

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  A merchant in the ninth century could walk into a bank in one country and cash a sakk drawn on his bank in another country, all without carrying a single coin. The cheque, a document ordering a bank, building society, or credit union to pay a specific amount from one person's account to another, has roots that reach back at least that far. It is a negotiable instrument built on a simple premise. The person writing it, the drawer, instructs their bank, the drawee, to pay a named payee. For most of the twentieth century it was the dominant non-cash way to move money. Billions were issued every year, peaking in or around the early 1990s, before electronic systems began to push it aside. How did a paper order survive across so many centuries and so many empires? Why did it conquer the modern world only to start vanishing within a few decades? And why does it still cling to life in places like France, the United Kingdom, and the United States while disappearing entirely elsewhere? The answers run through Persian poets, Lombard Street taverns, and a Senegambian economy measured in cattle.

• 2. Roots In Empire And Trade

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  In India, during the Maurya Empire from 321 to 185 BC, a commercial instrument called the adesha circulated, an order on a banker asking him to pay the money of the note to a third person. The ancient Romans are believed to have used an early form of cheque known as praescriptiones in the 1st century BC. Each version solved the same problem, letting trade happen without hauling gold from place to place.

  Beginning in the third century AD, banks in Persian territory began to issue letters of credit termed cak, meaning document or contract. The cak became the sakk later used by traders in the Abbasid Caliphate and other Arab-ruled lands, where carrying a paper sakk proved safer than carrying money. The Persian poet Ferdowsi used the term cheque several times in his Shahnameh when referring to the Sasanid dynasty. Ibn Hawqal, living in the 10th century, recorded the use of a cheque written in Aoudaghost worth 42,000 dinars.

  In the 13th century, the bill of exchange was developed in Venice as a legal device allowing international trade without carrying large amounts of gold and silver, and its use spread across Europe. In the early 1500s, people in the Dutch Republic began depositing money with cashiers who held it for a fee. Competition drove those cashiers to pay anyone bearing a written order from a depositor, keeping the note as proof. In the early 1600s, the Fula and other peoples of Senegambia used cheques valued in cattle, where the herdsman keeping the animals acted as the bank, the place where wealth was stored.

• 3. England Builds The Machine

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  One of the earliest known cheques still in existence was drawn on Messrs Morris and Clayton, scriveners and bankers in the City of London, dated the 16th of February 1659. These were handwritten and called drawn notes, because they let a customer draw on funds held in an account and required immediate payment. By the 17th century, bills of exchange were already being used for domestic payments in England.

  In 1717, the Bank of England pioneered the first use of a pre-printed form, printed on cheque paper to prevent fraud, with customers attending in person to obtain a numbered form from the cashier. The suppression of banknotes in eighteenth-century England further pushed people toward cheques. Daily cheque clearing began around 1770, when bank clerks met at the Five Bells, a tavern in Lombard Street, to exchange all their cheques in one place and settle the balances in cash. That gathering became the first bankers' clearing house. Provincial clearing houses followed across the UK, in cities including Birmingham, Bradford, Bristol, Hull, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham, Sheffield, and Southampton.

  The Commercial Bank of Scotland is thought to have been the first to personalize customers' cheques, in 1811, printing the account holder's name vertically along the left-hand edge. In 1830 the Bank of England introduced books of 50, 100, and 200 forms and counterparts, bound or stitched, a format that became the common way to distribute cheques. Across the Atlantic, the Bank of New York began issuing cheques after Alexander Hamilton established it in 1784, and the oldest surviving complete American chequebook, from the 1790s, was later discovered by a family in New Jersey.

• 4. Law Paper And Magnetic Ink

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  The UK passed the Bills of Exchange Act 1882, and India passed the Negotiable Instruments Act, 1881, both covering cheques as countries formalized the rules in the late 19th century. In 1931, the Geneva Convention on the Unification of the Law Relating to Cheques tried to simplify cross-border use. Many European and South American states joined, along with Japan, but the US and members of the British Commonwealth did not, so cheques remained very difficult to use across borders.

  In 1959, a standard for machine-readable characters, MICR, was agreed and patented in the US for use with cheques. This opened the way for the first automated reader and sorting machines, and as automation increased, the handling of cheques changed dramatically. The machine-readable routing and account information sits at the bottom of the cheque, where the US reserves a strip about 16 mm deep for MICR characters only. Because those characters are now scanned optically rather than magnetically, cheques can be printed on ordinary home and office printers and captured by ATMs and mobile cameras.

  A cheque carries four main items: the drawer whose account is drawn, the payee to be paid, the drawee bank where it is presented, and the amount in a stated currency. The amount is customarily written in both words and figures to make fraudulent alteration harder, though writing it in words is not a legal requirement. A cheque may be crossed with two parallel lines, restricting it so the funds must be paid into a bank account, and the words account payee can lock payment to the originally named person alone.

• 5. From Peak To Retreat

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  Cheque guarantee cards arrived in 1969, letting a retailer confirm a cheque would be honored at the point of sale by checking the drawer's signature against the card and writing the card number on the back. Those cards were generally phased out and replaced by debit cards starting in the mid-1990s. Most countries saw cheque volumes peak in the late 1980s or early 1990s, after which electronic methods took over.

  From the mid-1990s, many countries enacted laws allowing cheque truncation, converting a physical cheque into electronic form for transmission to the paying bank or clearing house, which cut the cost and time of physical presentation. In 2002, the Eurocheque system was phased out and replaced with domestic clearing systems, and several countries used the moment to begin abandoning cheques altogether. As of 2010, many countries have either phased out cheques or signaled that they intend to.

  The scale of the decline is stark in the numbers. In October 2023, the average American wrote just over one check that month, according to the Federal Reserve Bank of Atlanta, with an average value of $504, against an average of 60 checks annually back in 2000. Being paper-based, cheques are costly for banks to process compared with electronic payments, so banks in many countries now discourage them by charging fees or making alternatives more attractive.

• 6. A Map Of Disappearance

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  France remains well ahead of its European counterparts, with an estimated more than 1 billion cheque payments made there in 2020, compared with under 100 million in Italy, the next highest. In the United Kingdom, France, and Ireland, cheques continue partly because cheque payments are free for the consumer, though all three have declined sharply since 2000. The UK Payments Council announced in 2011 that cheques would continue as long as customers needed them, reversing an earlier target to phase them out by 2018.

  In many Asian countries cheques were never widely used, except in India where usage was prevalent. By 2009, consumer cheque usage was negligible in Japan, South Korea, and Taiwan, and many developing Asian countries leap-frogged the chequing system entirely with electronic payments. The United States relied heavily on cheques due to the convenience for payers and the absence of a high-volume system for low-value electronic payments, with an estimated 18.3 billion cheques paid in 2012 worth $25.9 trillion. Canada's use is lower and falling fast at the urging of the Canadian Banking Association, with the Government of Canada noting it is 6.5 times more expensive to mail a cheque than to make a direct deposit.

  In Australia, the value of daily cheque transactions fell from A$25 billion in 1994 to only A$5 billion by 2004, and the country plans to remove cheques by 2030. New Zealand offers the clearest endpoint. In 1993, cheques made up over half of national banking transactions, an annual average of 130 per person, falling to nine per cent and 41 per person by 2006, before being phased out completely in 2020. Kiwibank stopped accepting them on the 28th of February 2020, ANZ on the 31st of May 2021, and ASB was the last major bank to follow on the 27th of August 2021.

• 7. Variations On A Theme

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  A cashier's check, the term used in the US, and a banker's draft, the term in the UK and most of the Commonwealth, are issued against a financial institution's own funds rather than an individual account, providing a guarantee that it will be honored save for failure of the bank. They are perceived to be as good as cash, a misconception scam artists sometimes exploit, since a lost or stolen one can still be stopped. With a certified cheque, the bank verifies sufficient funds and sets them aside in an internal account, so the cheque cannot bounce.

  A payroll cheque pays wages, and the vocabulary pay cheque survived even after such cheques became rare. Payroll cheques issued by the military or other government entities are called warrants, which look and clear like cheques but are not drawn against cleared funds and may not be negotiable. A traveller's cheque lets the signer make an unconditional payment after paying the issuer, and could usually be replaced if lost or stolen, though credit and debit cards have largely displaced it.

  Oversized cheques, also called novelty cheques, appear at charity donations, government grant announcements, and prizes from lotteries or Publishers Clearing House sweepstakes. They commonly measure 18 by 36 inches, but according to the Guinness Book of World Records the largest ever was 12 by 25 metres. Contemporary versions feature brand-integrated color schemes and event imagery while omitting sensitive banking information such as account numbers for security.

• 8. The Permanent Target

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  Cheque kiting exploits the float period, delaying notice of non-existent funds while a fraudster hopes a merchant will not suspect the cheque will fail to clear. Forgery is another route, using a victim's stolen cheques or altering a legitimately written one by adding words or digits to inflate the amount. Because cheques carry significant personal information including name, account number, and signature, they have also been used for identity theft.

  In England and Wales, dishonoured cheques are typically returned marked Refer to Drawer, an instruction to contact the issuer for an explanation. That wording was adopted after a bank was successfully sued for libel for returning a cheque marked Insufficient Funds in error, the court ruling the false statement was damaging to the issuer's reputation. In Scotland a cheque acts as an assignment of the money to the payee, so a dishonoured cheque attaches and freezes whatever funds are present until the matter is resolved.

  The contrast in fraud figures is striking. Cheque fraud in the UK in 2020 totalled just £12.3 million across 185 million transactions, while online authorised payment scams reached £479 million across 4.1 billion online payments. That safety record has driven a resurgence of cheques in some commercial transactions, where businesses use them to avoid phishing fraud. UK Finance still estimates that only 0.2% of payments, about 70 million transactions, will be made by cheque in 2031.