On Chequebooks

I used to work for Standard Chartered Bank, and so my salary bank account was with them. Even after I left, this continues to be my main account. This was partly because I already had mutual fund installments set up to be debited from it, and I was too lazy to go through the rigmarole of shutting them down, and starting fresh ones from a new bank. There is a moral here in how excessive paperwork prevents customer churn.

Anyhow. Right from the time I got the StanChart account, I faced a fair bit of mockery from people like Skimpy and Swami about how difficult it was for me to find ATMs, how I would never be able to pass a cheque in a small town, and so on and so forth. These days, the situation has flipped. My StanChart account is actually more convenient than an HDFC or ICICI account (perhaps not SBI).

This is because of three reasons:

  1. Debit cards and credit cards are accepted everywhere regardless of issuing bank, so the gap between an HDFC and a StanChart is closed.
  2. My balance and assets under management with StanChart have built up to a level where they give me unlimited free cash withdrawals at any bank’s ATM in India. So the ATM gap is closed.
  3. The major problem with StanChart is that cheques are only payable in forty cities in India (and that counts Gurgaon, Panchkula, Secunderabad and so on as separate cities). But now that electronic funds transfer is widespread, that doesn’t make much difference. You can just take someone’s account details and wire money to them instead of going through the nonsense of sending a cheque, having the recipient carry it to the branch, deposit it, and then wait three days for clearing. And – this is the best part – StanChart gives free EFT. HDFC and ICICI charge 5 rupees for every transfer.

(On the other hand, I have to pay Rs 250 to receive a foreign currency remittance. This will continue until I reach the truly rarefied echelons of private banking. Oh sigh. Then again, I don’t know if ICICI and HDFC manage to sting you for this too.)

Now as several people on my twitter timeline have pointed out, this is remarkable lunacy. Charging for electronic transfers and keeping cheques free encourages people to use cheques instead of EFT. This wastes:

  1. Paper
  2. The time of the guy receiving the cheque
  3. The time of the people working at the branch and operations back offices, who’re now processing cheque clearing when they could be doing something better with their time

This may be because ICICI and HDFC think that the convenience is worth 5 rupees per transaction. Moreover, there are so many old people who’re forcing them to maintain branches anyway, they might as well fleece internet users until the older generation dies off. The five rupee EFT charge is just the latest in the list of ways in which the older generation is screwing over the younger generation (other, more severe examples include fiscal deficits, ecological pollution, and tiger momhood). Or it could just be because they treat internet banking as a profit centre, their product managers are determined to show revenues somehow, and nobody on top has made the connection between EFT charges, people shifting to cheques, and higher operations costs. Which it is, only someone from the banks can tell us.

Assuming we lived in a sane world, everyone used internet banking, and actual cheque operations could be brought down to a minimum, the fees would actually reverse. You would have to pay to use chequebooks (oh, and I think ICICI and HDFC also charge for additional chequebooks in a year or something, while StanChart doesn’t. Snort.) while EFT would be free.

In such a world, cheques wouldn’t serve a functional purpose as much as an aesthetic one. You would give someone a cheque if you wanted to make a ceremony out of handing them over (white) money. Actually, this is already done with the giant cardboard cheques at cricket matches and quizzes, but I was thinking of something more understated and classy.

Because of the huge back office costs a bank would incur in maintaining cheque clearing operations, cheques would become ridiculously expensive, like annual fees on a top-of-the-line invitation-only credit card. Probably more expensive, honestly. They’d be offered only to really rich private or premium banking customers, and as such would be really good-looking cheques. They wouldn’t be the ostentatious prize ceremony cheques, but regular sized cheques on really nice paper – thick and creamy, with lots of embossing.

They would be to electronic funds transfer what a Vacheron Constantin mechanical movement timepiece is to a quartz digital watch: very good-looking and made just as functional at ridiculous expense. You could draw them out of a coat inner pocket and sign them with a fountain pen, and the aura wouldn’t be ruined by low-gsm paper. Or, for that matter, say “I say, Ram Avtar, be a good chap and fetch me my chequebook, would you?” They would be neo-Edwardian cheques.

Of course, none of this will be possible until electronic funds transfer becomes ubiquitous. But then it is only good and proper that modern technology brings about neo-Edwardianism.