A check is a written, dated, and signed instrument that directs banks to pay a specified amount of money to the person who issued it. The person or entity that is writing cat checks is known as the payer or drawer, while the person to whom the check was written is known as the payee. The drawee on the other being, is the financial institution on which the check is drawn.
Checks may be cashed or placed in. If the person who is paying presents a check to a bank or financial institution in order to discuss the payment, the money is drawn from the payor’s bank account. It’s another method for the bank to request that the institution transfer funds from the payor’s account to the account of the recipient or the payee’s account. They are usually written against a checking or savings account, however they can also be used to get funds from a savings or any other type of account.
The Finance Ministry has declined the possibility of a ban on checks for pushing digital transactions, declaring that the government does not have plans to eliminate it.
Here’s the reason why Indian businesses love checks
India is going through a massive digital revolution and a simple rumour of the government withdrawing chequebooks created enough furore. And, why? Because companies still love chequebooks to transfer money. Sure, India is moving — slowly — towards an entirely cash-based economy, but cheques have always been a source of value.
According to RBI data, in August there were cheque transactions that totalled the sum of 6,224.34 billion, which is three times the amount of debit card transactions, and almost 10 times higher than the mobile transaction regardless of the fact that digital transactions increased dramatically in the post-Demonetisation era. Here’s the reason why businesses still prefer chequebooks even as they are going digital:
Chargeless:
Whether it is digital transactions or different forms of the traditional financial instrument there is a cost for each. Making a check is not expensive.
Traditional:
Cheques have long been an integral element of India’s payment system. Since their introduction, companies have gained a sense of trust and confidence in the writing of cheques. Additionally, alternatives like the ability to secure the payment due in the future are possible with post-dated checks.
Secure:
Digital transactions cannot be without Cyber dangers. Cheques are secure because it is handed to a third party and the recipient receives the funds within his accounts. It is common for companies to opt for a more secure method particularly when a substantial amount is involved.
Convenient:
Most importantly, in India, where a majority of the population is still struggling to get used to the digital boom, especially in small cities and rural regions, writing a cheque is much more practical than using a cellphone, entering the password, and also ensuring the strength of your network Internet connection, etc.
But, cheques also have their negatives as well. Although online transactions are instant while cheques take up to two days to be cleared, but in the event that it’s safer, chargeless and convenient, why businesses would shift to another method of payment absent a motive?
Pinky Khanna The Personal Tax expert in EY India, says, “Cybersecurity threats, security against fraudulent transactions and removing transaction fees from digital transactions are some of the most crucial steps which must be taken before cheque books can be gradually eliminated. …. Also, teaching the older generations and those in smaller cities remains key for making this a success.”