tllothek des Instity 2. AUG, 1528 fiir Weltwirtsohaft. ER ptr POSTAL CHEQUE SYSTEM REPORT OF A COMMITTEE OF THE POST OFFICE ADVISORY COUNCIL Presented to Parliament by Command of His Majesty LONDON : PRINTED AND PUBLISHED BY HIS MAJESTY’S STATIONERY OFFICE To be purchased directly from H.M. STATIONERY OFFICE at the following addresses Adastral House, Kingsway, London, W.C.2 ; 120, George Street, Edinburgh York Street, Manchester ; 1, St. Andrew’s Crescent, Cardiff ; 15, Donegall Square West, Belfast ; or throuech anv Bookseller. 1928. Price 24. Net. Cmd. 31¢1, bod: dio AE HL Zefachriflansas POSTAL CHEQUE SYSTEM. REPORT OF A COMMITTEE OF THE POST OFFICE ADVISORY COUNCIL. REPORT. In accordance with the wishes of the Council at the 24th meeting held on December 15th, 1926, we have considered the question of instituting a Postal Cheque System in this country and we report as follows :— 1. Inquiry into Existing Systems.—As a preliminary to our investigations a questionnaire was circulated to the leading continental countries using Postal Cheques. Summaries of some of the figures collected are attached as appendices to this report. 2. Success of Postal Cheque Systems Abroad. —From these figures and from other information obtained it appears that the Postal Cheque System operates on a widespread basis in these countries and in most cases is run at a profit. -It is noteworthy, however, that in Germany where Postal Cheques have been most developed losses have been sustained, which are understood to have amounted to the considerable sum of 16,000,000 R.M. in 1926 and to a similar large figure in 1927. 3. Factors in Profitable Working. —It is evident that the financial success or otherwise of a Postal Cheque System turns very largely apon the interest on current balances which is credited to the system and consequently upon the size of the average balance kept in the individual accounts. Where this is comparatively large, expenses can be met with the addition of reasonably low charges upon individual transactions. But if the average balance is small, the system can only be made to pay its way by raising the transaction charges to an unduly high level. 4. Development of Banking on the Continent.—In continental countries commercial banking facilities are less developed than in this country. Not only are there fewer branch offices per head of population but the procedure of payment and acceptance of cheques is in some cases encumbered by additional formalities and delays. The Clearing House system is only in embryo on the continent and the number of ordinary cheques in use, so far as can be ascertained, is very small compared with those circulating in this country. Postal Cheque facilities consequently are likely to attract a greater number of good accounts in continental countries than in Britain where the needs of a considerable section of the moneyed population are already catered for. Unless, therefore, the facilities offered by a Postal Cheque System in England were such as to compete advantageously with commercial banks or to break fresh ground, it seems probable (13497C) Wit. 7972/4541 2000 7/28 Harrow G.811 that the average balances maintained in accounts would be relatively small and that there would be a difficulty in making the svstem pay its way. 5. Postal Cheques.—As Postal Cheques involve a preliminary reference to headquarters before transmission to the payee, they are in some ways at a disadvantage compared with the direct despatch of ordinary cheques. In order to compete effectively with such cheques they would probably have to cost less to the user and it is doubtful whether this would be practicable if anything in the nature of Stamp Duty were levied on the cheques. 6. Stamp Duty om Postal Cheques.—We have given careful consideration to the question of exemption of Postal Cheques from Stamp Duty or an equivalent charge, and while it has been urged that such exemption is commonly given on Government cheques both in this country and elsewhere and that the Stamp Duty revenue would not suffer materially as the majority of Postal Cheques would probably represent additional business, we think that it would be invidious and undesirable to discriminate between Government and other banking in this respect. While expressing this view we do not think that it necessarily applies to a reduction in the case of cheques for very small amounts. We refer again to this in paragraph 12 below. 7. Postal Transfers—The Postal Transfer which occupies a prominent position in Postal Cheque systems is an attractive feature where a sufficiently large number of customers hold Postal Cheque accounts. By this means payments can be made by a simple bookkeeping transfer from one account to another, a notification that the transaction has been carried out being sent to the parties concerned. To popularise this means of payment, however, a large number of customers would be essential and in view of the development of other forms of banking in this country it seems doubtful whether a clientele on the Continental scale would be forthcoming. 8. Cash Receipts from Third Parties. —As a machinery of receipt a system of Postal Cheque accounts operated by ‘the Post Office would offer facilities for payment by third parfies into a central account which would probably have attractions for large institutions such as friendly societies, trade unions, etc., who receive regular contributions of small amounts from a large number of members. We think, however, that there is no case for setting up a Postal Cheque system mainly to afford this convenience, and that if it were shown that a considerable demand existed for such facilities it would probably be feasible to institute suitable machinery otherwise for the purpose. 9. Views of the Trade Union Congress—At the meeting of the Trade Union Congress in 1926 a resolution in favour of the Postal Cheque System was adopted. We therefore thought it advisable to invite the views of the General Council of the Trade Union Congress on this question, and Mr. J. W. Bowen of the Union of Post Office Workers attended before us to give evidence on their behalf. Mr. Bowen instanced the development that had taken place on the continent, and made particular reference to the successful development of the Belgian Postal Cheque System. He contended that as the Postmaster-General is one of the biggest bankers in the country, with over ten million depositors in the Post Office Savings Bank, a Postal Cheque System should be introduced for the benefit of those depositors, which would attract other depositors and fresh money with advantage to the State. He considered that there was still a large excess of floating money in this country which could be tapped to advantage by the extension of cheque facilities, and held that it would be to the advantage both of the public and of the banks if a class of the population which was not touched by commercial banking could be educated in the use of banking facilities. 10. Cheque facilities for Savings Bank Depositors.—In the light of these representations the question of an extension of Savings Bank facilities in the direction of enabling Savings Bank depositors to draw cheques on their accounts was examined. It is thought that depositors would find it convenient to deposit in their Savings Bank accounts some of the cash that they now retain to hand for sundry payments and to take out cheques against such additional balances. The primary difficulty in applying facilities of this kind to Savings Bank depositors is the fact that no references are required from them as in the case of the customers of commercial banks. There would therefore be considerable danger in allowing them the use of cheque books without some additional safeguards. 11. Savings Bank Limited Cheques.—A means of affording such safeguards would be to place a maximum limit on the amount of the cheques that could be drawn and to issue such cheques only when balances were sufficient to cover the maximum amount drawable. The cheques could be of various maximum limits such as £10, £5, £2, and £1 and could be drawn for any sum within the maximum, and books containing such cheques in denominations to aggregate to amounts of £50 and £20, or such other amounts as might be found suitable, could be made up and issued against equivalent balances. A “stop ”” would be placed on the account to the extent of the maximum value of the cheques, and a similar entry would be made in the deposit book. The cheques would be sent direct by the drawer to the payee like ordinary cheques and would be presented normally through a bank. They would be crossed. 12. Costs of Limited Cheques.—The effect of introducing cheques for Savings Bank depositors would probably be to increase the number of transactions in accounts where cheques were used, i.e., to give them more the nature of current accounts, but as a set-off against this extra expense there would be a tendency to raise the average balances in such accounts. To meet the cost of the additional work of handling the cheques we suggest that no interest should (C13497) Ly be payable on the maximum amounts represented by the cheques issued. In accordance with the views expressed in paragraph 6 above, we think that an equivalent to Stamp Duty should be charged on these cheques, but would suggest as a matter for consideration whether a smaller sum than 2d. might be levied on amounts not exceeding £1 with a view to the encouragement of the use of such cheques in place of currency for small payments. 13. Additional reasons for association with the Post Office Savings Bank System.—While there is no evidence available of any strong demand for the separate institution of Postal Cheques, there is a growing tendency on the part of Savings Bank depositors to ask for cheques and crossed warrants, which are equivalent to cheques, in making withdrawals from their accounts. This tendency, taken with the fact that it would be unnecessary to set up a fresh staff organisation to deal with Savings Bank cheques, makes it desirable in our view to experiment within the existing svstem rather than to inaugurate a new one. 14. Financial Results—It is difficult to estimate the probable financial effects of these proposals as the extension of cheque facilities to depositors in the Post Office Savings Bank would exercise both direct and indirect effects upon the finances of that institution. So far as the direct effects are concerned there seems a fair presumption that the system should pay its way. It should be pointed out, however, that financial success would to some extent depend upon the degree in which the facility was used, and that in the earlv stages it would possibly be unprofitable. 15. Recommendations.—We recommend accordingly :— (1) That a Postal Cheque System on the continental model should not be embarked on at the present stage. (2) That in the hope of encouraging a wider expansion of banking habits and economy of currency, a tentative step should be made in the direction of offering cheque facilities for Post Office Savings Bank depositors. (3) That a System of limited cheques available to Post Office Savings Bank depositors with adequate balances be considered as a means of testing the extent of the demand for cheque facilities amongst this section of the community. 16. We have been greatly helped in our enquiry by our Secretary. Lt. Col. T. M. Banks, and would like to take this opportunity of expressing our appreciation of his much valued assistance. GEO. LAWSON JOHNSTON. *JOHN CAIRNS. ROBT. HOLLAND-MARTIN DONALD BANKS, Secretary, 5th March, 1928. * With the following reservation :— Reservation by Mr. J. Cairns. While agreeing with the first and second of the recommendations in the Report, I am of opinion that the third recommendation does not adequately attain the end sought for in substituting increased facilities to Savings Bank depositors for a Postal Cheque System. Holding the view that Savings Bank Accounts can be treated so as to provide the individual and the State with all the benefits that would be derived from a Postal Cheque System in this country, I regard the arrangement of confining to tbe use of limited cheques the power of a depositor to operate on his account by means of cheques, as nullifying the most important of the reasons for which a Postal Cheque System was rejected. These were, that by converting a definite part of a deposit account in the Savings Bank into a current account a depositor would have all the facilities ot a Postal Cheque System in enabling payments to be made easily and methodically to a third party; and that these facilities would be greatly more convenient than the present means of making such payments through the Post Office. As to the latter point, limited cheques would be of little more use to a depositor than the device of buying a bunch of Postal Orders in advance. I consider, therefore, that by confining the scheme to an issue of limited cheques the considerable demand of Savings Bank depositors for cheque facilities, and the undoubted right of the public to be provided with a Postal Cheque System or an adequate substitute are being imperfectly met in the recommendations. Thus I would add to the recommendations that along with limited, unlimited cheques be issued. The arrangement for making unlimited cheques available might be to earmark a portion of the deposits for the purpose of a current account and on this portion no interest would be paid. An account holder could state the maximum balance he would decide to have on current account, also the Bank could fix a minimum balance, if that were found to be required. All deposits would be credited to the current account, and, say, once monthly, any excess of the balance over the stated maximum balance would be transferred to the deposit account on which interest would be allowed. Conversely, the depletion of the current account might be met by the transfer of a sum from the deposit account. JOHN CAIRNS. DONALD BANKS, Secretary, 5th March, 1928. APPENDIX A. Postal Cheque Statistics in Main Countries for 1926. Accounts. Total number Total balance Transactions. Postal cheques Postal transfers Deposits... Total number of transactions Revenue. (a) Fees on transactions . . (b) Interest on aggregate balance Profit or loss .. Germanv. 893,000 603,000,000 Reichsmarks 54,000,000 313,000,000 216,000,000 584 000 000 45,000,000 Reichsmarks 34,000,000 Reichsmarks OSS France 316,800 3,847,000,000 francs 7,000,000 8,000,000 15,000,000 350.000.0000 (1925) 16,000,000 francs 20,000,000 francs Profit | Belgium. 178,000 230,000,000 francs 7,000,000 19,000,000 14,000,000 £0.000.000 7,700,000 francs t6,700,000 francs Profit | Holland 120,000 103,800,000 forins 2,000,000 7,000,000 6,000,000 5.000.000 '1925) 380,000 forins 2,580,000 fAorins Profit Switzerland. 63,000 164.000,000 francs 4,000,000 18,000,000 27,000,000 15 000 000 (1925) 3.650,000 francs 5.400,000 francs Profit APPENDIX B. Development of Postal Cheque Systems Abroad. Germany .. France .. Austria a Belgium .. Holland .. Czecho-Slovakia Switzerland Hungary .. Yugo Slavia [taly .. Denmark .. Year of nstitu-Hon. 1909 1918 (883 1913 [918 i018 908 890 1918 1921. | 1922. | 1923. | 1924. | 1925. | 1926. Population (in millions). (in thousands of accounts). 759 110 177 35 55 3 918 151 186 93 _E 626 182 191 11& 808 216 177 137 108 856 258 178 157 113 Q7 ' 893 318 180 178 120 7 63 40 6 7 7 13 A 59 53 12 9 683 1 55 8 13 12 11 | 38 11 gq The following countries also have Postal Cheque systems :— Saar Territory Luxembourg Poland Sweden Lithuania Egypt Danzig Japan Latvia Some form of Postal Cheque business is transacted also in :— Albania Spain Roumania Bolivia Greece Venezuela Cuba Portugal APPENDIX C. Relative Development of Branch Banking in various Number of Bank Offices. * Population. Great Britain and Ireland Switzerland Belgium Denmark France .. Holland Germany Austria .. Hungary 100 “0 47,100,000 3,900,000 7 800,00" 200 ND 700, 7,400 63,100,000 6,500,000 8,000,600 20 Countries. Number of Inhabitants to each Bank Office. 3,600 5,600 6,500 8,500 9,250 10,600 20,350 32,500 80,000 * Figures of actual branches shown in “ The Bankers’ Almanac and Year Book, 1927-28.” APPENDIX D. Classification of Account Holders. Germany. Commerce, industry, societies, etc. Private or professional individuals Public authorities .. - Number of accounts .. 1915. 859, 8% 7% 112.000 1922. 1925 66%, 64, 299, 82% 5% 4% 913,000 858,000 Holland. Commerce, industry, societies, etc. . ‘ Private or professional individuals vie Public authorities .. 5 Le Number of accounts .. 1922. 529/ 449, 4% 23 000 1923. 1924. 53-59% 519 439, 469, 35% 3% 112,000 108.00( Switzevliand. Commerce, industry, societies, etc... .. Private or professional individuals .. Public authorities .. .. Number of accounts is 1923. 1924. 74-59, 749, 17-5% 189, 8% 89, 50,000 54.000 Denmark Commerce, industry, societies, etc. . Private or professional individuals Public authorities .. . Number of accounts 1922, 1923. 1924. 82-29, 80-59% 78-59 59, 15% 179 39, 4-59 4.5% 3.600 4.300 5800 § 50 PF y ; 0 : —-ul i : > APPENDIX B. development of Postal Cheque Systems Abroad. Te) = DN wm NY >=Xo [4] > ET AJ oo ey vy a 15 Year of nstitution. 5 -. 1909 (918 1883 1913 [918 [918 f+ td a | 1906 1890 [018 i 1921. 759 110 177 65 35 RI 1922. | 1923. | 1924. | 1925. | 1928. Population (in millions). (in thousands of accounts). 913 151 186 93 En TA 626 182 191 808 216 177 137 "08 856 258 178 157 11+ 7 893 318 180 178 “20 7 00 4+) 6 7 t 13 RG 63 4 53 55 8 12 13 | 12 9 11 38 <« 1" 3 he 5 py oct EE ™ wo lowing countries also have Postal Cheque systems :-r Territory Luxembourg Poland den Lithuania Egypt zig Japan Latvia stm of Postal Cheque business is transacted also in :(— ania Spain Roumania via Greece Venezuela oa Portugal APPENDIX C. nd ay oO KO = Ca) oO ND = - 0 “3 x oy PB 0 on — > D 3 I ~ 0 x oo A. Development of Branch Banking in various Countries. Number of Bank Offices. * Number of Inhabitants to each Bank Office 3,600 5,600 6,500 8,500 9,250 10,600 20,350 32,500 80.000 iT Population. ain and Ireland dd “3,100 oY 47,100,000 3,900,000 7 800,000 N 1 } 83.100,L a 500 00 Ln \J Gyo Udon TO ye d Year rs’ Almanac an 1 branches shown in ““ The Banke es of actual bra J_O8 O © mw 0