The proposals, which will require new legislation, will allow banks and building societies to clear certified digital images of cheques that are taken by the issuer and sent to the bank for clearing rather than having to deposit the physical cheque itself.
Cheque clearing under the new proposals will be reduced to two days.
The government claims cheque imaging, which is already established in the US, France and parts of Asia, will secure the future of the physical cheque, by speeding up cheque clearing, improving customer convenience, creating a more efficient payment system – particularly for businesses – and giving added security measures.
“Anything that makes the cheque more efficient and enables individuals or businesses who prefer to use it as a payment instrument to do so for longer and with more efficiency and security, is very much in the interest of the cheque printing industry,” said Martin Ruda, managing director of UK security print specialist The Tall Group.
Cheque printing is declining at about 10% per annum with the business sector holding up a little more strongly than consumer cheque use, Ruda said.
"That rate of decline will continue for some years yet, but we expect it to flatten out at some point.
"Those of us committed to cheque printing work very hard to build our market share and work with technology to ensure that our customers have products and services that are as efficient and cost-effective as possible," he added.
Ruda explained that over the past 10 years the business had installed cheque imaging equipment at around 250 of its corporate customers to enable them to digitally record cheque payments and data for their own internal use.
"It is essentially the same technology as what's being announced here and if legislation is passed our customers are all set to be able to use it for the new image-based cheque clearing system," said Ruda.
Under the new proposals businesses and individual customers can simply record an image of their cheque using scanning equipment or smartphones and send it to the relevant bank or building society.
Customers using smartphones will be able to pay the cheque in electronically via their bank’s mobile banking app. Customers without smartphones will be able to deposit their cheques as usual at bank branches or cash machines, where a cheque can be scanned and the image transmitted electronically.
The proposals will allow customers to continue to use paper cheques exactly as they do currently, and banks and building societies must continue to offer the option of depositing paper cheques at branches and cash machines.
The plans come after the banking industry reversed its 2009 decision to close the central cheque clearing system, following pressure from the Treasury Select Committee and the government, agreeing to provide cheque services for as long as customers needed them.
Ruda said: "The backlash to that announcement was vociferous and I think that is a good thing because the cheque still performs a satisfactory and simple solution for payments."
Launching a consultation on the proposals, financial secretary to the Treasury, Sajid Javid, said: “We want to take the very best of the current system and make it better. We want to cheques to have a crucial role in the ongoing success of the UK.”
“Speeding up cheque payments into business accounts will help boost a firm's cashflow as many find the current process frustratingly slow. Using smartphones is an interesting idea that should allow firms, particularly in areas where bank branches are closing, to be able to accept cheques as a method of payment,” added Federation of Small Businesses chairman John Allan.
