Picture this!
You have decided to take the plunge and go live in the UAE. Perhaps you have started a new job, or if you are like me, you decided to start a fintech company in Dubai. Your excited. You have visited the UAE before and you really enjoyed your time there. The UAE is a great place to live and offers a great lifestyle for your family. Your payment experience as a tourist is very different to that of a family living fulltime in the UAE.
As a tourist, most people tend to pay for things, such as hotels, food, local products, craft, art etc. with their credit card. No big thing. You do it all the time. But, if your living in the UAE, paying rent, school fees, insurances, gym fees, subscriptions and other services require post-dated cheques.
You heard me right, post-dated cheques. You know that antiquated manual paper system that most of the western world, either got rid of, or the usage of cheques is so low that the user case for cheques is primarily for a certain age group or for some industries that require a very large upfront payment.
In the UAE cheques are King when it comes to recurring payments. You are asked to write, and sign posted dated cheques for rents, schools, car leasing and other services that require multiple payments each year. So, imagine renting a property for 12 months and you have successfully negotiated with your landlord to pay monthly. That’s 12 cheques you have to write and sign. Hoping all the time that there is not a mismatching signature or other technical errors on any of the post-dated cheques that would result in the cheque bouncing. Did you know that bouncing a cheque in the UAE is a criminal offence which can result in a civil or criminal case being brought against you!
A recurring payment for those who don’t know is a payment that is broken up over the term of service. It can be of any frequency that is agreed between the payer (the customer) and the biller (merchant or landlord).
The last time I ever signed a cheque was in Australia when I won a house auction. So, I was surprised when I came to the UAE (Dubai) and I was asked for cheques for renting a property, leasing a car and school fees.
Opening a bank account in the UAE is not like setting up an account in the West. In Australia, you can enter a branch or sign up for an account online and have an account opened immediately. It is a similar experience for opening a business account as well. However, in the UAE, the account opening process can take several days, if not weeks. Trying to open a business account will take even longer. It took me almost 4 months to successfully open my first business account in the UAE.
So, when I was going through my first rental property I had no cheque book. I had opened a digital account that had no cheque book which is what I wanted and was accustomed to back home. Instead, I had to pay a whole year’s rent upfront to be able to obtain a tenancy agreement. That was quite a cashflow hit. Especially when starting my own company.
Most companies in the UAE may also ask for a post-dated security cheque. This cheque is used in the event you missed a payment or two or wish to break your contract with the biller. Its completely up to the biller to decide when to bank the security cheque. As a payer, you have already signed the cheque granting the biller the permission to deposit this cheque. Your only recourse is to go the courts if your biller should not have banked the cheque.
Why is the UAE still using cheques?
So why cheques?
There appears to be a misconception about a cheque in that it somehow “ensures” that the biller will receive the amount stated upon the cheque. However, this is not always the case. In addition, some billers have the erroneous belief about direct debits in that they do not have any “physical” proof (i.e. document) to go after a payer for a failed direct debit.
In the eyes of the law, a Direct Debit has the same legal weight as a cheque and is governed by the applicable laws of the UAE and enforced by the UAE Courts. Just like a bounced cheque, failed Direct Debit transactions can result in legal action.
In the UAE and other GCC countries bouncing a cheque for any reason is a crime. If your landlord or biller tries to bank your cheque and it bounces for any reason, your biller has the right to lodge a criminal or civil case against you. I have heard stories of residents that had to go to the police station as one of their cheques bounced and they must either finalise their payment or spend some time in jail until the matter is resolved. A travel ban could be placed against you as well.
Now, before you get scared the biller has the “right” to lodge a case against you. However, it does not mean that they will do it immediately. In most cases, you will get a call from your biller advising you that your payment has failed, and you must immediately rectify the payment. But the stick is there, and you better believe it can be enforced if necessary.
The problem with cheques for payers is there is no visibility on when the biller will deposit the cheque. On a post-dated cheque, you must put a date when the cheque “can” be presented by the biller. But it could be days or even months after that date when your biller gets around to depositing the cheque.
My second landlord is quite lax when it comes to banking my posted dated cheques. She is usually 4 to 6 weeks behind presenting my cheques. To make sure that I never go through the experience of having any of my cheques bounce, I opened a second account with Emirates NBD just so that I can place my funds into that account to pay for my rent and other recurring bills that required post-dated cheques. This account I never touch nor do I activate a card against it.
Cheques can also bounce for other reasons besides insufficient funds. Sometimes the cheque is damaged or the payer wrote incorrect details on the cheque. Sometimes, it is as simple as the signature does not match. I have heard horror stories of payers who have had a post-dated cheque bounce due to their signature not matching. When you are writing and signing multiple cheques upfront, your signature is probably going to degrade after the 3rd cheque.
Problems with Cheques are not just for payers, Billers have challenges as well.
A problem for billers is reconciling the payments when a cheque is cleared at their bank. In most companies today, the cheque end to end process is still very manual and prone to errors. This is not just related to cheques, but also includes direct transfers into a billers account as well. In one case, I had transferred a deposit payment for children’s school fees to their school. The school claimed they could not find it. After initiating a trace with my bank and providing evidence that the payment had been sent to their account, they eventually “found” the payment. That took almost 2 weeks to resolve. Imagine, the majority of schools in the UAE have to track and chase up thousands, if not tens of thousands of payments on a regular basis.
When I have visited companies/billers (landlords, management companies, leasing companies, insurance companies, car wash companies, gyms etc.) in the UAE, I still see large accounting teams who primarily spend hours each day processing and reconciling payments. Most of these roles could be managed by a single staff member with the right technological tools.
Most of the West have adopted electronic recurring payments systems that allows billers to still stay in control but gives visibility and assurances to payers that a payment will occur on the agreed dates. In Australia, all my property and medical insurances, internet services, loans and memberships fees were all direct debited monthly from either my account or card. There are many providers that offer recurring payment solutions to billers that ensures that they get paid on time.
Billers are unaware in the UAE that the UAE Direct Debit system offers billers the exact same protection as cheques. The advantage of direct debit over cheques is that it is cheaper, offers more transparency and less chance of payment failures.
Isn’t it time that the UAE let go of cheques? We are already using digital payment services for such things as food, petrol, and utilities. Why not for recurring payments as well?
Timmy Alassad is a payment enthusiast and is the Co-Founder and Co-CEO of Zink Pay.
