Although the gradual move out of cash has made paper-based instruments such as money orders, postal orders, bank drafts etc., popular for several decades, their market sizes have continued to decline, largely due to inherited inefficiencies and cumbersome processes in effecting and settling payments. Some of these retail payment instruments and systems have now been replaced by electronic payment instruments and cards, and the tendency is to move towards electronic credit and debit transfers. According to the statistical reports of the Bank for International Settlements, some interesting movements in the use of retail payments in selected countries can be seen. In volume terms, France, Germany, Italy and the UK have reduced cheque use from a range of 3-38 percent of total non-cash payments, respectively, in 2000 to a range of 1-26 percent in 2006, while there are no cheques at all in the Netherlands. In Brazil too, cheques have decreased from 57 to 25 percent or less in the same period. Credit and debit transfers and cards, on the other hand, have risen significantly in these countries. This picture is different to that of India, where cheque use has reduced at a slow pace from 84% in 2004 to 73% in 2007 and in Sri Lanka from 75% to 65% in the same period, indicating the dominance of cheques. I believe the situation is the same for other countries in the SAARC region.
Prospects and outlook, therefore, for Asian region trade, and consequently retail payments, are good. 3  Transforming challenges to new opportunities  3.1 Challenges and complexities: Retail payments development is very challenging due to numerous complexities and is much more difficult to modernize than large value  2  BIS Review 61/2008  payments. In order to complete even a small payment, it is necessary to have appropriate and acceptable payment instruments, an institutional set up, an enabling legal environment, infrastructure, processing procedures and money/fund transfer mechanisms. There are enough opportunities to change this situation, if all stakeholders are committed to introducing innovations, with appropriate safeguards. We need to look at some of the practical ways of starting this transformation. 3.2 Discourage cash and paper-based instruments: Progress in the use of electronic payments has been slow in our region due to numerous reasons. Cash is the most popular mode of face-to-face payments for retail transactions. Cash does not require the user to go to specific places, use computers or special equipment to originate or settle a transaction. Moreover, the payment is final. Given the user preference and convenience, cash and cheques still dominate as payment instruments in many countries. Businesses also prefer cheques because of inherited cash management processes, legacy of accounting systems or reluctance by their governments to transact in electronic payment instruments. If there are cheque clearing delays or frequent cheque returns, small businesses have no choice but to borrow for short periods, perhaps at exorbitant interest rates, from informal sources.