I admit: I still pay for some things using paper checks. Since becoming part of the team at Cozy—where we help people understand the perks of paying and collecting rent online—I’ve started to question my own check writing habits.
Not only are checks expensive to process and cumbersome to use, they’re highly prone to fraud, which proves that paper checks are outdated currency, especially for those of us who have reliable access to the internet and can pay our bills online.
Yet every so often, I find myself reaching for my checkbook, cloaked in its horrible bank-provided plastic cover. Then I go through the ritual of figuring out the date, spelling out some numbers, and signing my name.
I’m not alone. A lot of Americans helped make the total number of checks paid in 2012 amount to 18.3 billion. (Related, but not really: oversized checks are more popular than ever.) So why do we keep writing checks?
Maybe it’s cultural
Other countries just don’t write as many checks as we do in America. In the UK, only 3% of people between the ages of 18-24 own a checkbook, which inspired UK banks to plan to phase out checks by 2018. But they changed their minds, citing the impact on the elderly, the most vulnerable in society, and small businesses and charities that rely on checks.
Australia has an electronic payment system, BPAY, which exists in part because of a centralized banking system (BPAY is owned by Australia’s four largest banks).
In the U.S., the existence of 6,000-plus banks, some of which are regulated by states, has made sweeping changes to payment systems nearly impossible. And the Fed doesn’t have the power to mandate electronic payments like the EU did in 2003 with the Single Euro Payments Area. That means American consumers and the private sector will be the ones driving the adoption of technologies that will help make paper checks obsolete.
Breaking a habit
Back in 2002, the Federal Reserve Bank of San Francisco, posited that we haven’t yet reached the kind of critical mass that would create a robust network of electronic payment alternatives to paper checks, a “chicken-and-egg problem.” “Consumers would find it preferable to use electronic payments if many other consumers do, but since a critical mass has not yet adopted the technology, consumers largely do not use it.”
But you’d think in the past 14 years, we’d have reached that tipping point. According to the most recent data from the Federal Reserve about how Americans pay for things, from 2009 to 2012, the total number of checks paid declined at an annual rate of 9.2 percent. That may not sound like a lot until you take into account that since 2000, the number of checks paid has declined more than 50%, from 41.9 billion to 18.3 billion.
That’s not all. The sharp rise in the Google search for “how to write a check,”reveals that either we’re forgetting how to pay by check, or, more likely, we never learned. People are more interested in paying rent online, which corresponds with the average check amount last year: $1,487.
Even though many industries are transitioning away from paper checks, including the U.S. Treasury, which is working to stop making one-time payments with paper checks, a whopping 50% of U.S. companies use checks to pay their bills.
I realize that accepting paper checks slows cash flow, but for small businesses, that lag time might be worth avoiding electronic payment processing fees. My friend Pam, who runs a flower shop in another city, had no way (and no desire) to accept an electronic payment from me. “Sorry,” she told me, “it’s got to be a check. I’m not set up for anything else.” Good thing I had a check, an envelope, and a stamp.
Let’s face it, check writing is a habit. For more than three years, I wrote a monthly check to my son’s preschool for his tuition, and I hand delivered it. In the weeks before he went to kindergarten, I learned the preschool accepted electronic payments. I could have saved myself a lot of hassle (including the time I forgot the check and had to make an extra trip to deliver it on time) by paying electronically. I’d just never thought to ask if the option existed. Maybe I’m just old.
“Older people are just a little, or a lot, afraid of computers,” Howard Bodenhorn, professor of economics at Clemson University, told me over the phone. “The idea that all their financial information can just be put out there somewhere terrifies them.”
Change is coming
Howard noticed that cashiers at Walmart now send checks through digital scanners then return the paper checks to the customers, on the spot, which saves the company the hassle of managing stacks of checks every day. That’s legal thanks to Check 21, the act that allowed the recipient of a check to create a digital image of it.
Simple, the tech company that offers digital banking, decided not to offer its customers paper checks as part of checking accounts when it launched in 2009, in part because Simple’s CEO and co-founder, Josh Reich, didn’t use checks in Australia.
That choice wasn’t always easy. “It’s about trying to layer technology onto something built for paper processing,” said Amy Dunn, communications specialist at Simple. “That’s the source of much frustration with the banking system.”
Simple does let customers send paper treasurer’s checks, because ultimately, Amy said, it’s the customer’s money, and “they should be able to move it how they want to.”
With the demise of paper checks, Amy noted, banks won’t have the option to do things like “check stacking,” the now illegal practice of processing the biggest check first so an account runs out of money faster, incurring more overdraft fees. It’s one of many traditional banking practices that are considered predatory.
Unlike cash, which Howard predicts will stay around for as long as people continue to operate underground economies (forever), he predicts checks will “disappear long before $100 bills,” probably in the next 15 years.
Larry Schweikart, a banking and business historian at the University of Dayton, says he, like many Americans, use paper checks because they create a sense of independence, accountability, and security. He doesn’t own a debit card, and he promises to keep buying his groceries with paper checks until the bitter end (he predicts checks will obsolete in 10 years). “Once stores stop taking checks, there’s not much you can do,” he told me.
Unlike Larry, I won’t miss my checkbook one bit. But I’m not about to set it on fire, either. Even though I don’t have a landlord who demands I pay my rent using checks, sometimes, I still need it. Besides, I don’t want to melt the plastic.