Why checks won’t be abolished

By Felix Salmon
June 25, 2012
short piece under the headline "The End of the Checkbook" -- something which can't come quickly enough, at least for me.

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In the latest issue of the Atlantic, I have a short piece under the headline “The End of the Checkbook” — something which can’t come quickly enough, at least for me. The video above is a bit of fun, and the result could be easily tweaked just by changing the distance I walked to the ATM, but the fact is that even supposedly easy things, like depositing a check by taking a photo of it, are in reality quite hard and full of frustrations.

The time in the video is absolutely the minimum amount of time needed: it was done over a very fast wifi connection, in a well-lighted room, with all the necessaries, including a pen and my ATM card, to hand. A few days later I tried to deposit a couple of checks when I was at home, and the process took me a good ten minutes, partly because it was nighttime and therefore shadows kept on falling over the checks when I tried to photograph them. “Can’t read check. Please retake photo.”

I never write checks, but I still receive them with some regularity, nearly always in the mail. When the check is for a lot of money, I’m always a little bit astonished that people are still entrusting such large sums to the US Postal Service. And it’s not just the post office which can lose checks, either. I don’t open every single piece of mail I receive, and sometimes a letter which looks like junk turns out to have a check in it. Other times, a check is attached to the bottom of some long letter, after a perforation, and it doesn’t always look like a check at first glance. And then, once you receive the check, you have to remember to deposit it, rather than having it slowly drown in a to-do pile of paper somewhere.

All in all, I’m quite sure that over the 15 years I’ve been in the States, I’ve somehow failed to deposit at least a few checks along the way, and that most of the time it’s been entirely my own fault. It’s an incredibly anachronistic system, though, and I don’t really see why there’s such an onus on me to open my mail and recognize the check and successfully deposit the check. All of those things are easy enough that we get them right 99% of the time, but even at 99% accuracy we’re still talking about 3% of checks going undeposited. And no one would dream, today, of regularly using a payments system with a 3% failure rate.

But this is a collective action problem: it can’t be solved by any single bank, and the solution really needs to be imposed by an activist Federal Reserve. Which, sadly, has a laissez-faire attitude towards payments systems, and generally thinks it shouldn’t get involved. As a result, Americans are going to be living in a second-best world of physical checks for decades to come. We deserve better, and we’re not going to get it.

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Comments
28 comments so far

Felix

You need to educate yourself about operational risk in retail banking. And purchase some new shirts.

Posted by crocodilechuck | Report as abusive

What are you actually receiving cheques for? If friends or family want to send me money they just internet transfer it, if work needs to pay me expenses it is just transferred into my bank account, and if a company needs to refund me money it is rebated on to my next bill.

I’m 27 and I don’t think I have ever written a cheque in my life, and haven’t had to deposit one in over 10 years

Posted by ABT | Report as abusive

“even at 99% accuracy we’re still talking about 3% of checks going undeposited”

wait, what?

Posted by jfruh | Report as abusive

I should add that I’m relatively young (well, OK, 37, not getting younger) and am still very attached to doing my bills via paper check. I specifically do *not* like having automatic withdraws set up from my checking account, which is what most vendors seem to want you to do, particularly for bills that can vary in price, because I want control over when they go out to avoid overdrafts. The electronic options tend to involve going to the website of each individual company to whom I owe money, setting up a new login/password, etc., which strikes me as far more trouble than it’s worth. I’d rather just do my twice-monthly bills with my checkbook in front of me; it may seem more primitive but in practice, as with Felix’s deposit, it’s much faster.

I freely admit being hypocritical and wanting direct deposit when I can get it for *receiving* money. My credit union doesn’t have a phone app does let you scan checks with a flatbed scanner to deposit them. It’s also in practice a pain in the ass and not more convenient than walking to the ATM.

Posted by jfruh | Report as abusive

Dark Ages.

Really, cheques are dinosaurs that just don’t know they’re being frozen out. I’m over 50 and haven’t used or received one for years. Everything’s done electronically, account to account. None of this messing around with photographing cheques, or squeezing them into cash machines (never mind the time taken to walk to an ATM).

Last week I bought a new $750 Twin Tuner HDD set top box. I was asked if I wanted the purchase added to my bill (no direct debit set up here, just a monthly bill sent by post using an invoice). Of course, I said yes, and walked out of the shop with the item. In about five weeks time I’ll get the bill with a reference number I have to key in to my ebanking system. My input is restricted to keying in that number, and the amount, and sending the payment. Takes about a minute or two.

For bills that are the same each month, I set up a standing order which I control (not the company) and that pays the bill without my needing to think about it. Easy. I’m sure lots of your readers do things the same way. Why anyone needs little bits of paper these days is beyond me.

Posted by FifthDecade | Report as abusive

I think the rest of the world managed to get rid of checks without it being imposed on them by central authorities. Shops stopped taking them, the cheque guarantee card was stopped due to declining use http://www.ukpayments.org.uk/media_centr e/press_releases/-/page/719/ and so on, all done by the private sector.

Posted by JustinCormack | Report as abusive

The U.S. is way behind other countries here. Germany has completely abolished checks, for instance. You can’t even get them any more!

Posted by dorfl68 | Report as abusive

@jfruh (0.99^3): opening postal mail in the first place x recognizing the postal mail as a check x depositing the check. Also, you need a better bank (or your bank needs better software). All my electronic payments are dispatched discretely by my own online account. Plus, most bills make it directly into my banks software, so this process can be very quick. I would never trust a biller with any access at all to my accounts.

Posted by mcmc | Report as abusive

I’ve tried to transfer money from my Chase account in various ways over the past few weeks, and the experience has convinced me that they must really want to get rid of depositors, but need to do it through bad customer service, while maintaining the pretense of innovation for regulators (or analysts).

Felix, if you don’t know if you’ve missed a check, how would you know if you missed an electronic payment?

Posted by AngryInCali | Report as abusive

ABT and Fifth Decade, do you live in the U.S.? I haven’t come across a bank in the U.S. that allows for free or low cost transfer to other banks, and without setting up ACH transfers, which are not without their own issues.

I pay many bills electronically, but not all, and even for many of the bills I do pay over the internet, my bank will send a check via mail to the recipient, because they aren’t set up to receive electronic payment.

Posted by KenG_CA | Report as abusive

I’m pretty sure I’ve never missed a check in the mail — certainly a failure rate less than 3%.

As for electronic transactions, I use them when they are free. The ones I don’t use are the ones that charge a 2%-3% fee.

Failure rate for checks: 0%
Failure rate for fee-based electronic payments: 2%+

Posted by TFF | Report as abusive

I mostly pay bills electronically. For one-offs, it’s probably a little easier writing a check than setting up a single electronic payment. I get paper checks, generally though my LLC, for freelance and consulting jobs, and deposit them the old fashioned way.

>> people are still entrusting such large sums to the US Postal Service . . .

Several things to say here. Not opening your mail is your problem, not the Postal Service. Despite your disdain, delivery is actually pretty good, certainly better than 99%. And I know a number of perfectly rational people who remain unconvinced of the security of a purely electronic process. That’s a valid concern, and one that you don’t even mention, let alone address.

Posted by Curmudgeon | Report as abusive

Felix: that mail gets lost is exactly the classic reason you are supposed to send checks — as opposed to cash, which can’t be canceled and reissued. At least not by most of us.

jfruh, I always go with push-side electronic payments rather than pull-side. Among other things, I’m not going to 15 different websites; I’m going only to my bank’s website, and, yes, controlling when my payments go out. I do free bank-to-bank transfers either from my brokerage or from HSBC direct. (Since I’m naming names, I’ll give a plug for Novasavingsbank, where my primary checking account is located. I’ve been with them a long time, and the occasional surprises I get from them are all on the upside, as when I used my debit card overseas and saw the exchange rates they gave me; I can’t imagine they made much money on those.)

I’d like to see nudges away from checks; I get checks in the mail, and the ones that are for less than $2 frequently don’t get deposited before 180 days. I always come back to the time, a few years ago, when I flew home on 24 hours notice because Grandpa was in the hospital — he turned 91 last week and is doing fine, by the way — and I was helping Grandma with her errands, and saw her write a check for groceries. This seems to me like a weird thing to do, but when I’m in my eighties I expect I’ll appreciate some accommodation by the young people so as not to have to change my habits, even if it means I’m not doing the cheapest or fastest thing (and go ahead and let me bear those costs). So I’d prefer a phase-out, here, rather than a hard stop, and as best as possible impose the relevant costs on the people who insist on our incurring them.

Posted by dWj | Report as abusive

In places that don’t use checks (or those of you here who don’t use checks), how do you pay folks such as the gardener who don’t accept either plastic or electronic forms of money? Do you go to the ATM and get cash for them? I do that for folks who I know aren’t “banked”, such as day laborers. But not for regular business people (such as my gardener and housekeeper) who invoice me and such. I either hand them or mail them a check.

It’s a real question for me. Aside from using cash (which I consider much more of an irritation than dashing off a check), what do people use for this function?

Posted by Janet-1 | Report as abusive

I recently became an old school check writing convert. Here’s why:
- $1600 electronic rent payment (check issued via credit union) withdrawn from my account
- Landlord informs me he sold the property, never cashed my check, and instructs me to submit payment to new landlord
WHO HAS MY MONEY? WHERE IS MY MONEY?
- Landlord hand delivers my physical check
- I visit my credit union – ask who is in possession of my money. I’m told it’s my landlord. I pull from my pocket the check. I am then told by the teller she has no idea where my money is. The credit union manager blames the third party bill paying service. It is at this point I proceed with cancelling all scheduled electronic payments and order myself a checkbook.

This situation could have easily put my account in bank fee hell.

Posted by TheShaft | Report as abusive

@TheShaft, that’s exactly my point! The whole check architecture needs to be abolished! It is broken!

Posted by FelixSalmon | Report as abusive

So checks are bad because you are too lazy/slapdash/woefully disorganized to work out when someone sends you one?

I agree that the overall payments system could be far more efficient, but those are some pretty crappy reasons for changing it!

Sounds like Citi has a terrible app, too – though I would just like to point out that my grandmother can type faster on an iPhone than you. And she’s been dead for 5 years.

Posted by ACMurray | Report as abusive

Oh, and:

Time it took me to deposit check using Chase app, including fishing check out of my bag, detaching it from letter, signing it and making a fat thumb error on me phone:

2 minutes 11 seconds.

One more thing: keep the shirts!

Posted by ACMurray | Report as abusive

Felix — for someone who often highlights the class dimension underlying our current economic woes (e.g., your recent review of Krugman), this post is quite myopic.

Most of us know when we get checks because we are expecting them eagerly and do not lose them. If they get lost in the mail we call and have them re-issued (easy, that; never tried it with a “lost” electronic payment). But that is a very rare thing, since for most of us the mail works very well. (Indeed, the post office is one of the few remaining genuine public services in the United States, currently under vicious assault, and works amazingly well — nothing to be sneered at.) Many people do not have smartphones. Many people do not feel comfortable with the internet. Many people like to write checks to pay their bills and to give presents.

I get that the profile I’m outlining does not apply to tech-savvy and finance-savvy young(ish) people with enough financial means that they do not live check to check and indeed get unexpected honoraria here and there. But just because you don’t like checks hardly means they are not very important to many other people!

Posted by f.fursty | Report as abusive

First Class US Mail has an element of legal protection that no other transmission medium does. I think one of the reasons folks trust it is that they, at some level, have internalized that.

(Postal Service folks are really intense about this. I was at presentation of postal service innovation at the MIT Media Lab (!) and when questions were raised, their response was: Remember Butch Cassidy and the Sundance Kid? Remember the scene where Paul Newman asks: Who are those guys? Well, they said, those guys were Postal Inspectors, and we still take that job just as seriously.)

Posted by SaulTann | Report as abusive

Those against electronic payments on the basis that their third party cheque issuer made a mistake or their landlord sold a house have to realise they are not using real electronic banking; they are delegating check writing to someone else. When I make an electronic payment, it appears electronically on the account of the payee the next working day.

Example: Person A sends me a cheque by post on Friday. It arrives on Saturday so I have to wait until the bank opens on Monday. I then pay it in and it takes until Thursday to reach my account. That’s almost the whole week gone by. Person B however sends me the money electronically. It gets to my account on Monday, 3 days faster. No desperate waiting.

As for cash, I still use that but a gardener here would send me an invoice for payment in 30 days. There are a few businesses that insist on cash only, but that’s a warning sign of something being wrong – either their bank has them on a short leash due to credit problems, or they have some work permit problems, or they aren’t declaring the income to the taxman. If it’s the latter I don’t support it – that sort of attitude leads to crises like they have in Greece.

@Ken Who mentioned cost? Not me. I’m all for convenience.

Posted by FifthDecade | Report as abusive

In re USPS, I attempt to have packages delivered by any other means, or to any other address, after having many, many packages sent by USPS simply never make it to my address. No notification, no package. One shipment, by media mail, from my parents, was returned to them a month later with a demand for return postage; as I say, I never heard from them, and even, expecting the package, asked after it at the post office, and was told I needed a package delivery slip that didn’t exist. Find a different example for me of something that works “amazingly well”.

Posted by dWj | Report as abusive

FifthDecade, in the US (I think you live in Europe), we can’t easily transfer cash to other people. Wire transfers typically cost $25on both ends and require a fax, and ACH (I believe) requires that you give access to your account to the payee, and is not appropriate for individual-to-individual transfers. I use the bank’s on-line bill-pay, but that would still generate a paper check for payees that aren’t on their system.

I don’t know that consumers in the U.S. are against electronic transfers, but the banks are, as it would cut into their profits. With instant transfers, they would lose all of those overdraft fees, which have replaced loans as a source of revenue.

Posted by KenG_CA | Report as abusive

Exactly, KenG.

Our payment stream:
Cash — typically under $5, e.g. coffee shop or milk
Checks — small businesses/organizations, e.g. gardener
PayPal — mid-sized businesses, esp. online
Credit cards — daily shopping
ACH — recurring payments, e.g. utilities

Note that the third and fourth carry substantial transaction fees, supported by the merchants. For a larger business, or ones operating online, this is worth the cost. Smaller businesses (like my own, collecting a dozen payments a week) do just fine with checks.

Posted by TFF | Report as abusive

Your suggestion doesn’t take into account the 10-15% of Americans who are below the poverty line and can’t afford smartphones or banking transfer fees and probably never will. There needs to be a range of options for everyone, so checks will remain. The reason checks are abolished in some parts of Europe is because European countries take better care of their citizens.

Posted by nlj | Report as abusive

U.S. Electronic pay is nor equal electronic pay. It’s telling somebody to write a check on your account which then goes into the system.

Again, in Germany, you just transfer to another account. Electronically. No equivalent of check involved at all. It’s free. You pay the rent and other repeating payments with a preauthorization, which you can withdraw at any time. If you say “that wasn’t authorized’, the party who pulled the money has to show you that they have the written authorization to do so.

You pay petty amounts in cash. You get bills from other workers that you pay via, you guessed it, electronic transfer. 99% of stores take debit cards, credit cards less so

Posted by dorfl68 | Report as abusive

I understand the point of view of the delay in the cheque system benefitting the banks (but does it really?). So does electronic banking – the banks save on the costs of inputting the data into the system since you do their work for them. In Switzerland some banks even charge you for using it (less than you get charged for other means but you have to remember ‘free banking’ is a myth).

The banks in the UK only recently became more interested in the electronic transfers system under government pressure. Naturally we’re talking about the last government here, not the current one – the banks dragged their heels as usual.

I also understand the strength of the ‘leave things as they are’ argument for bank customers, we always like what we know. I thought that way too to begin with, but once you realise there are many benefits and it is safe and not that hard to do those fears soon fade away.

THe US eventually caught up with the rest of the world in mobile telecoms, now it needs to fix ebanking: the cheque system that was originally designed in the 19th Century really is past it.

Posted by FifthDecade | Report as abusive

Janet-1 -> If I have workmen in either I get cash out on my way home from work or I do an electronic payment. The cleaner I use gave me account details when I first started using them and I just transfer the money in each fortnight.

They generally get the money instantaneously so it is easy for them to check; I’ve been phoned by my brother who was in a garage with no money asking for me to transfer him cash. He has then walked in to the store and paid by debit card as it has already been received.

KenG_CA -> I live in the UK

Posted by ABT | Report as abusive
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