Is It Time To Write Off Checks?
You know, those slips of paper where you spell out the numbers, rip them from the book, put them in an envelope, add a stamp, then drop them in a mailbox?
They've been around for centuries, but like many traditional tools nowadays checks are in rapid decline, disrupted by digital payments, the Internet and technology in general. Greg McBride, chief financial analyst for Bankrate.com, calls it a "consumer-driven change."
Even the government is moving away from paper checks. In 2013, the Treasury Department stopped mailing checks to Social Security recipients. Now, they get their monthly funds through direct deposit or a debit card.
A Federal Reserve study of the payments system in 2013 documented the slide: From 2000 to 2012, the number of checks paid declined by more than 50 percent as payments through cards, direct deposit and other services more than tripled.
This occurred as the check-clearing process was digitized and mobile-phone deposits became more popular.
Why do people stop using checks? It might be because of the more convenient digital alternatives like Venmo, PayPal and Square, or because it's a hassle to pick up a pen and scribble some very important information, error-free.
As checks fade from the picture, the impact is wide.
In 2009, the United Kingdom announced a plan to phase out checks by 2018, to be replaced by mobile phone-based payments and chip cards. Many major U.K. supermarket chains had already stopped accepting checks, according to the BBC. But the phase-out plan was scrapped two years later. A study requested by Parliament found that many of the elderly still rely on checks and are unfamiliar with the new technology — 46 percent of check use was by people 55 and older.
Eliminating checks might trouble a segment of the population that grew up using them.
Millennials ... Sometimes
A 2013 survey by payment solutions company WePay showed that 52 percent of millennials never use checks. And 64 percent of consumers write fewer than three checks per month — up from 35 percent three years earlier.
"The younger generation — the kids who are in high school, in college now — don't even know how to write a check," says Greg Litster, founder of SAFEChecks, a company that specializes in check security. "It is quite remarkable, but it is a fact."
The Postal Service
A 2013 report by the U.S. Postal Service Office of Inspector General said 91 percent of Postal Service customers choose to receive bills by mail, but want to pay them online. Only 37 percent of consumer bills were paid by mail in 2013, down from 74 percent in 2003. Bills and payments sent through the mail generated $18.5 billion for the Postal Service in 2013 — more than a quarter of its total revenue.
This number, of course, may not account for relatives sending you checks for your wedding or birthdays through the mail.
Can You Afford Mobile Banking?
The shift to digitization and mobile banking might have other consequences, too. For example, if you don't own a smartphone, you might be cut off from many convenient financial services such as mobile payment apps.
"Increasingly, too many financial services are based on the ability to acquire data about you in an easy way," says John Thompson, senior vice president of the Center for Financial Services Innovation. "If your life hasn't been digitized in a way that those businesses expect, there is a possibility that you might not be able to take advantage of those services."
Which Leads Us To Check Cashers
The check-cashing industry met the decline in check usage by broadening its services.
"As the customers move toward other mechanisms, we evolve to meet those needs," says Ed D'Alessio, executive director of Financial Service Centers of America. His organization used to be known as the National Check Cashers Association, "so we changed our name to reflect the fact that we do more types of services than just check cashing."
Check cashers nowadays offer banklike services such as money orders, bill payment and prepaid cards.
Yes, check-printing companies still exist. Harland Clarke, Deluxe and Vistaprint are some examples. But these companies don't make just checks anymore. They also offer many different printing services, products and payment services — probably wise choices given where the market is going.
In its most recent annual report to investors, Deluxe admits that check usage is declining and says there might be further challenges in the future as the Federal Reserve calls for faster electronic payments and real-time payments.
Don't Write Off Checks Yet
People are writing fewer checks for smaller transactions.
"What's changing are routine, everyday typically small-dollar transactions," McBride says. "People are no longer paying those by writing checks to the same extent they were 10 years ago."
But some businesses still stick to check writing to leave an audit trail. Litster says his company primarily sells checks to businesses.
"We find there is growth. It is not exponential; it's just stable," he says. "The big companies, they have cut back on checks, but that's not most of America."
The 2013 Fed study also found that checks are still generally used to pay for bigger sums such as rent and payroll transactions.
Even then, there is pressure. Thompson says there is a federal initiative to develop infrastructure for real-time payments — thus further marginalizing checks. The average daily volume of commercial checks collected dropped from 67 million in 2000 to 22.9 million in 2014 — a 66 percent decrease, according to Fed data.
"I think we'll continue to see disruption" as it becomes easier for smaller organizations to adopt digital payments or direct deposit, Thompson says.
Zhai Yun Tan is a digital news intern.
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