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No Checks Please, We’re British



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UK Banks Vote to Phase Out Paper Checks—Will the US Follow?

Somewhere in my files, there are photos of me holding up those giant checks that foundations love to hand out to charities. It was 1995 and I was raising money in Los Angeles for victims of the Great Hanshin Earthquake that leveled Kobe in Japan. Over the course of a few weeks, I lugged shopping bags full of checks—more than 10,000 donations amounting to millions of dollars—over to our accounting firm. The giant checks were great, but the bags of small, individual donations were like offering of personal prayers written on each slip of paper.

I’m not sure I would have felt the same sentimental satisfaction holding up a printout of a large electronic debit.

This week, the British banks governing the UK Payments Council decided to phase out their check clearing system by October 2018. In effect, they set an expiration date for the use of paper checks (or “cheques” as they prefer). In a statement, the group’s chief, Paul Smee, noted: “There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement.”

Like letters of credit, demands for payment and bills of exchange, bank drafts can trace their history to Roman times, when checks were known as “praescriptiones.” Paper drafts analogous to today’s checks were in use in the Islamic world in the 9th century and as early as the 12th century Templars honored pilgrims’ checks from one chapter house to the next. In England, clearing houses have had responsibility for settling checks since the early 1800s (before that they were often cashed in coffee houses).

Bankers complain that many British retailers don’t accept checks anymore, that young people don’t even have checkbooks, and that it’s costing them as much as a pound (about $1.63 today) to process every check. But the decision certainly has its critics—especially advocates for the elderly and small business owners. On one hand, a generation uncomfortable with electronics will be forced to risk carrying and handling more cash. On the other, mom and pop stores have one more disadvantage against giant competitors (some of whom are starting to act as banks themselves). The move will also put the “unbanked”, who have to pay fees to cash checks but also lack access to accounts capable of electronic payments.

Will the US Follow?

The cost of cash keeps going up while the cost of using credit cards and electronic payments keeps going down. More retailers accept credit cards than checks these days. But while US banks also worry about the costs of handling cash and checks, they aren’t likely to echo the UK decision any time soon. Yes, paper checks are increasingly rare in high-tech countries—whether advanced Scandinavian nations or developing/modernizing regions such as Africa—but the US doesn’t rate as high-tech when it comes to personal finance (present company excepted of course). It has lagged dramatically in the modernization of its financial traditions, such as implementing electronic payments, even compared to Britain.

Instead, US banks such as Bank of America and Chase have been investing in new ATMs that make it easier for customers to deposit checks without envelopes, deposit slips or extra keystrokes. In fact, a law known as “The Check Clearing for the 21st Century Act,” which took effect in 2004, made it easier for banks themselves to settle checks by exchanging scanned images electronically instead of physically managing and transporting paper.

The use of paper checks in the US may have peaked, but they aren’t evaporating in proportion to the explosive rise of electronic payments. According to Federal Reserve statistics, the number of checks written in the US has fallen—but only slightly—from an average of 112 per person in 1971 to 102 in 2006. While the number of checks written in the UK is only a third today of what it was in 1990, the decline isn’t quite as stark here in the USA. British check-writing peaked in 1990 at about 10.8 million drafts. Compare that to some 70 billion written annually in the US by 2001.

Perhaps one reason they aren’t falling more significantly here in the colonies is that we all seem to have so many more monthly bills and accounts these days? Inevitably some of those new store credit cards, nifty home utilities and specialist medical providers still have to be paid by check. And credit cards, electronic debits and automatic payments are easier but often come with service fees, interest charges or “gotcha” surprises. Also, many government institutions, landlords, utility companies and others still preclude (or penalize) electronic payments. It can cost hundreds of dollars to use a credit card to pay your income taxes. Meanwhile, many of us hate walking around with cash anymore, and wouldn’t want to keep more around for house cleaning and home repairs.

The federal government isn’t likely to encourage a return to an uncounted cash economy, either.

A Generational Issue

Using paper, plastic or electronics instead of cash is a generational issue, too. McKinsey & Co. found in a 2006 study that 54% of consumers still pay most of their bills by putting checks in the mail. Another study by Forrester Research found that 71% percent of people who don’t like to pay bills online would rather write checks and receive paper statement for their record keeping. The biggest group of such “traditionalists” is retirees, but regardless of age, most people consider paper to be safer for both security and accounting reasons. (Although a younger sampling might point out that a paper check reveals a lot of personal information, such as address and driver’s license number.)

The idea that electronic fund transfers are more prone to fraud may be more than just perception. As of last year, 76% of US banks reported losses due to debit fraud compared to only 56% losing money to check fraud.

Once, crossing a downtown parking lot on a rainy night, my eye caught two pieces of paper blowing across the concrete. They were checks, that appeared to have been endorsed, deposited and apparently in the process of being transferred from one institution to another. One was for only pennies, but the account belonged to a well-known celebrity. I didn’t recognize the name on the other, but the amount was for something like $55,000. The security department of the bank where the checks had been cashed took little interest, so…

Steve Barth blogs about work, play, society and politics at Reflexions.

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