Marked for extinction
A new law hastens the check's demise. But is that a good thing?
The check, that slip of valuable paper that is an ingrained part of American financial life, is headed toward cancellation.
The rise of cheaper and faster payment alternatives such as credit cards, debit cards, and online banking started eating into the check's market share in the 1990s. And next month, a new law takes effect that will eliminate many of the check's few remaining advantages for consumers. As a result, the current 4 percent-a-year decline in check writing is expected to accelerate. Within a generation, checks are likely to be a rarity, used only by a few stubborn oldsters or in special situations, such as giving a nephew money as a graduation gift.
Many consumers and businesses say checks are so antiquated and expensive that their demise can't come soon enough. But some consumer advocates and fraud experts warn that while paper checks are vulnerable to forgers, they nevertheless provide more privacy and security than many of today's electronic alternatives. "There aren't a lot of strong controls on all the doors into checking accounts," says Avivah Litan, vice president of Stamford, Conn.-based research firm Gartner. "And there are a lot of doors."
Still, the fate of the check seems sealed. Americans wrote a peak of 50 billion checks a year in the mid-1990s but this year will very likely pen only about 37 billion. Meanwhile, the use of electronic payment methods is skyrocketing. Credit cards are now used 23 billion times a year, according to the Nilson Report , which monitors the payment industry. In the 1990s, debit and check cards became popular. Debit cards, also known as ATM cards, require a personal identification number, while check cards require only a signature (and sometimes not even that). Both immediately withdraw funds from your bank account. Consumers have doubled their use of debit cards in the past four years and now use them nearly 19 billion times annually, the Nilson Report estimates.
In addition, banks and businesses eager to cut down on paper formed a cooperative in the mid-1970s called the Automated Clearing House that allows members to electronically transfer funds. That's spurred a boom in all kinds of E-payments such as direct deposit, online banking, and automatic bill payment, where consumers give businesses permission to debit their checking accounts to pay monthly bills like mortgages. This year, the ACH says it will handle nearly 8 billion payments, up 40 percent from 2000.
As a result, last year, for the first time, more shoppers chose plastic over paper for payments. The reasons for the switch are clear. Electronic payments are faster, easier, and cheaper for shoppers, merchants, and banks alike. Banks, for example, have to transport an estimated 101 million checks--weighing 163 tons--each day, at a cost of about 16 cents apiece. Clearing an E-payment through the ACH costs banks only about 2 cents. So banks are using all kinds of carrots and sticks to herd consumers onto the electronic payments highway. Wells Fargo, for example, offers frequent-flier miles to customers who buy, say, their groceries with debit cards instead of checks. And many lenders, such as student loan giant Sallie Mae, give discounts to those who have monthly loan payments automatically debited from their checking accounts.
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