Why can’t Amer­i­cans ditch checks?

The Denver Post - - BUSINESS - By Katie Robert­son

The first time Amelia How­ells ever wrote a check, she was 28 years old and stand­ing in a Con­necti­cut apart­ment leas­ing of­fice, with no idea what to do.

The Bri­tish ex­pat had just moved to the U.S.; she’d never had to write a check in Lon­don or dur­ing seven years in Switzer­land.

“I had to sit down with a wo­man to learn how to do it. She thought it was hi­lar­i­ous and called in all the other peo­ple in the of­fice to have a laugh at me,” she re­calls. “In Switzer­land, they don’t even have checks. We did all our rent and util­i­ties on­line, and that was back in the early 2000s.”

In an era of smart­phones, on­line bank­ing, and Venmo trans­fers, the U.S. still can’t seem to wean it­self off pa­per checks. In most coun­tries, they’ve gone the way of the ro­tary tele­phone. But their demise isn’t com­ing to Amer­ica any time soon.

Amer­i­cans still reach for their check­books more than any­body else. In 2015, they each made 38 check trans­ac­tions, on av­er­age, ac­cord­ing to data from the Bank of In­ter­na­tional Set­tle­ments, the co­or­di­nat­ing body for the world’s cen­tral banks. Com­pare that with about 18 in Canada, just 8 in the U.K., and al­most zero in Ger­many. The only coun­try close to Amer­i­can num­bers is France.

There are cheaper, faster, and more ef­fi­cient al­ter­na­tives. Elec­tronic trans­ac­tions clear quickly — no stamp needed — and cost their users about a 10th as much as checks to process. (A 2015 sur­vey of busi­nesses by the As­so­ci­a­tion for Fi­nan­cial Pro­fes­sion­als pegged the me­dian cost of is­su­ing a check at $3, com­pared with un­der 30 cents for a elec­tronic trans­ac­tion.) Us­ing peer-to-peer pay­ment apps to trans­fer money be­tween checking ac­counts, how­ever, doesn’t in­cur fees.

Checks have been in de­cline in the U.S. since the mid-1990s. And al­though elec­tronic pay­ments, debit cards, and credit cards are more pop­u­lar these days, the rate of checks’ de­cline has slowed, ac­cord­ing to a Fed­eral Re­serve pay­ment study from last year.

In part, blame Amer­i­cans’ com­fort with them, and the fact they serve the un­der­served. Feed­back from re­tail­ers sug­gests many older and ru­ral Amer­i­cans still use checks to pay for gro­ceries and gas, says Tom Hunt, the di­rec­tor of trea­sury ser­vices for the As­so­ci­a­tion for Fi­nan­cial Pro­fes­sion­als. Par­tic­u­larly reliant on checks are the 33.5 mil­lion house­holds that ei­ther don’t have bank ac­counts or sup­ple­ment them with al­ter­na­tive fi­nan­cial ser­vices such as check-cash­ing and pawn­shop loans. Far more of those house­holds were paid by pa­per check, a 2015 sur­vey by the FDIC found.

Banks are try­ing to push con­sumers to­ward cheaper, faster mo­bile bank­ing and peer-to-peer ser­vices like Venmo and Pay­pal, but older Amer­i­cans still aren’t to­tally sold. A 2015 Fed sur­vey found just 18 per­cent of smart­phone users age 60 and older had ever used mo­bile bank­ing, up from 5 per­cent in 2011.

“Our cus­tomers wrote al­most a bil­lion checks last year. Checks will be around for a while,” said Michelle Moore, Bank of Amer­ica’s head of dig­i­tal bank­ing. “But P2P is what re­ally is grow­ing phe­nom­e­nally year-over-year.”

Old habits die es­pe­cially hard in the busi­ness world, where more than half of busi­ness-to-busi­ness pay­ments are still made by check, ac­cord­ing to an AFP sur­vey from last year. The sur­vey found the num­ber of B2B check pay­ments has risen slightly since 2013. “There are bet­ter, faster, more con­ve­nient, less costly pay­ment method­olo­gies in place, but with those comes the tech­nol­o­gyadop­tion hur­dle that a lot of com­pa­nies just can’t get over,” said Hunt.

Then there’s the highly frag­mented Amer­i­can bank­ing sys­tem — there are more than 10,000 de­pos­i­tory in­sti­tu­tions, mak­ing it a chal­lenge to im­ple­ment changes across them all — and The Fed doesn’t have the reg­u­la­tory power to phase out checks.

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