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The Green Sheet Online Edition

June 10, 2024 • Issue 24:06:01

Flashback: a checks retrospective

Editor's Note: It may seem difficult to believe, but 25 years ago checks were Americans' favorite way to pay and get paid. In 1999, The Green Sheet published a special report, The paper check's surprising survival and continuing growth on the eve of the 21st century, penned by the publication's founder, Paul H. Green. Following are key excerpts.

By the late nineteenth century, checks in the United States had already become a dominant form of payment. As the 21st century approaches, most U.S. consumers continue to find the paper check as much a household staple as food and clothing, and considerably more enduring in their lives.

While many of the nation's fads have come and gone, the paper check has continued to be the non-cash payment method consumers and businesses use most. In fact, the check has become so ingrained in our thinking as a nation, most of us give little thought to checks as we use them, and the paper check can be undervalued by those whose lives and businesses are check dependent.

Overall, checks exceed 68 billion items a year, with 31 billion written by business and government, and more than 37 billion written by consumers. The primary payee for individual consumer checks continues to be the business community, representing 87 percent of the total checks written by consumers. Consumers write between 33 and 35 percent of their total checks at the point of sale (POS), and 52 percent from home for recurring bills. ... The primary payee for business checks (57 percent) is other businesses, while the primary payee for federal, state and local government checks (78 percent) is individuals.

Today, checks passing through the U.S. Mail system account for more than a quarter of Postal Service revenue. American consumers and businesses are writing checks worth 25 percent more than five years ago and 50 percent more than a decade ago. ... [A]ccording to Dr. Alan H. Lipis [payments expert at the time] "The value of [check] float to banks is worth more than the total cost of check processing."

According to Alice Rivlin [then] vice chair of the Board of Governors of the Federal Reserve, "Indeed, we appear to be the only industrial country in which the per capita number of checks written is still rising, despite rapid growth in payments by credit and debit cards or other electronic means."…

Urban myths

Despite the facts, in the late 20th century an urban myth began to develop concerning checks. It became a "payments industry" belief that the paper check would soon be extinct, and this belief has been popularized in the media. ...

As NASA made space travel possible and computers became ubiquitous household appliances, it was thought by many that it was only appropriate for check payments to be "electronic" as well. In a nation caught up in doing everything faster, better and more profitably, it just seemed obvious that there would be no place in the 21st century for the paper check. ...

In the 1970s we were told by industry experts that the check would be gone by 1980. In the 1980s we were told that the check would be gone by 1990.

In the 1990s we were told that the check would be gone by the end of the decade.

Now, as the new millennium begins, it is becoming clear to an ever-widening number of payment system stakeholders that the paper check will continue to be around much longer than most ever considered possible, and for reasons that many have never understood.

The simple fact of the matter is that both businesses and consumers like checks, and will find it hard to function in a world without them. The longer the check has been around, the more the check system has improved, with many more opportunities yet left to take cost out of this highly efficient system. ...

The relative value or correctness of all these assertions aside, the fact is that for many "paper" just isn't cool as part of a high-tech payments future. For these "champions of change," although checks may have worked through the years for consumers and retailers, they believe eTailers and cybershoppers can't take their checks with them into the 21st century.

While many payment system stakeholders would like to alter the way consumers pay for goods and services, in a way that would be favorable to their payment alternative, in my view the most important part of any study of the U.S. paper check is what the consumers' needs and desires actually are with regard to their choice of payment method.

In fact, any consideration of the direction of the check in our economy must also consider the social or demographic changes which will need to take place for any significant reduction in the use of paper checks to occur in this country.

Urban myths and paradigm shifts

To enhance the efficiency of the check collection systems, the Federal Reserve banks continue to expand the use of electronics in check processing, while others believe that the future for POS checks is the truncation of the check at the POS with settlement through the ACH system rather than through the traditional check clearing system. ...

[T]he anticipated increase in the speed of check clearing by POS check conversion is limited at best, given that most checks are already cleared overnight under the current paper environment. This means that only 10 percent of checks can be sped up with POS check conversion to ACH. ...

While the 1970s gave rise to the urban myth concerning the impending death of the check, 1998 brought a new convergence mythology. Like the symbolism of stars, moons and planets aligning to usher in a new direction or paradigm, so too the payment system mystics have begun to tell the story of the "convergence" of check technology and needs.

So the myth goes, the retail world has purchased MICR readers, the technology which has been utilized to read the magnetic characters as ID can just as easily use the same data for settlement, and both merchants and consumers want a better system.

The myth continues that when this many elements of a concept come together in such perfect alignment of capabilities and needs, movement in this direction is not only appropriate, but mandated by all involved.

While these same convergence observers acknowledge the current retail penetration or reliability of equipment is significantly less than 100 percent, they believe that demand will permit us, as a nation, to drag ourselves hobbling into this new era of "non-check" check acceptance at the POS.

While a number of imaging opportunities that would support reasonably priced [check] imaging at the POS equipment currently exist, the investment necessary for manufacturers to build such equipment requires both venture capital and leadership and are yet two more stumbling blocks to the realization of a hybrid electronic check system.

As the decade of the 1990s comes to a close, it is nearly impossible to raise investment capital for anything check related. While it is true that little interest exists currently for anything that doesn't have a ".com" behind its name, it is also true that the volume of check activity and the value of the paper check system to society is completely absent from the minds of most venture capitalists. end of article

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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