Checkless Society Still In The Mail

A strange thing happened on the way to the checkless society: We forgot where we were going.

Year after year, Americans are setting new records for writing paper checks despite decades of campaigning by bankers who want to cut costs by promoting credit cards, debit cards, direct deposit and other forms of electronic banking.

Checks are expensive to print, to write, to mail and to process, bankers say over and over, but customers aren’t listening.

Customers like the paper record a check creates, they like the control checks give them over when money is withdrawn from their account and they like the “float” - the added interest they can earn on their money while the check is in the mail.

This delay of two or three days also allows customers to put a check in the mail a day or more before they put the money in the account to cover it.

Americans wrote 42.5 billion checks in 1980, 56.8 billion in 1990, an estimated 62.9 billion this year and a projected 67.7 billion in 2005, according to The Nilson Report, a financial services newsletter.

“Check-writing is going up. It is continuing to go up and has never gone down,” said John Hall, spokesman for the American Bankers Association.

“People are very comfortable with using checks, and to switch to some other form of banking makes them uncomfortable,” said Donald J. Mullineaux, banking professor at the University of Kentucky.

But check printers had better not look back: Electronic banking is gaining on them at the speed of a Pentium chip.

While the number of paper checks is expected to increase about 1 percent this year, the number of electronic transfers handled by the Federal Reserve System has been increasing annually at double-digit rates.

The total is expected to jump 15 percent this year to about 3.5 billion transactions, said June Gates, spokeswoman for the Federal Reserve Bank of Cleveland.

The total of 3.5 billion does not include Visa, MasterCard and other private credit and debit cards, which are also posting huge gains in transactions each year.

All types of financial transactions are increasing because the economy is growing and everyone simply is buying more stuff, Gates and other observers say.

Banks aren’t waiting for the convenience of credit cards and other electronic payments to close the transactions gap. They are offering alternatives that allow check-writers to keep some of the advantages of a checking account.

The most common type of debit cards, known as off-line cards, allow users to, in effect, keep a float of two or three days. The money to cover a transaction is reserved or frozen, but not deducted from the bank account for a couple of days.

A less common type of card, the online card, deducts each purchase immediately from the user’s bank account.

In another move to make debit cards more attractive, Visa, MasterCard and other issuers recently reduced the danger from potential illegal use by severely limiting the amount of debt the card owner must pay if the card is lost or stolen.

Meanwhile, banks are trying to reduce postage and processing costs by ending the tradition of returning canceled checks to customers.

And the federal government is getting into the act, too.

By Jan. 1, 1999, Washington will stop sending paper checks to welfare and Social Security recipients, government suppliers and contractors and millions of federal employees and retirees.

Such payments - with the exception of income tax refunds, which taxpayers can elect to receive by paper - will be deposited electronically into the recipients’ bank accounts.

Each transfer will eliminate one paper check and create one electronic transfer, but the process will also force some recipients to open bank accounts, which could lead them to write paper checks.

Why go electronic?

The government is taking the step for some of the same reasons banks cite in their advocacy of electronic banking.

Direct deposit is more reliable and secure than a paper check in the mail. Fewer mistakes are made because fewer people are involved, and, they argue, the process is a lot cheaper.

The U.S. Treasury makes 850 million individual payments a year and says it expects to save $500 million in postage and handling in the first five years of electronic transferring.

The government says its costs will be slashed from 44 cents for each paper check to 2 cents for each electronic deposit.

Banks and other financial institutions say they will save 80 cents for each electronic transfer that eliminates a paper check.

Such lopsided estimates are disputed, however.

In September, the chief executive of Global Concepts Inc. in Atlanta, Allen Lipis, rattled the banking industry with the results of a study that showed that electronic transactions are actually more expensive than processing paper checks.

A typical electronic transaction can cost 8 cents, Lipis said, while checks often cost as little as 3 cents to process.

The cost of processing a check depends on how many banks have to handle the paper before it reaches the writer’s bank, he said.

“It’s very inexpensive,” for example, if a local resident who has an account at a local bank gives a check to a local business. No more than two banks will have to handle that check.

If a Lexington bank customer writes a check in San Francisco, however, at least two commercial banks and two Federal Reserve Banks will handle that one piece of paper and the cost will be higher.

Tags: business

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