I Think I Will See The Last Cheque

Other people still use a few of them, but I doubt that I will ever use a cheque again.

Dateline: London, 11th December 2024.

The Deputy Manager of the American Bankers Association, Dale Reistad, made an interesting speech setting out a vision for the payments industry. He told the Midwest Economics Association that innovations may “eliminate the need for numerous credit cards, checks – and, perhaps, cash – and at the same time expand and simplify customer services”. I couldn’t agree more, and I think it’s pretty interesting, given Visa’s recent announcements, that he goes on to say that in the future “one bank ID card would provide identification, unlock the customer’s bank account and serve also as the key to his [record at a] credit bureau”.

Check Dynamics

Oh, I forgot to mention, Mr. Reistad made this speech in 1967.

Back in the Summer of Love, he said that what he called “checkless” banking “may replace our current system as early as 1980”. It didn’t. Well, it didn’t in the United States. I can’t remember the last time I used (or even saw) a cheque in our United Kingdom and they have vanished from view in many other countries. Yet when I lived in California in the 1980s I was surprised by the thick check book my bank gave me and my son was just as surprised when he moved to California four decades later and was presented with an entirely similar artefact of payments past. It was as if he had been asked to pay his rent using doubloons.

with kind permission of Helen Holmes (CC-BY-ND 4.0)

There are a few reasons why checks are so prevalent in America compared with other developed countries. For one thing, American banks have invested heavily in the infrastructure for check imaging and processing and for another, while digital payments and peer-to-peer apps have grown significantly there, the uptake isn't as universal or integrated into all facets of commerce as in Asia or in Scandinavian countries where cashless transactions are commonplace. For some groups, especially older consumer and perhaps those in rural areas with less reliable internet access, paper checks remain a practical and trusted.

My suspicion, however, is that financial behaviour is simply conservative, influenced by longstanding habits. In the US, checks are deeply ingrained in both personal and business transactions. For example, many landlords, schools, and service providers have relied on checks for decades. Because of this, it’s probably more the cultural resistance to changing systems that drives the sustained use of checks in the United States rather than any rational explanations around interest and so on.

The Times They Are A Changin’

And yet… I was thinking about Dale’s speech because I was surprised to discover what I think future economic historians will label a weak signal for change: Target has stopped accepting personal checks as a form of payment. Yes, that’s correct. I am sure that this is what economists call a “weak signal for change” and a sign that the times really are a changin’ when it comes to the American payments system.

(When economists refer to a “weak signal for change” they are talking about early, subtle indications or patterns that suggest a potential shift in trends. These signals are typically not strong or obvious and may not be reflected broadly across key indicators, but in hindsight they can be seen as significant indicators.)

Checks, along with foreign currency, mall gift cards, money orders and sundry other retail payment mechanisms are no longer valid in Target stores due what a spokesperson called "extremely low volumes” of the once popular paper payment process. And unlike other antiquated payment system such as cash, checks won’t hang around as a niche service: as I wrote a decade back, while we digitised checks (using remote deposit capture and check imaging) the rump will be bypassed using account-to-account credit transfers. No matter how digitised, they can’t hold on. The costs of the paper infrastructure are falling on fewer and fewer checks and we are raising a generation that simply doesn't get them. Checks are on target to be the first payment mechanism to vanish in my lifetime.

The US is seeing the same trends. According to the Federal Reserve, the number of payments made by check has been declining, dropping 7.2% annually between 2018 and 2021, with a total of 11.2 billion that year. However, the average value of check payments has increased from $1,908 in 2018 to $2,340 in 2021, indicating that although people are writing fewer checks, they are using them for larger transactions — and therefore are less likely to use them to buy groceries or gas anyway. Those larger transactions are going electronic as well. It’s a couple of years since Bank of America customer made more Zelle transfers than check payments and in the first quarter of this year The Clearing House’s RTP network processed 76 million transactions worth $42 billion.

There is another driver for getting rid of checks though, as Erin McCune, one of the leading experts on US business-to-business payments, notes: While check use is declining, check fraud is on the rise. She points out that banks reported ~680,000 incidents of check fraud in 2022, nearly 2x the number reported in 2021 according to FinCEN and according to the Association for Finance Professionals, checks are by far the most common source of attempted or actual business payments fraud. The volume at which checks are being stolen from the mail, the better organisation of criminal groups and the convergence of street-level tactics with open access to social media have flooded the multiple check deposit points (remote deposit capture, ATM and branch) at banks with bad checks.

Altered or ”washed” checks are currently the most commonly reported fraud and involve altering the payee name or amount or both. The attributing factor is the increased focus by organised criminal groups stealing U.S. mail and monetising them through a well-orchestrated attacks. In its analysis of Banking Secrecy Act (BSA) reports, FinCEN identified washing among the three primary outcomes for these checks after they were stolen. Overall

• nearly half were altered and then deposited;

• a quarter were used as templates to create counterfeit checks;

• a fifth were fraudulently signed and deposited.

Falling check use matched with rising check fraud is unsustainable.

The Last Check

Whether it is the cost of the infrastructure or the cost of fraud that drives the final nail into the check’s coffin, they are already in the coffin. So how much longer do they have? I don’t want checks, my kids don’t want checks even my gardener doesn’t want checks and the plight of gardeners was (as I recall) central to the debate about the future of checks in this United Kingdom when many years ago we had a payment strategy that planned to end check clearing in 2018 which, for a variety of reasons, never happened (and now we don’t have payments strategy either).

(As I said at the time, "When someone sends you a cheque, it’s like being set homework.”)

Mike Chambers, an expert on the UK’s payment systems (he used to run them) compared the predictions of ChatGPT and a data analyst. ChatGPT predicted that the UK’s last check might be written between 2030 and 2035 whereas the data analyst looked at the data from April 2020 to April 2024 and predicted that the last check in the UK will be processed on the 22 January 2029. I think I might side with the artificial brain on this one. People are notoriously conservative about money, banking and payments, so I think checks might hang on for a bit. But will I live to see the last check written in Britain? Actually, I think I might.