With all the turmoil that's currently going on in the world, there have been rumblings that we should all consider moving to a cashless economy. In the U.S., claims of coin shortages have played a key role in some government leaders calling for the elimination of fiat cash in favor of some kind of formal digital cash payment system.
Whether or not you believe that to be a viable approach to commerce, you may not be aware of the potential impact that could have on the economy. If government officials choose to eliminate using cash to pay for things, how much longer would it be before they decide to eliminate the use of checks to pay for things? While it seems logical they would eventually try to move in that direction, there are many reasons to keep checks in society.
The Stats on Checks
Before getting into the whys, it is important to statistically understand just how essential checks are to the U.S. economy.
Did you know that according to a 2015 report issued by the Federal Reserve, consumers collectively used 17.3 billion checks to make payments? That's the number of checks, not the money value of the checks. In another 2018 article posted at pymnts.com, businesses were still paying other businesses by check to the tune of 64% percent of all B2B payments. These are big numbers worthy of consideration.
After taking this and other similar data into consideration, does it make sense to eliminate the use of checks to interact business between two parties in the U.S.?
From a practical standpoint, any attempts to eliminate the use of checks for payments would be a huge task. It could take the U.S. economy years and tens if not hundreds of billions of dollars to transition to other payment platforms. With that said, there are many key reasons why any consideration of eliminating checks deserves scrutiny.
In the following sections, the focus is going to shift towards the whys of the importance of check payments in the current economic environment.
Why Checks Play Such a Key Role in Today’s Society
On the surface, making all payments digitally sounds like a good idea. If done correctly, it would eliminate a lot of paperwork and create an economy where payments could be made quickly and efficiently. This isn't contention, it's fact as evidenced by the number of people who make some if not all of their payments through online banking or debit/credit cards.
While that sounds good and makes sense, other aspects of this need our consideration. The following list includes 10 reasons why using a check payment system is still a must for a lot of Americans.
- Not All Americans Use the Internet
- Checks Leave a Paper Trail
- Electronic Systems Go Down
- Checks are Easily Accessible
- Preference of Payees
- Mail Security
- Not All Americans Use Bank Accounts
- Credit Cards Payments Cost Money
- Makes Payments from Government Easy
Contrary to popular beliefs, not everyone in America uses the internet. First, there are still tens of millions of Americans who don't have regular access to computers or mobile devices. Without unfettered access, a lot of these people live lives that do not revolve around the internet.
Second, of the people who do have unfettered access to the internet, there is still a large number of people who don't trust it. They don't like providing access to their personal information over the internet, nor do they want anything to do with making payments in this manner.
If people can't or are reluctant to use their computers and mobile devices to transact business, eliminating check payments would create a real dilemma for them. Eventually, it might put the government in a situation where they would be mandating a process that millions of Americans would oppose. That's not the formula for an efficient payment system.
Call it being stuck on tradition, but there are still a lot of people who need and want a paper trail for all their financial activities. This is particularly true of businesses that need to maintain good audit trails for when auditors and certain government agencies come calling.
There is also a fear among many people that digital information is subject to manipulation or somehow magically disappearing. If people don't have full faith in a process, they are understandably going to be reluctant to use it. With physical checks, people know they have a real document they can use as undeniable proof of payment once their banks have processed the check.
While electronic technology has become one of the driving forces behind how the U.S. economy operates, it's still far from perfect. People need some level of assurance that the payment system they are using is going to be secure and functional at all times.
Think about all of the times you have been in the grocery or at the department store trying to make a payment with a debit/credit card. Those systems do go down, either at the merchant level or at the bank or credit card processing level. If this were to happen when you are trying to pay for a cart full of goods, what would your alternative be if you don't have cash?
For now, your checkbook is the only assurance you have that you can make payments when electronic payments systems malfunction.
Convenience is always going to be an important factor for consumers. They want the ability to transact business with a minimum of effort or forethought.
With credit/debit cards or other digital payment platforms (crypto), there is the risk the platform will go down as we mentioned above. Also, there are still many merchants that don't accept debit/credit cards because of transaction fee requirements. Finally, ATMs are not always readily available. If someone can't use a digital platform or get cash, it's nice they can simply reach into their pockets or purses and make the payments they need to make by check. It's that easy because pockets and purses always go where the people go.
As we just alluded to above, not all merchants support digital payments. This is also true of landlords who don't have credit card processing devices sitting at home. Of course, landlords could request payments be made via bank to bank wire, but there seems to be a reluctance among them to collectively go that route. In some cases, it's because banks charge fees for incoming transfers.
As for merchants, credit card companies do charge them a small fee for processing credit card transactions. These fees will have a direct impact on the merchant's bottom line. They could increase prices to offset such costs, but increasing prices is not always good business.
The fact is many landlords and merchants just simply prefer to get paid via checks they can deposit in the bank and have their banks process for free.
Sometimes, people have to make payments via the U.S. mail service. There are many reasons for this, such as a lack of internet access or sending money to a faraway location.
Many people may be uncomfortable with the idea of sending cash, and for good reason. Despite the postal service’s best efforts, there are many instances of mail getting stolen. Unlike cash, personal checks can be traced when cashed in, so you know your payment is ending up at the right place. There are also precautions you can take to ensure your check doesn’t get stolen, such as making sure the check can’t be seen through the envelope, restricting the check, and mailing the check at a post office.
While it's hard to believe, there are still many Americans that don't have a bank account. A 2017 survey estimated that 8.4 million households in America were unbanked. These are folks who can't get an account for personal reasons or just don't trust banks to hold their money. There are even people who avoid banks for nefarious reasons.
Regardless of the circumstances, some people don't have bank accounts in which they can make deposits or receive funds. What these people can do is walk into a payor's bank with proper identification and get a check cashed at any time. Once again, the convenience of interacting business with checks is an important consideration.
Credit card companies charge money for their services. They charge merchants for transaction processing, and they charge consumers for borrowing. While credit cards are convenient, the credit card companies are essentially playing both ends of every transaction to the middle. For everyone concerned, paying by check should always be preferable to giving money to wealthy credit card company CEOs.
According to a 2012 article reported by the Washington Post, nearly 49% of all households have a least one person who is getting some form of assistance from the federal government. That includes people who are getting social security and welfare benefits.
Since there are so many people who don't use the internet or have bank accounts, government checks are the only alternative the government has to issue its payments. Never has this more evident than with the current COVID19 epidemic. When the federal government decided to provide stimulus payments to most Americans to help prevent economic disaster, they had to find a way to get payments out to each person. Without access to banking information for about 30 million U.S. residents, payment by check has been the only other viable alternative.
As you can see, checks still play a big role in keeping the U.S. economy moving forward. As a consumer, you can still choose how you want to transact business as a consumer, at least for the time being. Who knows what the future holds? What we do know is that for now, there is not a better payment alternative than paying by check.
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