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The End of Paper Checks?
With more consumers adopting online and mobile banking for most routine transactions, the paper check, first developed about 350 years ago, may become an endangered species.
The number of paper checks written in the United States falls every year, as more people make routine payments to utilities, credit card companies and other merchants electronically. As more customers get used to making payments online or, less commonly, through their mobile phones, writing and mailing paper checks increasingly feels like an old fashioned payment method.
Most businesses and banks prefer electronic payments because they're cheaper to process. The Check 21 Act has severely reduced the need for merchants and banks to truck physical checks to clearinghouses for processing, and the growing use of online payments is trimming the need for paper checks as well.
Financial services regulators in a number of other countries are advocating the gradual elimination of paper checks. The United Kingdom, for instance, agreed in late 2009 to phase out paper checks by 2018 and to rely exclusively on electronic payments. In doing so, England will join Sweden, Ireland and Australia in phasing out paper checks.
A number of U.S. retailers and employers have also stopped accepting paper checks, or issuing paper payroll checks. No-check signs and policies are becoming common at more small businesses, and some large employers such as Sears are paying workers with electronic debit cards that can used for purchases or to withdraw cash at an automated teller machine.
A growing number of state and local governments are also using electronic debit cards to provide unemployment and welfare benefits.
To some extent, the use of paper checks follows generational boundaries, with older consumers tending to favor checks and younger ones preferring electronic payment methods.
Advocates for some groups that depend on paper checks, such as elderly citizens or those without banking accounts, say the elimination of paper checks could place an unfair burden on some people. But the tremendous cost and savings advantages mean those groups will likely have to adopt some form of electronic banking in coming years.
Electronic payments offer a number of security advantages as well. Check fraud remains a popular criminal activity through a variety of methods, such as forging checks to cash or for payments, or altering legitimate checks with chemicals to change the written amount. In addition, the account information printed at the bottom of checks can provide a roadmap for more sophisticated criminals interested in attacking checking accounts.
While electronic payments aren't immune to fraud, the degree of technical knowledge makes is less common than run-of-the-mill check fraud schemes.