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Are Paper Checks Becoming Obsolete?

Person paying bills and writing checks

If you’ve written a check, had to scrounge for an envelope and stamp, and then tried to find a mailbox, you realize pretty quickly why paper checks are being usurped by an array of digital payment methods. Nowadays, our phones can do just about anything we need them to do, payments included. The same is true of our computers, laptops, and tablets.

Bill pay has made managing payments pretty sweet, especially for those pesky recurring ones. And newer technologies, like person-to-person payments, make life easier when it comes to paying the babysitter, Aunt Paula or the plumber.

The question: Are paper checks going the way of hand-written letters and the Pony Express?

The evolution of the check

If paper checks seem as old-fashioned as your grandmother’s rotary phone, take heart, they’re not. They’re way older. In fact, checks can be traced as far back as the 11th Century. But before you decide to pitch them, consider the payments evolution.

Rewind to 9/11

The 9/11 terrorist attack had a dramatic impact on many things in our world, including the way we bank and make payments. During the tragedy, $47 billion in paper checks were grounded – delayed and waiting on their respective planes to reach their final destinations. The calamity ultimately led to the passage of the Check 21 Act, enabling financial institutions to accept electronic check images instead of the actual paper. This acceptance of electronic images eventually paved the way for the development of new and more convenient forms of electronic payments.

Are people still writing checks?

In a 2013 payments study, the Federal Reserve reported that only 15 percent of all payments were made by paper checks; a huge decrease from 2003 which then was a whopping 46 percent. Meanwhile, debit card payments continued to rise, increasing from 19 percent in 2003 to 38 percent in 2012.

Since the Check 21 Act, check usage has been declining by about 1.8 billion every year. In theory, it’s possible that paper checks, could, at this rate, disappear entirely by 2026. Likely? Probably not. The number of checks that continue to flow through the system every year, roughly 18.3 billion, is nothing to sneeze at, and the amount per average transaction remains substantial, more than $1,400 per check.

How often do you write a check?

According to a 2014 GoBankingRates.com poll, 38 percent of respondents said they “never” write a check, while 26 percent write checks several times a month. So which is the better alternative? That’s personally up to you and your lifestyle. But whether it’s by habit or convenience, there are still some valid reasons to hang on to those paper checks.

Reasons to write a check:

  • Pay anyone (even when you don’t know the name of the person to pay)
  • Provides an easily tracked paper trail
  • Cleared check gives proof payment was received
  • Ideal for gifts, fundraisers or donations (you can even add a bit of personality or detail in the memo line)
  • Perfect for work done around the house (pay the painter or plumber)
  • Pay government agencies or kids’ school items
  • Avoid fees sometimes tacked on to electronic transactions (eliminates debit or credit processing fee)

If not by check, how do you pay?

While debit cards remain the go-to payment option for many, mobile payments have also shown steady growth in the last few years. According to the 2015 Federal Reserve survey, Consumers and Mobile Financial Services, 24 percent of mobile phone owners report having made a mobile payment in the previous 12 months. The three most common transactions were paying bills (65 percent), purchasing a physical item or digital content (42 percent), and paying for something in a store (33 percent).

The report also says the use of mobile payments has increased over time: In 2011, 23 percent of smartphone users reported using mobile payments, by 2014, usage of mobile payments had grown to 28 percent.

Reasons to go paperless:

  • Better for the environment
  • Safer than mailing a check (checks can get lost or sent to the wrong address)
  • Faster with fewer transaction holdups
  • Paper checks are slow, especially when combined with snail mail
  • Digital payments are secure (people can steal a paper check)
  • Digital payments are quick, convenient, and seamless

Person-to-person (P2P) payments are gaining traction

This technology enables smartphone users to send money to one another via an email address or valid cell phone number. On the up side, no one needs to set up any new bank accounts. It’s seamless. Transactions simply occur between each user’s current financial institution and sender’s mobile banking app. The downside? Not everyone has a smartphone or wants to do the transaction this way. P2P payments are becoming more prevalent, though, and familiar payment apps include:

  • Venmo (PayPal)
  • Facebook Messenger
  • Square, Inc.
  • clearXchange
  • Popmoney (FiServ)
  • Alphabet, Inc. (Google)
  • And potentially soon, Apple

eCommerce has changed our payment habits, too

Amazon and eBay have forever altered the way we choose to shop – and pay. In fact, mobile payments are expected to reach $27 billion in 2016, reports the Media Post. And according to the Walker Sands’ study, the Future of Retail, 31 percent of consumers now shop online at least once a week, up from 41 percent just two years ago. That’s an incredible impact on the payments space. PYMNT.com says that mobile cloud apps, like Starbuck’s Mobile Order & Pay, are transforming our shopping and payment habits as well.

So what’s next?

P2P payments and online and mobile banking will continue to offer more powerful and convenient features, and retailer payment apps will continue to develop and mature. Smartphones and their mobile wallets will also gain further acceptance for quick payments, shopping convenience, as well as increased retailer acceptance.

Can we still say, “The check in the mail?”

While paper checks may be going the way of the hand-written letter, they should still be around a while longer. And at times, a paper check may be more advantageous than the digital route. But take note: if you’re writing more than a few checks per month, it might be time reevaluate the way you’re taking care of business or to break old habits.

Resources:

U.S. News http://money.usnews.com/money/blogs/my-money/2012/07/13/5-reasons-to-stick-with-paper-checks
Bankrate.com http://www.bankrate.com/financing/banking/are-paper-checks-going-extinct/
Bankrate.com http://www.bankrate.com/finance/checking/paper-checks-have-staying-power-1.aspx
Management Stack https://www.managementstack.com/will-paper-checks-be-extinct-by-2026/
Business Insider http://www.businessinsider.com/the-death-of-the-paper-check-2013-3
GoBankingRates.com https://www.gobankingrates.com/checking-accounts/internet-killed-traditional-checking-personal-check/
Federal Reserve Board (Consumers and Mobile Financial Services Study, March 2016) http://bit.ly/2enyA56
Federal Reserve Board (The 2013 Federal Reserve Payments Study) http://bit.ly/2esFUvN
9 to 5 Mac https://9to5mac.com/2015/11/11/apple-pay-person-to-person-payments/
Walker Sands Communication (Future of Retail Study) http://bit.ly/2etxCDV
PYMNTS http://www.pymnts.com/news/mobile-commerce/2016/the-six-things-that-will-define-payments-in-2016/
Media Post http://www.mediapost.com/publications/article/277918/consumer-shopping-habits-reinvent-retail.html

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