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Checks no longer fit the bill

Many businesses - without you knowing - are converting checks into electronic payments to get paid immediately.

By ASSOCIATED PRESS
Published February 14, 2007

OMAHA, Neb. - Richard Kesterson slid his debit card out of his wallet even before the cashier at a Hy-Vee grocery store in west Omaha rang up his total.

Kesterson, like millions of other Americans, didn't even consider paying by check. Using a debit card is easier, he said.

Kesterson also eschews checks when paying his bills in favor of online bill pay, and then lets his bank keep track of his spending.

"I haven't balanced my account in 10 years," Kesterson said.

Such habits are part of the reason why check writing has declined sharply since 1995. The Federal Reserve estimates that 49.5-billion checks were paid in the United States in 1995; that figure dropped to 36.6-billion checks paid in 2003, according to the most recent Fed studies. Increasingly, some checks are even being converted into electronic payments by merchants, who prefer electronic transfers to handling paper checks.

Popularity of plastic

The widespread availability of debit cards and the growing popularity of plastic are the biggest factors in the decline. Between 2000 and 2003, the number of debit card transactions nearly doubled from 8.3-billion to 15.6-billion, and the number of credit card transactions jumped from 15.6-billion to 19-billion.

Julie O'Neill of Omaha said she thinks her credit card is more convenient than writing a check, and her spending is compiled on one statement at the end of the month.

Credit and debit card use accounted for 43 percent of noncash payments in 2003, up from 33 percent in 2000.

In some cases, consumers may still write a check, but increasingly, merchants are scanning those checks and converting them into an electronic payment. So the Federal Reserve counts those checks as electronic payments and not as checks; paychecks electronically deposited in employees' bank accounts are also included in this category.

Converting checks to electronic payments allows merchants to get paid quicker and it may help reduce the number of insufficient funds checks businesses have to deal with. Processing checks electronically is cheaper than processing paper checks.

In 2003, about 8.9-billion converted checks were reported, accounting for about 11 percent of noncash payments.

Reserve responds

The decline in check writing, combined with the increase in electronic check processing, prompted the Federal Reserve to dramatically reduce the size of its check-processing department, whose operations are covered by the processing fees it charges for handling checks and electronic transfers. Since 2003, the Fed has closed more than half of its 45 check-processing centers, and by the end of 2008, only 18 such centers will remain operational.

There's no way to predict how quickly check writing will continue to be replaced by electronic payments, says Terri Bradford, a payments researcher with the Federal Reserve Bank of Kansas City. About 26 percent fewer checks were paid in 2003 than in 1995.

But she doesn't expect checks to vanish.

"There's a certain segment of the population that's going to write checks," Bradford said. "You probably get stuck behind them in the check-out aisle."

[Last modified February 14, 2007, 09:53:13]