The check's in the mail

April 29, 2012 2:04 AM

Electronic transfers have not replaced checks in the United States to the same degree as in most other Western countries. What are the technical and cultural reasons underlying this?
posted by dave99 to work & money (48 answers total)

Perhaps part of the answer to this could be found in the motivations for passage of the Check 21 Act, which was the law that authorized checks to be transmitted and stored electronically, which didn't come into effect until late 2004.
posted by XMLicious at 2:54 AM on April 29, 2012

In my world they have... I have not written a paper check in almost a year. My tax refund was electronically deposited. So is my paycheck.

Are you talking about ALL money transfer situations? There are some instances where e-transfer is not practical or possible; I mean, you have to provide your bank routing info to make it happen... I'm not going to give that to joe schmoe just to get a $20 rebate or something like that.
posted by I_Love_Bananas at 3:50 AM on April 29, 2012

I think it depends on what and who the check is for.

My parents will write me checks because it's the easiest way to get me money.

I write checks for daycare and rent because our daycare provider is a couple and not a company with the ability to pay by other means and same for rent. I'm sure there's a way we could do an electronic transfer with them, but it always seemed much more of a hassle than it's worth to try set up when it takes me thirty seconds to write a check.

I pay all other bills online using my checking account info., not my debit card info.
posted by zizzle at 4:02 AM on April 29, 2012

In Europe everyone does electronic transfers for everything. You need the person's name and account number (no routing number required), and you can transfer them any amount either from your computer or a smartphone app. So you'd simply transfer money to your daycare provider's account, or your parents would transfer to yours, etc. I too am curious why this isn't done in the US, because it's super easy and convenient.
posted by myeviltwin at 4:10 AM on April 29, 2012 [12 favorites]

I do EFTs all the time for both business and personal. I don't know anyone's account number, I just need their email address.
posted by saucysault at 4:22 AM on April 29, 2012

I have not written a paper check in almost a year.

This hardly negates the premise. I haven't had a chequebook in more than a decade, and I don't think I know anyone who does.
posted by pompomtom at 4:23 AM on April 29, 2012 [4 favorites]

I'm guessing it has to do with fees - banks probably want to keep charging big fees for person-to-person wire transfers. It can't really be a security concern because when you write a paper check, you disclose your bank acct info and sometimes your address.
posted by yarly at 4:35 AM on April 29, 2012 [1 favorite]

I understand many of you may not use checks personally, but the fact remains they are far far more used overall in the US than in the UK, Europe, Australia etc.

For example, I understand rent is almost universally paid by check in the US. In Europe, UK, and Australia, it is almost universally paid by personal electronic transfer - the landlord gives her bank account number to the tenant for this purpose. I was curious what the factors are that stop landlords doing this?
posted by dave99 at 4:44 AM on April 29, 2012

A combination of weird cultural inertia and high fees for direct transfers, I'm guessing. I pay all my bills online, for free, through my bank's website-- and when I do, they print out a paper check and put it in the US mail. This makes no sense, but it's just how things are.
posted by Faint of Butt at 4:45 AM on April 29, 2012 [3 favorites]

high fees for direct transfers

I'm curious why do US banks charge a lot for electronic transfers but give free checks, when EFT are cheaper for them to process?
posted by dave99 at 4:47 AM on April 29, 2012

As another point of comparison: In Canada, you don't even need the person's account number. You can just send an interac e-transfer straight to someone's email address. The fee varies w. the bank but is usually around $1.50. In my anecdotal experience, this has just become really widespread in the last year or two.
posted by ManInSuit at 5:26 AM on April 29, 2012 [2 favorites]

US banks are loath to give up their float / interest made on money held during the completely technically unnecessary 3-4 days stipulated for EFT. Until there is legislation forcing them to clear such transactions instantly, this situation will continue.
posted by seanmpuckett at 5:29 AM on April 29, 2012 [16 favorites]

Ahhh, but the checks are NOT free. Yes, they say free checking but it is with a ton of caveats - minimum balance reqs, must have two direct deposits per month, no more than 10 checks per month, and on and on. Plus you have to pay for the paper checks themselves.

The last time I checked, it was a $10 fee for a wire transfer at my bank, but online bill pay is free. (They do that same silly cut a paper check thing that Faint of Butt mentioned.)

I would love to live in a world where money is transferred as easily as it is in Europe - I'll just add that to the list of reasons I need to move.
posted by PorcineWithMe at 5:29 AM on April 29, 2012 [1 favorite]

Perhaps it is those luddite government agencies who insist on seeing a photocopy of the front and back of a check when sending in the paper forms that are still required for proof of virtually anything that has been paid for or will be reimbursed by said government agency.
posted by Gungho at 5:31 AM on April 29, 2012

In the US, interstate banking is a relatively new thing; it was the late 1990s, I think, before I could make a deposit at my bank in a different state, and I live right on the border. Lack of momentum in the industry is probably the biggest factor, but the lack of demand because the current check-based system works just fine for everyone probably has equal weight.

Also, the near-irrational fear of identity theft is manifested around account numbers. What used to be just called "bank fraud" is now called "identity theft", even though the identity theft doesn't extend beyond filling in somebody else's name in a blank. The account numbers for your bank account aren't to be divulged except when MICRed across the bottom of a paper check. I went to an identity theft seminar a few years ago, put on by the state, and one of their experts was a guy who wrote a check to the Boy Scouts selling popcorn door-to-door, and they used the account number taken from the check to print checks for themselves with Quicken. the *state* considered this one of the worst cases of identity theft at the time. This stuff terrifies people in the U.S.

My bank has a service where I can set up accounts to automatically mail a check to each month. I'm using it to mail a check to my parents and a check to my in-laws every month, because it's simple as heck. Why would I want to go through all the work to get their account numbers, when my bank will mail them a check for free? I still manually write checks for my landlord, my city bills (water, trash, etc), and at a couple businesses that still don't accept credit cards.
posted by AzraelBrown at 5:58 AM on April 29, 2012

EFTs are just one of many automated services that are ubiquitous in Europe but slow to catch on in the USA.

One of the reasons here is the much lower cost of labor in the USA compared to Europe leading to a much lower incentive to adopt these labor saving technologies.
posted by deanc at 6:01 AM on April 29, 2012 [2 favorites]

I think myeviltwin and others upthread have nailed it. This was one of the things I noticed when I moved from the US to the UK. Back in the states I used to complain all the time about how there was no simple/easy/free way to send somebody money electronically. You either had to have billpay set up on both ends, or Paypal accounts or something else equally ridiculous. I moved to England and people thought I was nuts in trying to describe the difficulties of sending money between people. Here, you just get the sort code and send the money, much like using a phone number and a phone to exchange words and ideas (remember when we used to memorise several 7-digit strings of numbers that represented people we could contact?). Now I do it all the time, for everything. I've written one check in the almost 2 years I've been here.

I really think it has to do with the bank agreements (or lack thereof), the profits they want to make (fees collected for services, etc.), their desire to collect interest in the interim, and probably a few other things. A similar thing I notice is ATM/cash withdrawl fees. In the states, the banks are so compartmentalised and non-cooperative that you spend extra time and money to find *your* bank's ATM. The cashpoints (ATMs) in the UK are all talking to each other in that sense, so you're not getting dinged for private fees or bank-specific fees. And don't even get me started on health insurance or healthcare...
posted by iamkimiam at 6:03 AM on April 29, 2012 [2 favorites]

Another factor is that banks can hold check funds from the recipient for an ungodly amount of time (10 business days I think) and yet can deduct the funds from the check writer's account almost instantly under Check21. This gives them a nice chunk of interest.
posted by yarly at 6:35 AM on April 29, 2012

For some reason, my bank can't pay my water bill electronically, which means they print and mail a check, which means they pull the money out of my account 5 business days before the bill is due. If there is a Federal holiday in there somewhere that $50 can be unavailable to be for almost 2 weeks before the bill is actually due. Thankfully, I'm not living on the edge so I don't really care, but for those that are, I can certainly understand that they'd rather mail a check locally the day before the bill is due.
posted by COD at 6:53 AM on April 29, 2012

I an Canada we only have a few Banks (I think four?) whereas when I am in the US I never seem to see the same bank twice (and they are all physical brick buildings). I think most European countries as well have fewer banks, and, in the UK at least, seem to have fewer buildings than the US. I wonder too, if the reliance on cheques in the UK makes credit card usage higher - and more profitable - for banks.
posted by saucysault at 6:54 AM on April 29, 2012

Legacy systems, reluctance to let go of the (profitable) status quo, and, imho, a sense of paranoia, particularly the past decade or so, which in turn means that the whole system lags behind the rest of the world significantly.
posted by infini at 6:58 AM on April 29, 2012

There are still plenty of consumers without smartphones or home computers/Internet who need to use paper checks.
posted by ThePinkSuperhero at 7:02 AM on April 29, 2012 [1 favorite]

In Europe, I think you can send money from an atm, so access to the internet isn't the issue!
posted by yarly at 7:06 AM on April 29, 2012 [2 favorites]

Oh hey, the Boston Fed wrote a paper on this very subject: http://www.bos.frb.org/economic/ppdp/2010/ppdp1001.pdf
posted by yarly at 7:11 AM on April 29, 2012 [9 favorites]

In America, the first question always asked by the banks is "Can we make money doing this?" If the answer is not "a lot," and "easily" then its not likely to happen.
posted by ackptui at 7:14 AM on April 29, 2012 [2 favorites]

From yarly's link, the Fed says "this paper finds that the European lead in electronic P2P was a natural extension of the 'old' Giro payment networks, which were accessible to all consumers
via many European post offices and financial institutions."
posted by gimonca at 7:38 AM on April 29, 2012

Because European banks aren't greedy? Go look at what consumer banking returns are in much more concentrated markets than in the US. Less players, higher returns.

yarly's paper is what you should read. In a nutshell it has to do with infrastructure surrounding bank payments. Because the US had a better cleaning network for checks (mostly because of the Fed) we never developed Giro payment networks - basically bank-to-bank payments that were the antecedent of electronic transfers. Its one of those situations where the first mover (the fed and checks) gets leapfrogged by a better technology. The problem is that checks are cheap and acceptable enough to people that there hasn't been widespread enough adoption that banks want to incentivize people to use electronic transfers.
posted by JPD at 7:38 AM on April 29, 2012

In Europe, I think you can send money from an atm, so access to the internet isn't the issue!

Sure, but access to an ATM is- not everyone in the US has an ATM around the corner from their house.
posted by ThePinkSuperhero at 7:39 AM on April 29, 2012

I should add, because some people have mentioned the elderly or other people who might not have internet/cell phones, that there are other ways of initiating the money transfer in most European countries. Besides ATMs, mentioned above, you could also fill out a paper form and give it to your bank, and they would then transfer the money. The payee would not have to do anything at all. Sometimes when I bought things online over in Belgium, they would come with a pre-printed slip that you would fill out with your bank info and give your bank to initiate the transfer (yes, it seems there is a lot more reliance on the honor code in that case).
posted by dhens at 7:42 AM on April 29, 2012 [1 favorite]

The (US-based) non-profit organization I work for occasionally has people and organizations wanting to send us money from Europe, for membership payments, subscriptions, convention registrations, and the like. Our bank charges us $17.50 per transaction to receive an international electronic transfer, which of course gets passed along.

We get less than a dozen such payments a year, I'd wager.

(Interesting note: in the last couple years, US banks have been pushing direct deposit much more heavily--I know each of the last three banks I've had have claimed to have given me special perks for using direct deposit rather than my carrying in a paper check to deposit. Money in faster, good. Money out faster, bad.)
posted by FlyingMonkey at 7:45 AM on April 29, 2012

I write checks for daycare and rent because our daycare provider is a couple and not a company with the ability to pay by other means and same for rent. I'm sure there's a way we could do an electronic transfer with them, but it always seemed much more of a hassle than it's worth to try set up when it takes me thirty seconds to write a check.

To add to that, I wrote a check to a guy who did concrete work for me last year. I could have given him a credit card number, but then he loses 2% or whatever off the top of the transaction.
posted by gimonca at 8:00 AM on April 29, 2012 [2 favorites]

In Europe everyone does electronic transfers for everything.

Almost all of Europe. Cheques are still pretty common in France, although not nearly as much as in the US.

Because European banks aren't greedy?

BWAHAHA...believe me, European bankers are just as greedy as any other. Otherwise they wouldn't have sold their souls to Satan chosen that career path. It's just a matter of regulatory systems, and mainly, yes, the existence of the Giro network.
posted by Skeptic at 8:07 AM on April 29, 2012 [2 favorites]

This gives them a nice chunk of interest.

I find comments like these baffling. Interest rate is zero now, has been for years, and they say, for years to come.
posted by Rash at 8:57 AM on April 29, 2012

It's about zero for the money they borrow, it's greater than zero for the money they lend.
posted by ifandonlyif at 9:12 AM on April 29, 2012

Because the US had a better cleaning network for checks (mostly because of the Fed) we never developed Giro payment networks

Yep: the distinction between "push" transfers (initiated when the payer sends funds) and "pull" transfers (initiated when the payee deposits a check) is the key here.

Giro payments have also played a large role in other countries' welfare systems; conversely, the US government has always been loath to engage in direct cash transfers to individuals outside the remit of Social Security, for reasons that are as much political as technological: that's why you have a parallel EBT system to deal with the restrictions on where those benefits can be spent.

The problem is that checks are cheap and acceptable enough to people that there hasn't been widespread enough adoption that banks want to incentivize people to use electronic transfers.

There's also the small matter that the largest writer of checks is the federal government, including six million paper checks per month to Social Security recipients who prefer not to receive direct deposit. That's a tricky situation to change.
posted by holgate at 9:51 AM on April 29, 2012

In Europe, UK, and Australia, it is almost universally paid by personal electronic transfer - the landlord gives her bank account number to the tenant for this purpose. I was curious what the factors are that stop landlords doing this?

In the US, the transaction is controlled the other way around. For instance, if I wanted to pay my electric bill by EFT, I would give my bank account number to the power company and authorize them to take $65 (or whatever) from my bank account.
posted by desuetude at 12:41 PM on April 29, 2012

At the risk of being labeled some kind of disgusting luddite, I'll fess up to being an American who uses checks. I use them only for paying monthly bills such as mortgage, telco, gas, electricity and municipal water. Moreover, we receive paychecks in our households as actual checks, rather than direct deposit. I never use checks at retail purchases anymore.

Certainly some of this is inertia and personal emotional/psychological reasons. Sitting down to pay the monthly bills was something inculcated in me by my parents, along with balancing a checkbook. It makes me feel in touch with my finances, aids budgeting, etc. I know I could use quicken or manage it online, but it wouldn't be the same somehow. As a data point I'm in my late thirties, and middle class I suppose.

However, I have also avoided a few problems by being old-fashioned like this. Most involve errors made on the other end of a transaction from me - i.e. being underpaid by an employer, or being billed an incorrect amount by a utility. My experience has been that it's much harder to get a bureaucracy to correct a mistake in my favor once the payment has been made. FWIW I've seen several of my friends have problems with unauthorized repeating EFTs, or mistakes with EFTs that are caught months or years later and have been out of luck.

I do have my income tax refund direct deposited.
posted by werkzeuger at 12:50 PM on April 29, 2012 [1 favorite]

I believe the answer that mentioned how many different banks there are in the US has the answer. Not just physical locations, but banking companies. The system is huge, and designed to work through the check clearinghouse system. Even if paper checks disappear, the system works well.

I don't know how other countries deal with security, but I know that I, as well as many other Americans, don't want to be handing our checking account numbers to just anyone who owes us money.


In Europe, UK, and Australia, it is almost universally paid by personal electronic transfer - the landlord gives her bank account number to the tenant for this purpose. I was curious what the factors are that stop landlords doing this?

In the US, the transaction is controlled the other way around. For instance, if I wanted to pay my electric bill by EFT, I would give my bank account number to the power company and authorize them to take $65 (or whatever) from my bank account.

It can also work the other way here in the US too. I pay my bills through my bank. I put in the name, address and account number of the company I'm paying, and they do an electronic transfer if they have that payee on file. If they don't, they print and mail a check.
posted by gjc at 1:42 PM on April 29, 2012 [1 favorite]

Seconding werkzeuger: I'm another Luddite who pays monthly bills by check, and intend to continue doing so as long as I can. Partly it's inertia, but also I consider it a way to maintain control of my finances and budgeting; plus as werkzeuger says, it does sometimes avoid the bureaucracy on the other end's errors at my cost.
posted by easily confused at 2:13 PM on April 29, 2012

I don't think the question is "why don't you, as a consumer, use EFT instead of paper checks?" but is rather "why is the US financial system still so reliant on paper checks, when most of the other industrialized nations have made it shockingly simple to transfer funds electronically?"

I was just wondering about this today. Once you've seen the actual difference in procedure, it is really baffling that it hasn't caught on in the US. It is not like setting up annoying Bill Pay via your online bank. It's literally like emailing or texting money - you enter one number, sometimes the name, and the amount, and boom! Transfer. Shocking, no?

Lack of access to ATMs, computers, smartphones, etc., just isn't really a good excuse. It's not like Italy is somehow more technological and wired than the US. And truly, if that's the reason, then fine - let paper checks exist, but why not push EFT at the same time?
posted by barnone at 2:56 PM on April 29, 2012 [1 favorite]

I'm another Luddite who pays monthly bills by check, and intend to continue doing so as long as I can. Partly it's inertia, but also I consider it a way to maintain control of my finances and budgeting

I try to pay as many bills as I can by credit card, which actually makes it easier for me to control my finances and budgeting, since I have more leeway in terms of when I can pay. But I pay dearly for that privilege—it tends to cost anywhere from $2.75 to $4 per utility bill per month to do that. It's worth it to me to do it that way, because I get scheduling leeway, the ability to reverse charges (among other card protections), and fewer instances of my checking-account number floating around. But I think the cost of paying by credit or EFT is another reason why people pay bills by check here—there aren't any fees associated with it (beyond a stamp and the cost of getting checks printed in the first place).

Anyway, if companies wanted to encourage electronic payments, they'd do well to reverse the situation and institute fees for accepting checks and eliminate fees for paying by card and EFT. I think there would be a lot of benefits in doing so, but I could also see customers used to the old ways getting up in arms about that. So I guess a lot depends on the stats re: the customer base—if a significant percentage of customers pays the old way, by check, then even if you're a utility company and have an effective monopoly in a given area, you don't necessarily want to go pissing off that many customers. And as mentioned above, you'd probably be pissing off the banks, too, which really like the interest they get while checks and payments in their bill-pay systems are being processed.
posted by limeonaire at 3:05 PM on April 29, 2012

There's also the small matter that the largest writer of checks is the federal government, including six million paper checks per month to Social Security recipients who prefer not to receive direct deposit. That's a tricky situation to change.

Yep, and those paper checks—and everyone else's—go through the U.S. Postal Service, which is probably one of the few things helping prop it up. Increasing use of credit cards and EFT for payment is probably not helping the U.S. Postal Service at all.
posted by limeonaire at 3:08 PM on April 29, 2012

I'm another Luddite who pays monthly bills by check, and intend to continue doing so as long as I can. Partly it's inertia, but also I consider it a way to maintain control of my finances and budgeting

I guess it's just what you're used to. All my banking is online, so all my bills get paid automatically. Then, once a month (or more, or less - whenever), if I want, I can log on, extract my statement in Excel and use it for budgeting - same process as when you use a chequebook, but quicker and easier (for me, at least).
posted by penguin pie at 3:34 PM on April 29, 2012

I have wondered about this subject.

I regularly buy from the USA, and elsewhere, and it does seem, well, rather less advanced in matters banking to the point where I sometimes have to get a paper draft (cheque) in usd and snail mail it.

FWIW, I have not had a chequebook (or checkbook if you prefer) for 10 years. Payments in shops are cash (under say $10), EFT or credit card. Virtually all my bills are paid EFT from my online banking (the rest by credit card), credits are paid direct to my account, and but for one rather bizzare transaction, I have not seen a cheque for literally years.

Regarding the comment above about keeping control, I refuse to allow direct debits (where the biller takes the money from my account), and pay them myself on receipt of the bill (electronically to by snail mail).
posted by GeeEmm at 4:10 PM on April 29, 2012

limeonaire: "Anyway, if companies wanted to encourage electronic payments, they'd do well to reverse the situation and institute fees for accepting checks and eliminate fees for paying by card and EFT."

This is how it happened here in Australia, but it was the government doing the encouragement - if you have a bank account that has cheque book access, you have to pay a tax on all debits from the account (not just those paid by cheque). Apart from the odd occasion buying milk at a small shop or something, I don't even remember the last time I was involved in a financial transaction that wasn't done electronically, from a loaf of bread right up to buying a house. It's increasingly difficult to get companies to send you a bill in any other way than e-mail these days, never mind having a bill-paying method that takes a week or more between the money leaving your account and the bill actually being paid.
posted by dg at 9:33 PM on April 29, 2012 [1 favorite]

FWIW I've seen several of my friends have problems with unauthorized repeating EFTs, or mistakes with EFTs that are caught months or years later and have been out of luck.

I pay my rent with checks instead of through their direct deposit for this reason. I used to work at a bank, and I am strongly convinced that only a fool gives people unfettered access to their checking account. It's very easy for pre-authorized parties to deduct huge sums from your account, but it's very hard to get them to refund those amounts if they screw up.
posted by winna at 6:51 PM on April 30, 2012 [2 favorites]

I used to work at a bank, and I am strongly convinced that only a fool gives people unfettered access to their checking account.

It could just be personal experience, but I've never heard about this happening in Canada, or the few countries in Europe where I've done electronic financial transactions.

Maybe it's not possible given other security procedures? It's not unlimited access to withdraw funds from other accounts. It's the ability to pay easily. It's a totally different experience than most Americans realize.
posted by barnone at 11:50 AM on May 1, 2012

Nordea, a Nordic bank, issues two separate ID numbers to log into an account and send payments electronically. One is your personal ID and the other is a list of randomly generated numbers accompanied by a third set of codes. These last two are required to authorize any transaction, so the bank account number alone in the possession of a third party does not permit transactions other than sending.

DBS, a Singapore based bank send me an sms to my mobile with an authorization code before I can complete any online purchase *and* that number needs to be used within 3 minutes else it expires and you can have to go through teh process again. They issue an electronic random number generator for other online banking.

(mind you, I'm sure all security systems can be hacked but certainly simply a bank account number by itself is pretty meaningless, except in the US, iirc)
posted by infini at 12:04 PM on May 1, 2012