Address those clients or vendors that still prefer a check payments system.
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In 1930, Albert Haddock received a bill from the British tax authorities for the sum of £57 and 10 shillings. That was a large sum of money in those days, and Haddock wasn’t happy about paying it. He made his feelings clearly known by writing a check with the words:
To the London and Literary Bank, Limited Pay the Collector of Taxes, who is no gentleman, or Order, the sum of fifty seven pounds £57/0/0 (and may he rot!) ALBERT HADDOCK
He wrote the words in red stencil on the side of a cow. He took the cow to the tax office, left it there and demanded a receipt.
Or he would have done, if the story had been true. In fact, the account was made up by the writer A.P. Herbert and has become an urban legend focusing on the flexibility of checks. After all, the material of the check is the least important aspect of it. More important is to whom it’s made out, the amount and the signature. Whether it’s written on a piece of paper or the side of a cow shouldn’t matter at all (unless you’re the one who has to process it).
That’s the principle behind eChecks. Although the use of paper checks has fallen by more than half since 2001, according to the Federal Reserve about 20 billion checks are still written every year, and together they have a value of more than $22 trillion. That’s more than four times the value of credit and debit card transactions combined. Despite the range of other payment systems available, from automated clearing houses to digital payment platforms like Due and peer-to-peer payment tools like Venmo, checks remain convenient, easy to understand and familiar. Both individuals and businesses continue to use them.
But maintaining a system based on paper is rapidly declining. A paper system is difficult to use and can be expensive. The data on paper checks have to be entered into computer systems, leaving room for occasional errors. They have to be transported and stored physically. They can take time to process, are open to forgery and theft, and leave long floats that create the potential for check kiting and other types of fraud.
In 1998, the Financial Services Technology Consortium began trailing the eCheck electronic payment system with America’s Department of the Treasury. Instead of using paper, an eCheck uses a computer file to convey much of the same information provided in a traditional check. The payer enters the name of the recipient and the amount. He or she uses a digital signature to provide authenticity, the checks are numbered to make them easy to trace, and the money comes directly from the payer’s bank account. The main difference, from the point of view of the payer, is that instead of putting the check in an envelope and entrusting it to the mail system or arranging a time and place to meet with the recipient (if they can find a recipient willing to accept checks), they send the file digitally and instantaneously through the Internet.
For the payee, placing the funds in their own account requires little more than pushing a button. There’s no need to endorse the check or pass it over the counter after driving to the bank and waiting in line.
Like paper checks, eChecks don’t provide guaranteed completion. They can bounce, they can be stopped, and they can be blocked by closed accounts and liens. For an additional fee, they can also be made more certain through the use of certified eChecks or a bank cashier’s eCheck.
eChecks retain at least some of the float familiar to paper checks. The float lasts from the time they are sent to the time they clear, and can be as long as three to four days. But as we’ll see in this report, an eCheck is faster, easier and much more convenient than paper checks.
An eCheck is processed in four stages.
The first stage is to request authorization. For traditional paper checks, this is the stage during which the customer searches for their checkbook and pen before filling in the fields, signing the page and handing it over or putting it in an envelope. For an eCheck, the process is more flexible. The eCheck can be “written” using an online payment form, a signed order form or even with a phone conversation. There doesn’t have to be a sheet of paper in sight, and usually there isn’t.
Once the seller has received authorization -- the payer’s payment details --the second stage of the eCheck is to enter those details into special software. For paper transactions, that might mean a cashier scanning or copying the amount and the names on the check into the bank’s computer system. For eChecks too, it might mean that the seller has to enter the detail themselves but generally, the authorization form itself enters the information automatically. Because it’s digital, the information doesn’t need to be digitized again before it enters the network leaving less chance for error. At Due, for example, the process is initiated using the online form. eChecks can skip a whole stage of the payment process resulting in a diminished chance of error.
The third stage for an eCheck is to look up the payment details and amount, and hit Submit. The payment then makes its way through the automated clearing house system. This is a clearing and settlement system set up to process enormous volumes of transactions. In 2015, the system handled nearly 24 billion transactions worth around $41.6 trillion using rules and regulations established by the National Automated Clearing House Association and the Federal Reserve. Using ACH to process eChecks makes clearing the check similar to a transfer: fast and efficient and usually significantly cheaper.
The last stage of the process is to confirm the payment and deposit the funds. Using the details provided on the eCheck’s submission form the funds are withdrawn from the buyer’s bank account and placed in the seller’s account. The entire process typically takes between three and five days but can be faster.
One difference between a paper check and an eCheck is that a single eCheck can be used to make multiple payments. This feature is particularly useful for renters who also have a regular rent payment plus a huge number of utility payments, and for people paying off an item in installments. Instead of leaving the landlord with a pile of dated checks, renters can enter the details once and state how often and when to make the payments.
The process of using an eCheck isn’t free, but it's fairly inexpensive. Fees usually range from between 30 cents and $1.50. This is significantly less than the price of a wire transfer and lower too than the real cost of using a paper check once the price of mistakes, the long float time and the extra processing time is taken into consideration.
The launch of eChecks two decades ago was met with some criticism. Some institutions saw the attempt to digitize a paper channel as misguided. It would have been better, they argued, to create an entirely new system specifically set aside for the digital world that was then developing. Instead of looking for a way to turn paper checks into bits and bytes, banks and online payment systems should have been creating unique formats to to use in their own business's to send and receive payments digitally.
Others countered that checks were familiar and trusted. Building on a framework that already existed would, they argued, make the take-up faster and it would give customers a greater range of options to choose from. Payers and payees could opt to use an eCheck but they could also make use of any of the native systems that would also become available.
In practice, the two systems have collided. When eChecks were first tried, they differed significantly from Automated Clearing Houses -- at least behind the scenes. eCheck funds would come from the paying or issuing bank; ACH debits would be made from the Receiving Depository Financial Institution. The depository bank would receive the funds described in an eCheck; the Originator Depository Financial Institution receives the money sent through an ACH. For businesses and customers, the differences were just about invisible and now -- the differences are far less relevant.
Although eChecks and ACH payments remain technically different, ACH has developed into a system that can support a number of different transactions -- including eChecks. Automated Clearing Houses send the eCheck transactions between the payer’s bank account and the payee, often using software that includes third party payment platforms like Due.
The result is a system that mirrors the simplicity and familiarity of writing paper checks but which has the speed and the efficiency of automated clearing houses. Customers are free from the complexities of that process while enjoying a low-cost and reliable way of sending and receiving funds.
In this guide, we’re going to look closely at eChecks. We’ll explore their benefits and advantages, and we’ll also assess their risks and how to reduce them. We’ll explain how and when to use eChecks, and finally we’ll take a look at where eChecks are heading. Although the inspiration might be old, eChecks have evolved greatly since their introduction two decades ago. We’ll also take a look at where they’re heading.
Let’s start by looking at the benefits of using eChecks.
To any customer who has ever had to search their bag for a checkbook they rarely use… then search deeper for a pen they rarely need, one advantage of an eCheck is clear. They’re convenient. There’s no need to write out by hand (who does that now?) the amount in numbers and letters. No need to hope they didn’t misspell the recipient’s name. No worrying about getting the year wrong when they’re writing a check in January. eChecks are just so much easier.
When you’re spending all day in front of a computer anyway, when you have an electronic device in your pocket that you can use to pay for a coffee, check your bank account and even make telephone calls, the idea of promising a payment to someone by writing it down on a piece of paper feels as antiquated as giving them a bag of doubloons (well, not quite!).
However, the convenience of eChecks applies to recipients as well as to payers. Few stores these days are willing to accept paper checks from people they don’t know. The risk is too great. Anyone can hand over a check for a million dollars but the payee won’t know if the buyer actually has a million dollars until they’ve taken the check to the bank… and waited for it to clear. All of that can take time, which means they can’t release the product. For online sellers and service providers in particular, paper checks have no place at all in their business flow. The checks can take days to arrive by mail then days more to clear. If they’ve already delivered a service, they’re left wondering whether the check really is in the mail, and if they’ve delivering a product, the delays are too long for both sides.
Even for large firms, such as insurance companies, that are used to sending out paper checks and that have structures in place to produce, approve and issue them, eChecks can create a process that is easier, faster and a great deal cheaper. Estimates of savings produced by a move from paper checks to eChecks are as high as sixty percent: eChecks require less manpower and lower deposit and transaction fees. Time savings could be as high as two to five days that would otherwise be lost waiting for checks to arrive and clear. Businesses that use electronic check conversion have reported receiving their funds nearly twice as quickly as companies that use paper checks. Billing companies can receive their payments within a day, and best of all there’s no trip to the bank with a pile of checks that have to be deposited and processed.
All of this translates to extra convenience for both sides. For payers, eChecks mean a more user-friendly process than writing a note on a piece of paper and they mean less time waiting for services as the bank processes the check or the mail deliverer finally hands it over allowing the business to make delivery. And, for businesses it means a much easier way of accepting money.
It’s no surprise then, that extra convenience for both sides should translate into extra sales for the seller and happier purchases for customers.
The benefits are particularly useful for small businesses. Not every seller is capable of accepting credit cards. For small payments, they’re barely worthwhile and sellers have always struggled to open accounts with credit card companies when they’re selling from a tent at an art fair or moving their goods at a garage sale. Companies like Square, that give away credit card readers that plug into the earphone sockets of smartphones, have provided one solution. But as earphone sockets are phased out of smartphones, sellers will need to keep other options open. Agreeing to accept eChecks makes it much easier for them to take payments and much easier for customers to make their purchases using a process that’s both simple and familiar.
eChecks also enable people to make online payments without using a credit or debit card, and without putting any money into an online payment platform. Both of these have valuable advantages. Not everyone uses a credit or debit card, and many of those who do use these cards worry too much about online fraud to enter their details into an online form. Filling an online account with cash can be inefficient if the buyer is uncertain how much they’ll need to pay in fees and therefore how much they’ll need to transfer to the platform in total. Because an eCheck draws funds directly from a bank account, the buyer only needs to use exactly the amount they need to pay. They won’t be leaving any funds in an online account they don’t intend to use again.
It’s that combination of extra convenience, a faster process for both clearing and notification if a check bounces, and lower costs that makes eChecks so attractive to both buyers and sellers. But there are other benefits too.
It’s no surprise that once you ditch the paper, the process also becomes greener. Until 2001, the process of moving checks from place to place was both physical and remarkably inefficient. The banks would load checks onto trucks for delivery to central processing centers. The centers would sort them then load them onto airplanes. Each day around $6 billion would be flown from place to place. The grounding of planes after 9/11 helped to push the passage of the Check 21 Act, allowing banks to transport digital images of checks instead of the checks themselves. That might have saved as much as 67.4 million gallons of fuel and 3.6 million tons of greenhouse gas emissions each year. (It also saved the banking system about $1.2 billion a year and gave customers and businesses around $2 billion worth of faster payment processing.)
But that process still depends first on the use of paper, even if those paper checks now travel no further than the distance from the bank teller to the scanning machine in the back office. The last official statistics measuring the use of paper checks date to 2012 but indicate that a little under 20 billion paper checks are written each year. That’s down from a peak of 49.5 billion in 1995 but it still represents a significant amount of tree-felling.
eChecks are also more accurate. The strange-looking numbers at the bottom of an old fashioned check are intended to make them easier for a machine to read, an innovation that dates back to the 1950s. But machines struggle to read the handwriting describing the name of the recipient and the amount he or she is due to receive. People can have a difficult time accessing the information sometimes too, and when they have to key in information manually, they make mistakes. Paper checks can also be mislaid and destroyed. They’re much more fragile than a secure and backed-up computer system.
eChecks are versatile. To use them you don’t need any more than an ordinary checking account, something that is available to anyone regardless of their credit record. Even if you can’t use a credit card or don’t want to use a credit card, you can still make -- and receive -- digital payments using eChecks, including for online purchases.
The benefits of using eChecks are many, and also include:
eChecks are secure which is one more advantage which we’ll discuss in the next chapter.
“Marcel” was robbed by someone using an eCheck. Writing on Sitepoint, he explained that someone purchased services from him using an eCheck sent through Paypal. A month later, the customer complained that someone had gone “on a shopping spree” with their Paypal account, and requested a refund from their bank.
Marcel lost $120, and concluded that he would never accept eChecks or any checks again unless they came from a trusted customer.
Another forum contributor took a more sober view. “This has nothing to do with eChecks,” he wrote. “You'd have the same problem if they paid by credit card and filed a chargeback, or if they paid with PayPal funds and reported the transaction as unauthorized. The merchant is almost always the liable party when an unauthorized transaction is made, even if there was no way for you to know. It's a cost of doing business.”
So much for eChecks as a risky form of payment. In fact while you can find case study after case study describing businesses and customers that have been defrauded, sometimes out of millions of dollars, by people using paper checks, you’ll struggle to find examples of people who have lost money as a result of eChecks. Even Marcel’s story dates back as far as 2008.
The security of an eCheck is a result of a number of measures built into the eCheck system that have substantially reduced the risks involved in the transaction process. In this chapter, we’re going to look at the two biggest risks involved in the use of eChecks, and how to reduce them.
The weakest point in securing a paper check is the signature. Easy to forge, and often ignored by busy bank tellers, it’s supposed to be the key authenticator on a document that may authorize the transfer of thousands and sometimes even millions of dollars. At a time when you can’t open a smartphone without giving a fingerprint or log into a Tinder account without a password, it’s a remarkably outdated way of proving that the check has been authorized by the account holder.
It’s also one of the key reasons that paper checks remain the most frequently targeted payment method chosen by fraudsters. According a report by the Association for Financial Professionals, 71 percent of companies that experienced attempted or actual payments fraud in 2015 were victims of check fraud. That represents a fall from 77 percent the year before but only because businesses have continued to move away from the use of paper checks. For fraudsters, checks are common, they’re familiar and they don’t always require a great deal of ingenuity to use. Although some methods may be quite sophisticated and require technical equipment, it’s easy enough to steal a check and forge a signature to cash in on paper check fraud.
Digital checks have made forging signatures a great deal harder through the use of digital signatures. These work in a number of different ways but they’re always more than a scrawled name on a piece of paper -- or even on a screen. They use asymmetric cryptography and typically employ three algorithms:
The algorithm can identify if the signature has been altered and it’s impossible to forge or to steal.
Signature fraud is a real problem for businesses and individuals that use paper checks, but for users of eChecks, it’s not a realistic risk at all.
The same is true of other parts of a check that can be forged. Altering the amount on a check or changing the name of the recipient all rely on the eye of a teller to spot the alteration -- and tellers have so little time that it doesn’t take too much more than courage (and audacity) for a fraudster to be able to push through an altered check. In 2013, “Lisa,” a reader of the consumer magazine Consumerist, found that her bank had processed no fewer than thirty checks, each for just over a thousand dollars each. The payments had emptied more than $32,000 from her account, placing her more than $30,000 overdrawn.
The checks were clearly fake. They had used Lisa’s name and her account number but they did not show her partner’s name on the address information. Despite that missing data, the bank honored each one of the thirty checks.
The bank reimbursed Lisa for her losses and she opened a new account… and was once again the victim of fraud. This time though, the method wasn’t a fraudulent paper check but an eCheck for $180.33 sent to Sprint.
Again, the bank repaid her, but that fraud is worth noting. One advantage that eChecks have over paper checks is that they can’t be altered or stolen or forged or copied. But the information used to create an eCheck can be taken. Like a paper check, an eCheck requires knowledge of the customer’s name and bank account details, both of which can be easily accessed. So while the risk of forgery is much lower for eChecks than it is for paper checks, the risk isn’t zero.
Even businesses that only accept eChecks and not paper checks will need to keep an eye on their accounts and try to spot any unauthorized payments.
eChecks work in exactly the same way as paper checks. The funds are drawn directly from the payer’s bank account, without the use of credit. That means that if the funds aren’t available in the account, and the payer does not have a credit agreement with the bank, the check will be returned to the payee without being honored. The main safety from fraud is in the eCheck itself.
In absolutely anything in life we are provided with plenty of scope for fraud -- exactly the same scope, in fact, as accepting paper checks. If the check bounces, or if the payer stops the check after the product or service has been delivered, the business will find itself out of pocket.
This enables fraudsters to buy a product online and pay with an eCheck, knowing that they don’t have enough funds in the account to cover the cost. If the seller sends the product immediately, the buyer can stop the check and receive an item for free. If the seller waits, the check bounces and while the scam might not have worked, the seller won’t be out of pocket.
The ease of that scam has led some sellers to block receipt of eChecks but that’s not a great idea. Some payment platforms automatically authorize payments according to a list of priorities. First, they attempt to take funds from the buyer’s account on the platform. If the account lacks sufficient funds, they try to charge the user’s credit card. If the user hasn’t attached a credit card, they’ll issue an eCheck drawn on the user’s bank account.
So a seller might receive an eCheck simply because the buyer hasn’t moved enough money from their bank account to the payment platform and hasn’t entered their credit card number. Blocking eChecks would remove the chances of making a legitimate sale.
The solution to this problem is the same as the solution to the problem faced by businesses willing to accept paper checks: don’t deliver the product or service until the check has cleared. This still doesn’t remove the risk of a chargeback faced by every business, including those that take credit card payments, but it does reduce the chances that you’ll be left without payment. There are also many different forms of regtech that are available to companies today to combat this problem.
The need to wait for clearance is a golden rule for any business accepting checks but it does make business a great deal slower, and sellers should let customers know about the delay. Few customers have been known to thank their sellers for taking more time with their delivery, but they will be understanding if they’re informed of the reason.
Even here though, eChecks have a large advantage. A paper check can clear in as little as two days but the bank usually receives the funds from the paying institution within five business days… and that’s once you’ve paid the check into the bank. Because eChecks are transferred immediately and require less processing, the payment can sometimes clear in as little as 24 hours. When a customer is waiting to receive their product, that extra time shaved-off can make all the difference in their degree of satisfaction and the chances that this customer will pass the name of your business to a friend.
The lack of credit associated with eChecks can occasionally be an issue, but this time for buyers. Customers will need to make sure that the money is available in their account when they send the eCheck or risk not only delaying the transaction but also being blacklisted by other suppliers.
No payment method is entirely free of risk. For eChecks, those risks are still much lower than those faced by users of paper checks and also eCheck fraud and checks that bounce or are stopped is much lower. Most importantly is the fact that with eChecks, most cases of fraud issues are relatively easy to block.
One of the biggest advantages of using eChecks is that they’re familiar. Paper checks have been in use in one form or another for more than a millennium, and they’re easy to understand. In effect, they’re little more than an efficient letter sent to the payer’s bank authorizing the sending of a sum of money from one account to another.
So creating an eCheck is straightforward too -- and it is but the process that isn’t entirely as familiar, yet. Users of eChecks won’t be pulling out their checkbooks and reaching for a pen. They’ll be opening a browser and filling in a form. This is what you need to do:
Anyone writing a check needs to make sure that they have enough funds in the account to cover the payment, and this is also important for people sending eChecks. Because the float time is so much shorter, users of eChecks can’t write a check on a Wednesday knowing that they’ll be paid on Friday. The check might be presented at the bank within 24 hours so buyers shouldn’t consider writing an eCheck until they’re certain that they’ll have money in their account at the time they write the check.
eChecks are sometimes offered as a payment option by sellers who will supply the eCheck form. They might also be one of the options on a payment platform like Due or they could be a feature on a bank’s website. Open the feature and you’ll be presented with a form.
That form won’t look like a paper check because paper checks are printed with a great deal of information already included: routing number; account number; check number; the name of the account holder; and the name of the bank.
When writing an eCheck all of that information has to be entered manually.
The name of the account holder and the bank will be straightforward. You might also need to specify whether the funds will be drawn from a savings account or a checking account. The routing number and the account number will be less familiar. The easiest place to find that information is on the bottom of a paper check. The routing number will be nine digits long, and the account number will be between eight and ten digits long. If you’re using your bank’s website to create the eCheck, you should also be able to find both the routing number and the account number on the site.
You’ll need to enter the amount, and you might need to state whether the payment is one-time or recurring, and if recurring, you'll want to add the frequency of the payment. Some platforms might also demand a check number, which should be the number of your next available paper check. Just be sure to void that physical check.
Other than having to enter those pieces of information manually, the rest of the form will be very familiar. If you’re writing an eCheck on a banking site rather than the seller’s own platform, you’ll just need to enter the name of the payee.
Because you’ll be entering so many numbers manually, it’s worth taking a minute to make sure you haven’t made any mistakes or confused the routing number and account numbers. Once you’re sure everything’s accurate, hit submit to start the payment process.
Creating an eCheck then is relatively straightforward. Even if the process isn’t quite as familiar as writing and signing a paper check, it’s not difficult. The fields are self-explanatory and the information is easy to find. It won’t take more than a few minutes, and it’s unlikely to take longer than writing a paper check.
A tougher challenge is knowing when to use an eCheck.
Buyers now have a huge range of different ways to pay for goods and services. From a handful of cash to a wave of an NFC-enabled smartphone, we’ve never been offered more ways to part with our money. Paper checks remain among the most popular methods, even for businesses, in part because they’re familiar and have a ready-built infrastructure. But also in part because they’re simple and relatively secure; it is much easier to steal a credit card number than to alter or forge an eCheck.
And, of course, checks are also cheap. The alternative to a check is usually a credit card company which can charge 3 percent or more as a transaction fee, or a wire transfer that can cost $30. In contrast, checks can look like a reliable and low-cost alternative… and eChecks remove much of the slow speed that can drag down their use.
Payers then should consider using eChecks in the following circumstances:
There’s a reason that insurance companies (and lotteries) usually make their payments with checks; other methods are much more expensive. When you’re moving a large sum of money from one account to another, a check is usually the cheapest option and it’s cheaper than other payment methods that may take a percentage of the transfer amount as a transaction fee.
That doesn’t mean that you can’t also use eChecks to move small amounts, but a small additional transaction fee that might be charged by a digital payment platform will buy a much faster process.
There’s really no reason any more to write payments on pieces of paper. The banking system is entirely computerized. The checks are only going to be scanned and digitized as soon as they reach the bank so you may as well save yourself the paper and both you and the bank some time by doing it all online anyway, and you will care more about your account accuracy than anyone else will. Ask the payee if they can accept an eCheck instead of a physical check.
Making regular payments by check is a pain. Landlords, for example, often demand a pile of dated checks which mean that you have to sit and write them out by hand. Far better to set up a payment process that’s as reliable as an automated transfer and you only need to fill in the online form once.
One easy alternative to making payments that could be made by check or eCheck is to use a digital payment platform. The transfer is almost immediate and the rates, especially for small payments, are always competitive. Sometimes the transfer is even free.
But not everyone keeps funds available in their online accounts. If you find that you don’t have enough funds to make that simple transfer and don’t want to wait to bring money into the account, an eCheck can make a useful alternative.
For payees, the decision to accept an eCheck is even simpler:
eChecks are faster than paper checks. Cash is, of course, immediate and a transfer made through an online payment platform is lightning fast. An eCheck might mean a delay of a day or two, which is fine for most online purchases, and it also works for regular payments like rents. If a businessperson can take a check, they can take an eCheck.
Sometimes the payer pays the transaction fee, and sometimes the payee pays. If you’re paying by eCheck, it has both the cheapest and the most convenient option.
Businesses should put as few obstacles as possible between the customer and the cash desk. It’s possible that a business owner will have customers who don’t have credit cards or who are reluctant to use them online. You might be selling in person to someone who doesn’t have cash or who is demanding a payment on an online platform that they aren’t using. Accepting an eCheck along with all your other payment options makes it easier for the customer to pay the bill and buy your services.
Writing a check is simple and familiar. Writing an eCheck becomes simple and familiar, as well. You merely need to have your bank account number and your routing number. Using an eCheck is not a huge challenge and for either buyers nor sellers, and it’s a valuable addition to the range of payment options.
The earliest surviving check doesn’t look like much. It’s a rectangular slip of gray paper with a trace of red sealing wax in the bottom left corner. Written across the page is an instruction to Mr Morris and Mr Clayton to pay £400 to a Mr Delboe. The slip is signed by Nick Vanacker and dated “London the 16th of February 1659.”
It might be nearly 400 years old but that early check has almost all of the elements that are found in a modern check. The amount (a sizable sum in 1659) is written in numbers and letters. A signature authorizes the payment, the name of the payee is included, and the check is sent to the bank at which the payer holds an account. Morris and Clayton were London-based bankers and scriveners.
Even the shape of the document would be familiar to anyone who owns a checkbook today. The only differences, in fact, would be the absence of an account number, a routing number and a check number… and the copperplate handwriting.
The reason that checks have changed so little since the seventeenth century is that they haven’t needed to change. They’ve always been an efficient way of informing a holder of funds to release some of those funds to someone else. They contain no more information than they need to and all of the information required to complete the transaction.
Even as credit and debit cards became more important, moving payments immediately from the account of a payer to the account of a payee, checks have continued and will continue to have a role.
In the same way that television hasn’t entirely supplanted radio, so paper checks are unlikely to disappear completely in the foreseeable future. But the rise of eChecks does appear to represent the old fashioned checks biggest threat, an even greater than payments made by plastic and greater than the slow take up of NFC payments.
For both businesses and customers, eChecks seem to be the sound future. And, the speed of processing an eCheck has already come down, and it’s likely to come down even further. One way to look at the history of the development of checks is to see it as continual progress towards greater clearance speed and higher processing efficiency. Between 1939 and 1952, the number of checking accounts in the United States doubled to reach 47 million. Around 8 billion checks were written in 1952, a figure that’s less than half of the 20 billion written in 2015. But without a change in the way that checks were processed, that growth would not have been sustainable. In the early fifties, if a check was deposited at a bank that wasn’t used by both the payer and the payee, it would be sorted by hand and tallied at least six times before it cleared. In a branch employing 40 members of staff, at least seven would be needed just to process checks full time.
The adoption of machine readable accounts, routing and check numbers at the bottom of the checks made the work more efficient. The more recent practice of scanning checks when they’re deposited so that the physical check has little use once it’s reached the bank and no longer has to be transported has made the process easier and faster still.
The removal of the whole paper stage of the check process was really inevitable. Why write the check details down, when everyone now has a computer terminal in their pockets and can key in those details directly?
The challenge to that growth has always been a mixture of tradition, legislation and technology. Millennials are changing all of that -- quickly. People are often reluctant to change a method that they feel works for them and may be more willing to spend time writing checks by hand than learn a new way of creating them. Legislation is changing too. The Uniform Electronics Transaction Act and the Electronic Signatures in Global and National Commerce Act (ESIGN) have both gone a long way towards codifying the acceptance of digital signatures and providing a framework for the digital processing of checks. At the same time, the increased sophistication of public key cryptography, the commercial use of digital signatures, and secure data networks have all helped to make eChecks safer and more reliable.
The result is that recent years have seen a merging of the processes used to send eChecks and those used by automated clearing houses. Once the writing of a check moved away from the check book and onto the screen the name itself began to look like an anachronism. Send or receive an eCheck and you are in effect making an electronic funds transfer.
That merging is likely to continue until the next generation comes to pay their rent… and wonders what the “check” part of an “eCheck” refers to.
An electronic check sounds like a contradiction in terms. A check is a slip of paper, torn from a long, thin book, that orders the bank to give a sum of money to the person named on the top line. As a form of payment, only cash can be easier to understand.
But in an age when cash is rarely used and even books are read on screens, the use of paper feels outdated. In fact, checks have long used some form of digitization so a move from paper input to screen typing has always seemed inevitable. Now that the shift is largely complete, both businesses and customers can enjoy a method of payment that is simple, safe, cheap and secure.
eChecks aren’t the fastest form of payment. A transfer from a digital payment platform will be faster. The recent rise of peer-to-peer payment services have eaten further into the need to write checks for small amounts but for people who need to make regular payments or want to accept payments online, a digital version of a check remains one useful option.
Buyers can use them when they don’t want to show their credit card number. Businesses can accept them when they don’t want to pay the credit card company’s fees. Stores both online and offline can offer them as an option to customers and benefit from the speed of digital transactions, the low cost of a written check and the familiarity of a method that has been tried and used for centuries.
The story of Albert Haddock writing a check on the side of a cow is resonant and remembered because it’s so ridiculous. But if you had told A.P. Herbert in 1930 that less than a hundred years later, people would be writing their checks with their fingers on glass screens that they keep in their pockets, sending them through the air, and receiving their payments within a day or two, he might well have thought writing a check on the side of a cow sounded a lot more believable.